Safety - Keeping Your Principal Safe

Guaranty Associations

Guaranty Associations were created by state legislatures to protect life, annuity and health insurance policyholders and beneficiaries of an insolvent insurance company. All insurance companies licensed to write life or health insurance or annuities in a state are required, as a condition of doing business in the state, to be members of the guaranty association. If a member company becomes insolvent, money to continue coverage or pay claims is obtained through assessments of other insurance companies writing the same kinds of insurance as the insolvent company.

What Do Guaranty Associations Cover (as it relates to annuities)

They do not cover any portion of a policy in which investment risk is borne by the individual, such as a variable annuity, and they may or may not cover guaranteed investment contracts (a/k/a GICs) or unallocated annuity contracts purchased by retirement plans as a funding vehicle for participants. Every state (plus Puerto Rico) provides $100,000 in withdrawal and guaranteed cash values for all other annuities (California covers 80% of annuity value to a maximum payout of $250,000 per carrier). Other states may have higher limits:

Guaranty associations limit protection to residents of their own state. You are covered if the failed insurer was licensed in your state of residence. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the insolvent insurer's state of domicile. Individuals should check with their resident state for current limits or changes.

If The Insurance Company Fails

Insurance companies are regulated by the state governments of the individual states where they are licensed. When a state determines that an insurer is insolvent the state guaranty associations are activated. When there is a shortfall of funds needed to meet the obligations to policyholders, the remaining member insurers doing business in a particular state are assessed a share of the amount required to meet the claims of resident policyholders. The amount member insurers are assessed is based on the amount of premiums they collect in that state on the kind of business for which benefits are required. In 1983 the state guaranty associations founded the National Organization of Life and Health Insurance Guaranty Associations ( If the insolvency affects three or more states NOLHGA coordinates the development of a plan to protect policyholders. Every holder of a covered life insurance, annuity, or non-cancelable health insurance policy who has made the required premium payments has been given the opportunity to have the policy assumed by another healthy carrier or had the covered portions of their policies fulfilled by their guaranty association itself from

So, How Safe Is My Money?

Annuity guaranteed cash values up to state guaranty funds limits - usually $100,000 - have been protected when an insurer fails. Is an annuity as safe as an FDIC insured bank account? No, because federally insured is by definition superior to a state guaranty. But the real question is not whether FDIC is safe; it is whether money inside a fixed annuity is also safe. From 1994 through 2008 there were 94 bank failures. CD deposits within federal deposit insurance limits were protected; the same did not hold true for account balances over the insurance limits in many of these banks and not every uninsured account was made whole.

During the same period customers of a little over a dozen interstate carriers that offered annuities received cash from state guarantee funds. Every state guaranty fund covered at least $100,000 of cash value in the event of carrier insolvency.

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