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 Kentucky 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 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.
Who is protected?
Individual owners of: a) life insurance policies and accident and health insurance policies (including individual certificate owners under group policies), b) individual owners of annuity contracts (except payees rather than the owners of structured settlement annuities are protected) and c) the beneficiaries, assignees or payees of the persons set forth in (1) and (2), subject, however, to the residency requirements of the Act.
NOTE: Under a) and b) it is the owners, not the insured, who are protected. While customarily the owner and insured are the same person, it is not uncommon for the owner to be a different person, i.e. husband owns a policy insuring his wife.
What are the residency requirements?
Owners as described in Question 3 above must be residents of Kentucky on the date the failed member insurer is declared insolvent. Beneficiaries, assignees and payees of those owners are protected by KLHIGA wherever they may reside.
Non-resident owners must look to the guaranty association located in the state where they reside. The Act provides a safety net whereby KLHIGA will protect non-resident owners in the event they are not eligible for protection by the association in the state of residency and the failed insurance company is domiciled in Kentucky.
What policies and contracts are covered?
Generally, individual life and health insurance policies and annuity contracts (including certificates issued under group policies and contracts) are covered. Among exceptions to coverage under the Act, the most notable pertain to portions of policies or contracts not guaranteed by the insurer or under which the risk is borne by the policy or contract owner: any portion of a policy or contract issued to a plan or program of an employer, association or other person to the extent that the plan or program is self-funded, any portion of a policy or contracts to the extent that the rates of interest on which it is based exceeds the standards set forth in the Act and unallocated annuity contracts. An allocated annuity contract is defined in the Act to mean "...any annuity contract or group annuity or certificate which is not issued to or owned by an individual, except to the extent of any annuity benefits guarantees to an individual by an insurer under such contract or certificate."
Are the benefits provided by covered policies and contracts fully protected?
The Act limits the amount of benefits payable to any one insured life regardless of the number of policies held by an owner:
1) Three hundred thousand dollars( $300,000) in life insurance death benefits but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance.
2) Health Insurance Benefits:
a) One hundred thousand dollars ($100,000) for coverages not defined as disability insurance or basic hospital, medical, and surgical insurance, major medical insurance, or long-term care insurance, including any net cash surrender and net cash withdrawal values;
b) Three hundred thousand dollars ($300,000) for disability insurance and three hundred thousand dollars ($300,000) for long-term care insurance; and
c) Five hundred thousand dollars ($500,000) for basic hospital, medical, and surgical insurance or major medical insurance.
3) Two hundred fifty thousand dollars ($250,000) in the present value of annuity benefits including net cash surrender and net cash withdrawal values.
In no event is KLHIGA obligated to pay benefits in excess of the benefits provided by the policy or contract in question.
What will happen to my insurance coverage when my insurance company is declared insolvent?
At the outset, a financially sound insurer approved by the Commissioner of Insurance will be sought to take over the policies and contracts of the failed company. In lieu of that, KLHIGA will continue coverages directly (or issue replacement coverages under its guarantees). In the insolvency of large multi-state insurers, it is sometimes necessary for the affected guaranty associations and insurance regulators to develop plans providing substantially similar coverages subject in any event to appropriate court approval. KLHIGA's obligation to continue health policies and cancelable individual health policies is limited as prescribed in the Act.
How soon will I receive benefits?
Some delay from the date of insolvency is inevitable while the liquidator is sorting out the various obligations of the failed insurer and working with the affected guaranty associations to provide benefits in accordance with their governing laws. In the event of a protracted delay, the liquidator may institute hardship provisions for persons in dire need.
For additional questions:
Please consult the other sectors of this site for additional information.
We ask that inquiries of our office be limited to policy and contract owners and their beneficiaries, assignees and payees affected by the court-ordered insolvency of their life insurance company. As indicated earlier in our presentation, the obligations of the insolvent company as well as KLHIGA are determinable only as of the court-ordered date of insolvency.
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 particular 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, Moodys, 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 particular company.
Are you a State agency?
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 Insurance (502-564-3630) to determine if an insurance company is licensed to write business in Kentucky. 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?
Generally speaking, 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 Kentucky, you may call the Department of Insurance at 502-564-3630. The Department maintains complete and current records of all insurance companies licensed to do business in Kentucky. Information about companies licensed to write insurance in Kentucky may also be obtained from the Department’s Web site.
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.