by Guest » Mon Feb 01, 2010 12:42 pm
I had applied for a life policy with a new agent. I'm scared as to how I'd stand if this carrier ever goes bankrupt. Has it ever happened in the past? what do I do? I was thinking of getting another policy as a back-up plan.
Posted: Sat Dec 03, 2011 11:14 pm Post Subject:
Any competent Department of Insurance will step in before an insurer goes bankrupt to protect the policyholders. The goal is not to use the Guaranty Fund, but other tools first.
Shenandoah Life is a recent example of a company that went into receivership, yet still continues to pay claims.
Posted: Sun Dec 04, 2011 01:00 am Post Subject:
fjavma,
Where do you get your information that the Guaranty fund is unfunded?
Posted: Sun Dec 04, 2011 08:43 pm Post Subject:
This is basic info. If you don't know it, you should be questioning other things you "know". Call them or search their websites.
Posted: Mon Dec 05, 2011 10:50 pm Post Subject:
The Guaranty Associations in each state are not "unfunded."
While it's true that there are no tax assessments or other government funds placed into the Associations, each state has the authority to assess member insurers (generally) up to 2% of their annual premiums volume written in that state to pay the fund's expenses and claims.
InsTeacher 8)
Posted: Tue Dec 06, 2011 12:21 am Post Subject:
Sorry, InsTeacher, but having the power to assess and having them actually funded are two very different things.
If they were actually funded, the Guaranty Associations would be sitting on hundreds of millions of dollars and this simply is not the case.
They could charge each insurer 2% every year and build up a large pot of money, but they don't do this.
If a State Guaranty Association is sitting on any money, it tends to be a small amount. Additionally, the only reason why it would have any money is if there was an assessment and the assessment was more than what was needed. The State Guaranty Association may hold onto this extra money.
In short, if a Guaranty Association is needed, they do not have the money in their coffers to pay claims. They will have to go out and assess insurance companies.
Posted: Tue Dec 06, 2011 01:58 am Post Subject:
If a State Guaranty Association is sitting on any money, it tends to be a small amount. Additionally, the only reason why it would have any money is if there was an assessment and the assessment was more than what was needed. The State Guaranty Association may hold onto this extra money.
In short, if a Guaranty Association is needed, they do not have the money in their coffers to pay claims. They will have to go out and assess insurance companies.
OK, can't disagree with this statement. Let me re-phrase my post: Instead, I'll say that while the Guaranty Associations are not truly funded, say, like Social Security/Medicare (don't laugh... they're funded even though they're going broke), would it be acceptable to state that they have the potential, upon assessment of insurers, of being funded through OTHER than tax revenues?
InsTeacher 8)
Posted: Tue Dec 06, 2011 02:23 am Post Subject:
You are absolutely correct. The point that I was trying to make is that the power to assess doesn't help if it is a large collapse of multiple large insurers.
Posted: Thu Dec 08, 2011 09:18 pm Post Subject: covered
It's my understanding this would be covered. recently wrote a blog about this on lifeinsurance.org. I'll have to look it up for the details.
Posted: Sat Dec 10, 2011 01:35 am Post Subject:
There are two reasons for this. 1) It is unfunded. 2) All death claims in the U.S. have been paid 100%.
We've been down this road before, and I'm not going to argue the technical merits of your point #1. Fully funded, maybe not, funded, yes.
The CLHIGA has a substantial nest egg courtesy of tribute from life insurers doing business in California -- it operates on a daily basis, pays bills, claims, and currently has plenty of operating cash. They are in better financial condition than Social Security/Medicare, as InsTeacher pointed out. I can't speak to the situation in Oregon where InsTeacher is, or whereever it is that you are.
According to the most current (2006) information I have, the CA Dept of Insurance issued its own independent assessment of the financial capabilities of the CHLIGA in its "REPORT OF EXAMINATION OF THE CALIFORNIA LIFE AND HEALTH INSURANCE GUARANTEE ASSOCIATION AS OF JUNE 30, 2005 (Filed October 27, 2006)"
http://www.insurance.ca.gov/0250-insurers/0300-insurers/0400-reports-examination/upload/C_l_h_i_g_05.pdf
In that report, their financial page shows:
Cash and Cash Equivalents of $51,794,301 (p.11).
I would not describe that as "unfunded". Was it enough to pay all then-current claims, no. The report stated this about one insolvent insurer and the Guarantee Association's responsibilities:
The London Pacific Life & Annuity Company (London Pacific) reserve at $9.8 million, or approximately 5.3% of the total CLHIGA reserves for policyholder obligations, is principally related to “stay-back” contractholder obligations the Association incurred under an October 2004 London Pacific Liquidation Plan (Plan). The Plan provided contractholders with three choices: (1)
exchange their London Pacific contract with Hartford Life Insurance Company (Hartford Life) for a Hartford Life annuity; (2) surrender their contract for its cash surrender value; (3) retain the covered portion of their contract, subject to the Association’s statutory limits (the “stay-back” contracts), and receive a payment from the London Pacific estate for a percentage of the uncovered portion.
If you read and understand what I bolded in that last sentence, you have to realize that the answer to your #2 above is incorrect. It clearly says, folks that did not take advantage of choices (1) or (2) will lose money. They will get their statutory claim paid, but they will only receive a percentage of the uncovered portion of a claim from the dead insurance company's "estate", This is not the first time, nor will it be the last time that this happens.
I know you have a hard time grasping that concept. Unfortunately, it's accurate. I also know you don't always believe what I say here, and that's OK, too. But in the various FAQs below, I have bolded some of the information to help make certain points more apparent for you. These are not my words, but those of the CLHIGA.
Here's what the CLHIGA has to say about how it operates (and its operations are pretty much the same as the Guarantee Associations in other states):
The California Life & Health Insurance Guarantee Association is a statutory entity created in 1991 when the California legislature enacted the California Life and Health Insurance Guarantee Association Act . The guarantee association is composed of all insurers licensed to sell life insurance, health insurance, and annuities in the state of California. In the event that a member insurer is found to be insolvent and is ordered to be liquidated by a court, the Guarantee Association Act enables the guarantee association to provide protection (up to the limits spelled out in the Act) to California residents who are holders of life and health insurance policies, and annuity contracts, with the insolvent insurer.
http://www.califega.org/aboutus.cfmSpecifically, when a member insurer is found to be insolvent and is ordered liquidated, a special deputy receiver takes over the insurer under court supervision and processes the assets and liabilities through liquidation. The task of servicing the insurance company's policies and providing coverage to California's resident policyholders becomes the responsibility of the guarantee association. The protection provided by the guarantee association is based on California law and the language of the insolvent company's policies at the time of insolvency.
What protection do I have if my life or health insurance company becomes insolvent?
The California Life and Health Insurance Guarantee Association provides LIMITED PROTECTION of your life, health, and annuity benefits if, at the time your insurance company becomes insolvent, you are a California resident policyholder, or if you are the beneficiary, assignee, or payee of such policyholder regardless of your residency.
http://www.califega.org/faq.cfm?id=58What happens if the benefits promised in my policy are greater than the coverage limits provided by the Guarantee Association?
In general recoverable benefits are limited to the amounts set by law. However, 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 such policyholder may receive distributions as the company’s assets are liquidated by the Receiver.
http://www.califega.org/faq.cfm?id=1224I have a $300,000 life insurance policy. If I die after my insurance company becomes insolvent, what will my beneficiary receive?
http://www.califega.org/faq.cfm?id=65Your beneficiary will be entitled to receive protection from the Guarantee Association in an amount up to $240,000 (80% of $300,000).
Where does the Guarantee Association get the money to provide this protection?
http://www.califega.org/faq.cfm?id=756The law authorizes the Guarantee Association to assess all life and health insurance companies licensed to do business in California for the funds necessary to provide the protection. No tax dollars are used to provide this protection.
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.
http://www.califega.org/faq.cfm?id=940I know you have trouble sometimes believing what I write. These are not my words, but the words of the CLHIGA as noted -- you can read it for yourself.
If it were true that claims have been paid 100% without fail, why is it that some policyholders and claimants of the failed Executive Life Insurance Company -- those who opted out of the class action settlement -- continue to receive scraps of money, as recently as just a few months ago, as a result of their prior losses?
How can I get more information about the Guarantee Association?
If you have any questions that are not answered here or on the website www.califega.org, you may contact the Guarantee Association or the Department of Insurance: California Life & Health Insurance Guarantee Association, PO Box 16860, Beverly Hills, CA 90209-3319, (323) 782-0182; California Department of Insurance, Consumer Communications Bureau, 300 South Spring Street, South Tower, Los Angeles, CA 90013, 1-800-927-HELP, or 213-897-8921. The intent of this website is to explain briefly, in non-technical language, how the Guarantee Association provides protection to policyholders in the event their life or health insurance company becomes insolvent. This website does not attempt to describe every aspect of Guarantee Association coverage, and some exceptions and limitations may not be described. For a definitive statement of the laws governing the Guarantee Association, you must refer to the California Life & Health Insurance Guarantee Association Act. The Act can be found in California Insurance Code section 1067 et. seq. If there is any inconsistency between this website and any applicable law, then such law will control.
I'm reasonably sure you will refuse to believe me, so I encourage you to call the CHLIGA and talk to them directly about who has been paid and what they received (and did not receive) when their insurer is insolvent -- that number is in bold above.
And if you want to read what the CA Insurance Code has to say, you can find that here:
http://www.leginfo.ca.gov/cgi-bin/displaycode?section=ins&group=01001-02000&file=1067-1067.18
Posted: Sat Dec 10, 2011 02:11 am Post Subject:
Every state guaranty association is different. When I say, "unfunded", I'm not saying that they have $0. I am saying that they don't have to have the money to pay claims. They assess as needed. Any money that they have is usually because they assessed insurers and didn't need all of the money. In general, they become funded as needed. Many states have gone years without assessing any insurers.
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