What happens if my life insurance company goes bankrupt?
What happens if your life insurance company goes bankrupt is that state guaranty associations will either take over the company policies or assign the policies to another life insurance company. You can choose to stay with the new company that takes over your bankrupt insurance company, or you can find another company.
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Michelle Robbins
Licensed Insurance Agent
Michelle Robbins has been a licensed insurance agent for over 13 years. Her career began in the real estate industry, supporting local realtors with title Insurance. After several years, Michelle shifted to real estate home warranty insurance, where she managed a territory of over 100 miles of real estate professionals. Later, Agent Robbins obtained more licensing and experience serving families a...
Licensed Insurance Agent
UPDATED: Jun 12, 2023
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Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Jun 12, 2023
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- There are multiple safeguards in place to protect consumers’ life insurance policies
- The state guaranty association will try to fix the company’s financial problems before liquidating it
- You’ll continue paying your premiums while policies get reassigned
Insurance company bankruptcies are rare because of the multiple safeguards in place to prevent them. However, when they happen, customers often have many questions.
What will happen to their life insurance policies? Do they need to shop for new permanent or term life insurance quotes? Generally, life insurance companies that go bankrupt get taken over by another company or the state.
You can choose to remain with the new company that takes over your bankrupt insurance company, or you can shop around for a new policy. Read on to learn more about what happens in the unfortunate event your life insurance company goes bankrupt.
What happens if your life insurance company goes bankrupt?
If your life insurance company is going under, it’s not a cause for panic. The state guaranty association and the fund will take over and determine what happens to the insurance company.
We’ve outlined the possible outcomes below to inform you about what will happen to your insurance company.
Life Insurance Company Gets Taken Over by Another Company
In most cases, the bankrupt life insurance company will transfer to another, larger company. The new insurance company will take over all the policies of the old company.
Generally, you’ll continue paying for your policies as usual. Also, the new insurance company will inform you if they make any critical changes, such as an updated insurance portal to make payments or any coverage updates.
Life Insurance Company Gets Taken Over by the State
If the state guaranty association doesn’t immediately transfer the policies to another insurance company, it will maintain them until it finds a permanent solution.
The state may try to rescue the bankrupt insurance company before transferring policies to another company. Either way, the state will protect your life insurance policy, so you don’t lose coverage.
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What safeguards are in place to prevent insurance company bankruptcy?
Several safeguards are in place to prevent an insurance company from going bankrupt, so it’s rare for insurance companies to collapse. These safeguards include:
- Cash reserves. All states require life insurance companies to carry cash reserves. If an emergency should happen, the life insurance company should be able to pay out death benefits without going bankrupt.
- Reinsurance. Insurance companies with policies worth more than 10% of their net worth must get reinsurance. Reinsurance helps them pay out claims if there is a rise in death benefit payouts.
- Guaranty associations. All life insurance companies must join guaranty associations in their state. Guaranty associations will help if an insurance company goes bankrupt.
With all these safeguards, it’s unlikely that your insurance company will go bankrupt. However, if they do, the state will still protect you.
What to Do When Your Life Insurance Company Goes Bankrupt
When a liquidated life insurance company goes bankrupt, you have two options. You can choose to stay with whatever new company takes over the liquidated insurance company if the new company offers the same coverages and benefits at the same cost, or you can shop for a new policy.
If your rates and coverage stay the same, staying with the new company may be worthwhile. However, if you feel more comfortable with a life insurance company of your choosing, you may wish to shop around and get a new permanent life or term life insurance policy.
How can I avoid choosing a company that may go out of business?
You should always look at a company’s financial ratings to avoid a potentially bankrupt life insurance company. If the life insurance company has strong financial ratings, it’s unlikely to go bankrupt soon.
However, if a company has poor financial ratings or performance, it’s best to avoid that company. Some rating agencies you can check for financial ratings include A.M. Best, Moody’s, and Standard & Poor’s. These three companies give an in-depth look into a company’s financial health.
In addition to financial ratings, you should also consider the customer reviews of a company, its rates, and policy offerings. These factors will help you decide if a company is right for you.
The Final Word on Bankrupt Life Insurance Companies
It’s rare for a life insurance company to go bankrupt, but rest assured that if your life insurance company goes bankrupt, there are multiple safeguards to protect consumers. Generally, the state will step in with intervention strategies to deal with the company to ensure policies get handled correctly.
Use our free rate comparison tool if you’re worried your life insurance company may go bankrupt and want to shop around for a new insurance company. It will help you find your area’s most affordable life insurance policies.
Frequently Asked Questions
What happens if my life insurance company goes bankrupt?
If your life insurance company goes bankrupt, certain steps are usually taken to protect policyholders and ensure the continuation of coverage.
Will I lose my life insurance coverage if the company goes bankrupt?
In most cases, you will not lose your life insurance coverage if your insurance company goes bankrupt. The state insurance guaranty association typically steps in to provide protection. This association is established in each state to protect policyholders in the event of an insurer’s insolvency.
What is a state insurance guaranty association?
A state insurance guaranty association is an organization that provides protection and support to policyholders if an insurance company becomes insolvent. These associations are created and regulated by state laws and are funded by insurance companies operating within the state.
How does a state insurance guaranty association protect policyholders?
When an insurance company goes bankrupt, the state insurance guaranty association may step in to continue coverage and honor policyholder claims up to certain limits set by state law. The association may transfer policies to a financially stable insurance company or provide benefits directly to policyholders.
What are the coverage limits provided by state insurance guaranty associations?
The coverage limits provided by state insurance guaranty associations vary by state. Generally, they are designed to provide a level of protection for policyholders, but they may have caps on benefits. It’s important to check the specific limits set by your state’s guaranty association to understand the extent of protection available to you.
Your life insurance quotes are always free.
Secured with SHA-256 Encryption
Michelle Robbins
Licensed Insurance Agent
Michelle Robbins has been a licensed insurance agent for over 13 years. Her career began in the real estate industry, supporting local realtors with title Insurance. After several years, Michelle shifted to real estate home warranty insurance, where she managed a territory of over 100 miles of real estate professionals. Later, Agent Robbins obtained more licensing and experience serving families a...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.