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Northern Indiana
BBB Business Tips for Ensuring Your Business’ Insurance
July 13, 2012


By Paula Fleming, BBB

Smart business owners have the proper insurance to protect their company and its assets. But what happens if your insurance company goes under? What does that mean for your business? What are the liabilities? Better Business Bureau offers answers to the following frequently asked questions on what happens to a policyholder’s coverage if their insurance company goes out of business:

What happens when an insurance company becomes financially troubled, fails and is no longer able to uphold its end of the bargain? That's when the state property and casualty guaranty fund system - a system few know much about - steps in, according to The National Conference of Insurance Guaranty Funds (NCIGF). Put simply, guaranty funds provide an essential safety net for policyholders, one that meets the needs of those least able to deal with losses should their insurance company fail.

Will I still have insurance coverage? Insurance guaranty associations have been established in every state and are designed to protect policy-holders if their insurance company becomes insolvent. An insurance company must be a member of the guaranty association for every state in which it does business. If a company becomes insolvent, the insurance guaranty association ensures continuation of
coverage, either by taking on policies directly or by transferring the policies to a financially stable insurer.

What about any claims? The laws vary from state to state. However, most life and health guaranty associations provide coverage at limits of at least $300,000 for life insurance death benefits, $100,000 for life insurance cash surrender values, $100,000 for annuity withdrawal or payment values, and $100,000 for health insurance benefits, according to NCIGF.

Most property/casualty guaranty associations provide coverage on a per-claim basis for personal injury and property damages up to $300,000 and provide full benefit coverage for workers’ compensation benefits.

Where does that money come from to cover claims? If an insurance
company goes bankrupt, any amount of coverage that cannot be attained from the company’s liquidation is borne by other insurers in the state according to the amount in premiums those insurers earn from that state.

How can I be sure my insurance company is safe? There’s no way to be absolutely sure that an insurance company is healthy. To help business owners evaluate their insurer, there are several businesses that rate insurance companies on their financial strength and creditworthiness, including Moody's, Standard and Poor's and A.M. Best. Business owners can also confirm with their state insurance department that the company is licensed to do business in the state.

For more BBB advice on insurance or other financial planning issues, visit bbb.org.