What happens if My insurance company fails?
Insurance companies are regulated by the state governments of the individual states where they are licensed. When a state determines that an insurer is insolvent the state guaranty associations are activated.
When there is a shortfall of funds needed to meet the obligations to policyholders, the remaining member insurers doing business in a particular state are assessed a share of the amount required to meet the claims of resident policyholders. The amount member insurers are assessed is based on the amount of premiums they collect in that state on the kind of business for which benefits are required.
In 1983 the state guaranty associations founded the National Organization of Life and Health Insurance Guaranty Associations (www.nolhga.com). If the insolvency affects three or more states NOHLGA coordinates the development of a plan to protect policyholders.
Death Vs. Intensive Care
When FDIC steps in and takes over a bank you can order the coffin and set the time for the wake because the bank is not coming back to life. It is dead. When state insurance regulators step in they will often attempt rehabilitation of the insurer and there are insurers that have entered state receivership, been rehabilitated, and emerged from state care.
Since 2001 hundreds of banks have been taken over by FDIC and liquidated. During that same time period 9 annuity carriers have been placed under state control and three have been liquidated.