Insurance company failures are rare, but they do happen. If your insurer becomes insolvent, your policy does not simply vanish: US states have a well-established process to take control of the company and a safety net of guaranty associations to pay covered claims. Here is how it works and what you should do.
Why insurers fail
According to the NAIC, common causes of insurer insolvency include undercapitalization, inadequate loss reserves, reinsurance problems, poor underwriting and fraud. Regulators monitor solvency continuously, and the risk-based capital system requires escalating action as capital weakens: below 70% of the authorized control level, the regulator must take over the company.
Receivership: the legal process
Insurers are not handled under federal bankruptcy law. Their insolvencies are governed by state law, and the state insurance commissioner typically acts as receiver. There are three main forms:
| Form | Purpose | What it means for policyholders |
|---|---|---|
| Conservation | The receiver takes control and analyzes the company's condition | The receiver decides whether liquidation, rehabilitation or a return to private management serves policyholders best |
| Rehabilitation | A plan to fix the problems and return the insurer to the market | Possible restrictions, such as limits on new business, suspended claim payments or suspended dividends |
| Liquidation | Used when rehabilitation is not feasible; assets are collected and distributed by statutory priority | Outstanding property/casualty policies are generally canceled and a claims deadline is set; life, health and annuity policies may continue |
The regulator can move from one form to another as circumstances change. The NAIC's Global Receivership Information Database (GRID) provides information on companies in receivership.
Property/casualty guaranty funds
Every state, the District of Columbia, Puerto Rico and the US Virgin Islands has a property/casualty guaranty association. The system dates to 1969 and, according to the National Conference of Insurance Guaranty Funds (NCIGF), has paid more than $35 billion in claims across about 600 insolvencies over nearly five decades.
- Who pays: licensed insurers in the state, through assessments after an insolvency (most states cap them at 2% of net direct written premium per year), plus recoveries from the failed company's assets.
- Limits: coverage is the lesser of the policy limit or the statutory maximum; the most common cap is $300,000 per claim, and many associations apply a deductible, usually $100. Caps generally do not apply to workers' compensation claims.
- Not covered: surplus lines and other unlicensed carriers, self-insured plans, HMOs and PPOs, punitive damages and amounts above policy limits.
- Unearned premium: you may claim a refund of premium paid for the canceled part of the policy term.
Life, annuity and health guaranty associations
Life and health guaranty associations, coordinated nationally by NOLHGA, keep coverage in force and pay claims. NOLHGA reports that since its creation in 1983 the system has protected more than 3.29 million policyholders, guaranteed $30.44 billion in coverage benefits and paid more than $10 billion directly to policyholders, and that guaranty associations have never failed to pay a covered claim. Coverage levels in most states (as of June 1, 2025) are:
| Product | Typical limit |
|---|---|
| Life insurance death benefits | $300,000 |
| Life insurance net cash surrender or withdrawal values | $100,000 |
| Annuities | $250,000 |
| Basic hospital, medical and surgical or major medical | $500,000 |
| Long-term care and disability income | $300,000 |
Limits vary by state: Connecticut, New York and Washington, for example, provide $500,000 across product types. In most states, coverage of more than one policy is also subject to an aggregate limit per person.
Recent examples
NOLHGA's list of insolvent companies includes Colorado Bankers Life Insurance Company and Bankers Life Insurance Company (liquidations in North Carolina, 2024), PHL Variable Insurance Company (rehabilitation in Connecticut, 2024) and Senior Health Insurance Company of Pennsylvania (rehabilitation in Pennsylvania, 2020). Cases involving long-term life, annuity and care policies are often complex, because coverage must be kept in force for many years.
What to do if your insurer fails
- Read official notices from the receiver and your state guaranty association; avoid unofficial "help" offers.
- Arrange replacement coverage quickly for auto, home or business policies that are canceled in liquidation, so you are not left uninsured.
- File claims before the deadline, with full documentation, through the guaranty association or receiver.
- For life and annuity policies, follow the official instructions on premium payments, and check whether your amounts exceed guaranty limits.
- Keep records of all policies, payments and correspondence.
How to reduce the risk
Choose financially strong, licensed insurers (see how to check insurer reliability), and consider spreading very large life or annuity amounts among several companies so each stays within guaranty limits. Polis Re can help you compare well-rated insurers for life, annuity, home and auto coverage; policies are issued by licensed insurers and placed through licensed producers in your state. Request a quote.