YOU ASK:

What do you do if you have a policy with a company that has declared bankruptcy?

WE ANSWER:

The good news is that not all of your money is lost. The bad news is that there are minimum limits as to how much you can claim.

There is usually a guaranty association and insurance commission formed in each state whose responsibility is to first help the staggering insurance company get back on its feet. When this is not possible, the guaranty fund comes in to pay for claims up to a certain limit.

So, to put it simply, insurance companies are also insured, up to a specified limit. These limits vary from state to state and from type of insurance - there are individual limits for life insurance, health, property and casualty.

This protection is granted automatically to all who buy an insurance policy. This includes life, annuities, health, and even property and casualty. You have the option of transferring your policy to another insurance company. You can also cash in the surrender value or wait for a claim to come up.

The important thing to remember is that the benefits that were stated in the contract will be fulfilled. If not by your original life insurance company, then it will be paid by the guaranty fund or by another insurance company.

Upon the insolvency of your insurance company, it is required to inform you about this and what steps you can take to protect your interests. If you also hear about the insurance company's insolvency, you can call the state insurance commission to ask for instructions as to what you can do to claim your policy.

The important thing is that you have done your responsibility in ensuring that the policy stays effective by paying the premiums regularly. The guaranty association would be the one responsible for ensuring that your claims are paid or that you have continued insurance cover even with the bankruptcy of your insurance company.

You may wonder where the money to pay for claims. The funds are formed by contributions from member companies. All insurance companies are required to become a member and contribute to the guaranty fund.

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