Maintaining ample life insurance is an integral element of your overall strategy to provide long-term financial security to your loved ones. It’s a concern of many life insurance policy holders that their life insurance companies may go bankrupt. They pay in, year after year; and as the time comes nearer that these investments may pay off (as it does for all of us) they begin to consider, more and more, scenarios like this that could disrupt their final financial planning. What would happen if your life insurance company went bankrupt? Is there some life insurance security that you are covered by? Or, would it be a total loss of investment?
What happens when a life insurance company goes bankrupt?
Here’s how it goes (in a nutshell): When a life insurance company files for bankruptcy, it enters into a legal process called rehabilitation. During this phase, the Insurance Commission will work with the company, and attempt in nearly any way possible, to get that company back on solid financial ground, and thereby avoid insolvency. If it is determined that the company cannot be rehabilitated, then a court will order the company to be liquidated. If you have any questions, you can check out the life protect page at Suncorps new site today.
So, are you covered if your life insurance company goes into bankruptcy?
Mostly, the answer is yes; you are covered. This is when something called the Guaranty Association kicks into action and covers policy claims. Each state has its own Central Guarantee Fund to draw from if an insurance provider goes bankrupt. They attempt to transfer policies to other life insurance providers. In any case, whether transfer is possible or not, they keep coverage going and life seems good. Here’s the catch though: Every state has its own parameters for coverage limits. A common example would be something like:
The coverage maximum for a Death Benefit may be $300,000 per policy held;
The Cash Surrender maximum payout may be $100,000 per policy held;
Because the maximum payout parameters are gauged on a per-policy basis, some policy investors claim that it’s good to diversify and hold multiple policies. This of course would be heavily dependent on your particular financial, and health situations. In some cases, this could certainly not be a gainful scenario.
If you would like to learn more about the specific parameters set by your state, then check with the National Organization of Life and Health Insurance Guaranty Associations. Here’s their website if you like. They’ll have all the info you need to make the best decisions.
The likelihood of your life insurance company going bankrupt is slight. There are State Regulators in the insurance industry that are constantly monitoring the financial fortitude of insurance providers. Their goal is to step in early, gain control of any potentially problematic financial situation, before it ever becomes serious, and rectify it. Still though, it certainly never hurts to do a little research as to the financial strength, and established longevity, of any life insurance company you may be considering for business.
In the long run, don’t worry too much about your insurance life insurance company going bankrupt. It’s probably not going to happen any time soon.