Everybody has heard of the FDIC – the Federal Deposit Insurance Corporation that provides critical insurance coverage on bank deposits when a bank fails and is unable to meet its obligations – as it did last year with Silicon Valley Bank and Signature Bank.
The FDIC’s signs are prominently displayed in every bank across the country and notify consumers that their deposits are guaranteed for up to $250,000 per person per account category (e.g., joint account, separate account).
But how many people have ever heard of a state guaranty association, or of the valuable benefits that it provides to policyholders in the rare instance when an insurance company fails? Most policyholders are likely unaware that each state has its own guaranty association that provides robust coverage, up to certain limits, to its residents for benefits on their life insurance policies and annuity contracts. Guaranty associations also provide coverage for disability income and long-term care insurance benefits.
All guaranty associations provide at least $300,000 in coverage for life insurance death benefits, $250,000 for annuity benefits, $300,000 for long-term care insurance benefits and $300,000 for disability income insurance benefits. Several states offer significantly higher coverage on some or all of these products.
Why have most people never heard of a guaranty association and the benefits it provides? The main reason is because states have “advertising prohibitions” that prevent insurers and agents from mentioning guaranty associations during the sales process. However, most states require insurers to distribute guaranty association notices to their customers when their policies and contracts are delivered to them.
Therefore, consumers will not see a “guaranty association” sign displayed at a life insurer’s office or next to an agent. And they won’t hear of them during the sales process. But consumers can rest assured that the insurance policy or contract they purchased is protected in the unlikely event that their insurance company fails.
(To learn more about guaranty associations, check out the CIPR and The Institutes Griffith Foundation Collaborative Webinar Series on June 25 at 2 p.m. ET)
Wayne Mehlman is Senior Counsel, Insurance Regulation at the American Council of Life Insurers (ACLI). His primary responsibilities relate to receivership, guaranty association and corporate governance issues, as well as product standards. He joined ACLI in 2005.
