What if your insurance company kicks the bucket before you do?
The odds of this occurring are very slim.
During the past four decades, only 426 Life and Health carriers have failed (an average of 10 a year). Despite the recession, only eight insurers went under between 2008 and 2012.
Since the Great Depression, policyholders of bankrupt insurance companies have recovered an average of 95 cents on the dollar.
Under federal bankruptcy law, failing Life and Health insurers go into a tightly regulated three-tiered resolution program run by their home state's guaranty association (GA). This guaranty association is an insolvency "safety net" financed by insurance companies that operates in much the same way that the FDIC guarantees banking accounts. (Separate GAs also protect Homeowners and Auto insurance customers.)
What's more, because Life benefits are not payable upon demand in the same way as bank deposits, policyholders don't have to worry about a "run" on their insurance company.
Individual Life policies are usually guaranteed up to $300,000 (cash values to $100,000) and annuities up to $250,000, although the amounts vary.
If your Life insurance company does go under, we offer these recommendations:
- Keep paying your premiums to avoid the risk of terminating coverage or (for Whole Life) reducing its cash value.
- Don't surrender a Whole Life policy for quick cash at the cost of giving up its full value to your beneficiary(ies).
- Ask us for help in requesting a "hardship disbursement" from the insurance company (we have detailed information on your policy and can help you draft a letter that should help you get a positive and prompt response.
As always, our agency stands ready to serve you.