Annuity customers are protected by nonprofit insurance guaranty associations at the state level. These state guaranty associations will pay claimants in the unlikely event that an insurance company becomes insolvent and cannot pay. Coverage varies by state, but the typical statutory limit is $250,000 of an annuity contract.
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State guaranty associations act as a safety net to protect policyholders if the insurance company that issued an annuity or insurance policy cannot meet its financial obligations.
This protection works similarly to how the Federal Deposit Insurance Corporation (FDIC) protects bank funds up to a maximum amount in the event of insolvency. But unlike the FDIC, insurance guaranty associations are nonprofit organizations and — since insurance companies are not federally regulated — operate at the state level.
All 50 states, plus the District of Columbia and Puerto Rico, have their own insurance guaranty associations. Any company selling insurance policies or annuities is required to belong to the state guaranty association in each state where they do business.
“State life and health guaranty associations are established in all 50 states to provide financial protection for their state residents from life and health insurance companies going insolvent. They cover the life and health insurance products that are guaranteed such as life insurance, annuities and health insurance,” Alan Shortell, Administrator at Life Insurance Company Guaranty Corporation of New York, told Annuity.org.
Most states operate at least two separate guaranty associations — one for covering life and health insurance products and a distinct entity for property and casualty products.
Insurance products covered by state guaranty associations include:
The state’s insurance commissioner and an appointed board of directors typically govern state guaranty associations.
Most people are familiar with how the FDIC protects bank deposits in the event the institution fails. State guaranty associations provide similar protection to insurance companies. This provides an additional backstop for your annuity payments and life insurance death benefits.
Brandon Renfro, Ph.D., CFP®, RICP®, EA
Co-Owner of Belonging Wealth Management
John Stevenson, CFF Owner and Advisor at Stevenson Retirement SolutionsMany of my clients invest in 3-6 different annuities across multiple carriers to stay under the benefit threshold, spreading out their risk in case one of the companies goes insolvent.
John Stevenson, a Certified Financial Fiduciary®️, specializes in securing retirements with tax-free accounts. With a focus on guaranteed retirement, he’s ensured none of his clients suffer from market fluctuations. As a renowned educator and podcast host, John empowers thousands weekly, sharing his expertise in minimizing taxes and protecting against financial downturns.
Guaranty associations work by collecting funds from participating insurance companies and putting those funds to use when a participating agency can no longer meet its obligations. The roles and responsibilities of guaranty associations include protecting policyholders, administering state guaranty funds and regulating insurance companies.
State guaranty associations work in tandem with state insurance departments to ensure the solvency of licensed insurers and provide protection if an insurer fails.
