What happens when my insurance company goes out of business?
In most cases, a guaranty association will continue coverage as long as premiums are paid or cash value exists. It may do this directly, or, most often, it may transfer the policy to another insurance company. In any case, policyholders should continue making premium payments to keep their coverage in force.
How is policy coverage determined?
Coverage is determined by New Jersey law and policy language at the time the guaranty association is activated to provide protection (when the member insurer is found to be insolvent and ordered liquidated by a court). In light of the potential for changes in the law and the dramatic variations in policy language, the association cannot make statements regarding coverage of a specific policy unless it is a policy with a company for which the association has been activated to provide protection.
What is the New Jersey Life & Health Insurance Guaranty Association?
The New Jersey Life & Health Insurance Guaranty Association was created by the New Jersey legislature in 1992 (with an effective date of January 1, 1991) to protect state residents who are policyholders and beneficiaries of policies issued by an insolvent insurance company, up to specified limits. All insurance companies (with limited exceptions) licensed to write life and health insurance or annuities in New Jersey 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 and pay claims is obtained through assessments of the guaranty association's other member insurance companies writing the same line or lines of insurance as the insolvent company. All 50 states, the District of Columbia, and Puerto Rico have life and health insurance guaranty associations.
Life and health insurance guaranty associations cover individual policyholders and their beneficiaries; typically, persons protected by certificates of insurance issued under policies of group life or group health insurance are also covered. Limits on benefits and coverage are established by state law. For more information about coverage, see the questions below or contact the guaranty association or state insurance department.
If I move to another state after purchasing a policy, will I still have guaranty association coverage? If so, who will provide it?
If you purchased a policy from a company that is a member insurer of the state guaranty association where you reside, you will have coverage. Guaranty association protection is generally provided by the association in your state of residence at the date of the liquidation order regardless of where your policy was purchased. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the state where the failed company was domiciled.
Generally, direct individual or direct group life and health insurance policies as well as individual annuity contracts issued by the guaranty association's member insurers are covered by the association. Such coverage is limited by the terms of the New Jersey Life & Health Insurance Guaranty Association Act (a link to the Act can be found in the Additional Info section).
Types of property and casualty insurance--such as automobile, homeowners, professional liability, medical malpractice, etc.--may be protected by the New Jersey Property-Liability Insurance Guaranty Association. That guaranty association can be reached at:
New Jersey Property-Liability Insurance Guaranty Association
222 Mount Airy Road
Basking Ridge, NJ 07920
Are all policies fully protected?
Not always. If your insurance company fails, the maximum amount of protection provided by the New Jersey guaranty association, for each type of policy, no matter how many of that type of policy you bought from your company, is, with respect to any one insured individual:
Life Insurance Death Benefit: $500,000
Life Insurance Cash Surrender: $100,000
Annuity Benefits (Cash Surrender Value): $100,000
Annuity Benefits (Present Value): $500,000
Health Insurance Claims: No limit
What is the difference between cash surrender value and present value with respect to annuity benefits?
Deferred annuities, (those annuities which are in the accumulation phase and earn interest at some declared rate for a period of years) and which may be surrendered to the insurance company for cash subject to any applicable surrender charges, have a cash surrender value. The $100,000 limit is applicable with respect to these deferred annuities. Annuity benefits are subject to the higher $500,000 limit when they are in the payout or “on-benefit” stage, such as when you have elected to take a monthly payment stream from an annuity upon retirement.
For example, if I own three annuities worth $100,000 each and my insurance company fails, how much is protected?
As discussed above, it would depend upon the type(s) of annuities you owned. The total protection per owner is $500,000 for all annuity contracts, but only $100,000 may represent cash surrender value i.e. be in the form of deferred annuities. As a result, if an individual owned three $100,000 annuities with the same insolvent insurance company, and all three were deferred annuities, the individual would have total guaranty association coverage of only $100,000. The value in excess of this statutory coverage limit would be eligible for submission as a policyholder claim in the receivership, and the annuity holder may receive distributions as the company's assets are liquidated by the receiver.
My spouse and I each have our own deferred annuity contract worth $150,000 from the same insurer. How much is protected if the insurer becomes insolvent?
$100,000 for each contract, or $200,000 in total for you and your spouse.
My spouse and I have purchased multiple life insurance and annuity contracts from the same insurer, with combined limits of $2,000,000. How much is protected if the insurer becomes insolvent?
Coverage depends on the policy types and amounts in the contracts. However, regardless of the number of policies and contracts, the Guaranty Association’s maximum aggregate protection is $500,000 with respect to any one individual for life insurance and annuity benefits.
My spouse and I are joint owners of a deferred annuity contract worth $300,000 from one insurer. How much is protected if the insurer becomes insolvent?
What will happen to my insurance coverage if the guaranty association becomes liable for my policy?
Protection can be provided in one of several different ways. For example, a financially sound insurer may take over the troubled company's policies and assume the responsibility for continuing coverage and paying covered claims. The New Jersey guaranty association may provide coverage directly by continuing the insurer's policies or issuing replacement policies with the guaranty association; in some situations, the New Jersey guaranty association may work with other state guaranty associations to develop an overall plan to provide protection for the failed insurer's policyholders. The amount of protection provided and when you receive it may depend on the specific arrangement worked out for handling the failed insurer's obligations.
When might the guaranty association provide benefits?
If your insurer is no longer able to fulfill its obligations, ongoing benefit payments to you may be reduced or suspended by the courts in order to sort out the affairs of the financially troubled insurer. As a result, you may have to wait many months before the guaranty association is activated to provide benefit payments. Hardship provisions may be instituted by the receiver to continue benefit payments.
What is NOT protected by the guaranty association?
Policies with insurers not licensed to do business in New Jersey; Health Maintenance Organization (HMO) contracts; policy benefits the insurer does not guarantee or for which the policyholder bears the risk (such as the non-guaranteed portion of a variable life insurance or annuity contract); self-insured employer plans; stop-loss policies; interest rate yields that exceed an average rate; and fraternal benefit society insurance certificates. Certain, less commonly known insurance policies and arrangements not listed here are also not protected. If you are unsure about whether your policy is excluded from guaranty association protection, you should review the current Guaranty Association Act (a link to the Act can be found in the Additional Information section).
How will I know if my life or health insurance company has failed or is unable to fulfill its obligations to its policyholders?
You will receive a notification from the receiver and/or the New Jersey guaranty association if your insurance company is found to be insolvent and ordered liquidated.
How can I find out if my company is licensed in New Jersey?
Contact the New Jersey Department of Banking & Insurance. The department maintains complete and current records of all insurance companies licensed to do business in the state.
Why hasn't my agent or company told me more about the New Jersey Life & Health Insurance Guaranty Association?
The law prohibits insurance agents and companies from using the New Jersey guaranty association in any advertising. The guaranty association is not and should not be a substitute for your prudent selection of an insurance company that is well managed and financially stable. Agents are prohibited by statute from using this Web site or the existence of the guaranty association as an inducement to purchase insurance. For more information, see our Advertising Prohibition.
Where can I get advice on purchasing life, health, or annuity products?
The guaranty association does not provide financial advice or comment on the financial condition of any company. You can obtain advice from captive insurance agents, independent insurance brokers, and rating agencies. Generally, captive agents sell products from a single insurer. Brokers usually can sell the products of multiple insurers.
Rating agencies assign comparative ratings to insurers based on various criteria. Most rating agencies are paid by the insurer to do an assessment examination and to issue a rating. This is the case with the largest and most well-known agencies, such as Standard and Poor’s, A. M. Best, Moody's, and Fitch Ratings. Since the companies pay to have themselves rated, those ratings are generally available to the public without charge. One rating agency does not accept payment from the insurer being rated—TheStreet.com. You must pay to obtain its rating results.
You may also wish to contact your state insurance department regarding information on a company.
No. The guaranty association is a private entity, with its membership made up of all the life and health insurers licensed in the state (in fact, under state law an insurer must be a member of the association to be licensed to do business). The association was created by the legislature to serve as a safety net (subject to statutory limits) for residents should their life or health insurer fail. By creating the association, the legislature was able to ensure continued coverage to residents affected by their insurer’s failure. The association does work in cooperation with the Insurance Department in fulfilling its role of protecting residents whose insurance company is being liquidated.
How can I determine the financial soundness of my insurance company?
Consumers can contact the Department of Banking and Insurance (609-292-7272) to determine if an insurance company is licensed to write business in New Jersey. Consumers can also check the financial strength ratings of the company, which are issued by various ratings agencies (see “Where can I get advice on purchasing life, health, or annuity products?” above).
If my company is in the process of rehabilitation/conservation and I have an emergency and need to withdraw monies from my annuity, what is the process?
Surrenders and loans may be allowed on a case-by-case basis for genuine hardship situations upon written application to the Receiver. Hardship circumstances and procedures will differ from company to company and (after liquidation) from guaranty association to guaranty association. Examples of hardship cases may include (1) terminal illness or permanent disability; (2) substantial medical expenses not covered by medical insurance; (3) financial difficulties resulting in inability to pay for essential life support needs like food and shelter; (4) imminent removal from a hospital, nursing home, or other medical care facility due to inability to pay; (5) imminent bankruptcy; and (6) immediate need for college tuition payments for a dependent child.
Is long-term-care insurance covered by the guaranty association?
Yes, long-term-care insurance is typically considered health insurance and covered by the guaranty association.
Are variable annuities covered by the guaranty association?
In general, a variable annuity contract with general account guarantees will be eligible for guaranty association coverage, subject to applicable limits and exclusions on coverage. However, specific questions regarding coverage will be determined by the applicable guaranty association based on the terms of the contract, other relevant facts, and the guaranty association law in effect at the time of liquidation.
If my company is liquidated, do I have to file a claim with the association?
If your insurance company is liquidated, you will receive a notice from the court-appointed Receiver (typically the Insurance Commissioner of the company’s state of domicile), who will oversee the liquidation of the company and inform you of any new claims procedures. There may be no change in the claims submission process—guaranty associations, working with the Receiver, sometimes continue processing claims using the liquidated company’s existing claims staff if that will maximize the speed and efficiency with which claims are processed. In other cases, the associations process the claims themselves or use an independent processing company, known as a third-party administrator, to process claims. In any event, you will be notified of the ongoing claims process. If you wish to continue coverage, you must continue to pay the premium required by your policy.
Should I continue to pay my premiums?
Yes. If you are paying premiums to your company and wish to keep your coverage in place, you must continue to do so—those premiums go to the guaranty association providing you continuing coverage. If you stop paying premiums, your insurance coverage may be terminated.
Is my company covered by the guaranty association?
The guaranty association provides coverage to owners of covered policies issued by member insurers (life, health, and annuity insurers licensed to write business in the state). To determine if a company is licensed to write business in New Jersey, you may call the Department of Banking and Insurance at 609-292-7272. The Department maintains complete and current records of all insurance companies licensed to do business in New Jersey. Information about companies licensed to write insurance in New Jersey may also be obtained from the Department’s website.
What happens if the benefits promised in my policy are greater than the coverage limits provided by the guaranty association?
Guaranty associations, in conjunction with the Receiver, may be able to negotiate a transfer of a company’s policies, up to the amount of the guaranty association benefit limits, to a financially sound insurer. If an association administers claims against the policy and the benefit limits are reached, any claim in excess of that limit may be submitted as a policyholder-level claim against the estate of the failed insurance company, and the contract holder may receive distributions as the company’s assets are liquidated by the Receiver.
How can I locate an insurance policy or an annuity contract owned by a deceased family member or close relationship?
If you believe that a deceased loved one may have purchased life insurance coverage but cannot find the policy or annuity contract, New Jersey consumers are encouraged to use the Life Insurance Policy Locator Service available at the New Jersey Department of Banking & Insurance website.
How can I locate a lost or misplaced life insurance policy?
We encourage you to follow the missing policy tips suggested by the American Council of Life Insurers.
NOTE: This information is not intended as legal advice, and no liability is assumed in connection with its use. The applicable state guaranty association statute is the controlling authority, regardless of any information presented on this site. Users should seek advice from a qualified attorney and should not rely on this compilation when considering any questions relating to guaranty association coverage.