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What Happens if My Insurance Company Goes Bankrupt?

Written by Aaron Pinkston, Fri, Nov 20 2009

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The first thing to remember is that all companies in the US and Canada are required to keep adequate reserves to pay their claims separate from their operating account. Each department of insurance set the reserve requirements. It could be different, but they tend to agree with each other, which means you have more sets of eyes looking after your insurance policy, the more states and provinces your company does business in.

First line of defense

Now, just because a company might go under doesn’t affect the money they set aside to pay your claim. Reserves are kept separate from operating money.

If a company fails or is about to fail, they can usually sell their business off to another company. Companies buy each other all the time for various reasons, and if one is about to go out of business, it’s usually being sold for a discount. The new business is responsible for upholding your contract.

Second line of defense

If that is not an option, each state in the US has its own guarantee association which covers each insurance contract up to a specified value (usually $300,000, but it varies some between states and types of contracts). That may not seem like a lot, but it’s a better guarantee than you’ll get on a bank deposit.

Canadian insurers created a similar system called that covers all territories. The policy protection limits are either 85% of your original policy or 100% up to $100,000, depending on the type of insurance you have. You can find out more at Assuris.

What about company quality?

Of course company quality matters, but because of the policy protection limits, it matters even more on larger policies. Fortunately, Clarifinancial makes finding competitive, quality companies easy.

Long story short, they thought about all this a long time ago, and people are lucky that the insurance commissioners and ombudsman lean towards the conservative side.

For more information, look up your state’s department of insurance here: http://naic.org/state_web_map.htm. In Canada, A list of links to your provincial department of life and health insurance may be found here: http://www.olhi.ca/useful_links.html.