Posted by Michael Collins
You're reading a newspaper, scanning through the headlines, when one story grabs your attention: Your insurance company is going bankrupt. Great. Now what does this mean for you?
Try not to lose too much sleep. Almost every state has a "guaranty association" or "guaranty fund" that handles insurance bankruptcies much like the FDIC handles bank failures. Guaranty funds pay your claims up to a certain limit if your insurer becomes insolvent. In most states, the maximum aggregate benefit for all claims is $300,000 for home, auto, and life insurance policies. That level of coverage will generally cover the average consumer's insurance claim. In most cases, you are not burdened with paperwork if your insurer has gone bust.
"The consumer doesn't have to do anything to be protected," says Peter Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA). "They don't have to apply for protection. They will get it automatically."
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