State Guaranty Associations for Annuity Contracts

Any guaranties made by an insurance company are subject to the financial strength of the insurance company and their claims-paying ability.

• A state guaranty fund is administered by each U.S. state to protect insurance policyholders who reside in that state at the time the insurance company defaults on benefit payments or becomes insolvent. 
• This should not be thought of as a substitute for FDIC insurance, which annuities do not have. 
• If you own an annuity, the state guaranty fund for the state where you reside protects your benefits up to set limits, and those fund rules vary state-by-state.

Guaranty for Annuity Contracts

Each state has the ability to set up the guaranty funds in the way it chooses, and there are differences from state-to-state in terms of the cost to insurers and how much protection annuity owners receive. Generally speaking, the state guaranty funds provide two kinds of protection:

1. When an insurance company is having a liquidity problem, the state (through the Superintendent of Financial Services) puts it into rehabilitation and tries to save it from becoming insolvent. If the insurance company fails from there, the state government will take it over and liquidate the assets to satisfy its obligations to policyholders.
2. If more money is needed after that, the state guaranty fund kicks in. States generally have two guaranty funds one for life and health insurance and a second for property and casualty (car, home) insurance.

How Does the State Guaranty System Work?

A state guaranty fund is administered by each U.S. state to protect insurance policyholders who reside in that state at the time the insurance company defaults on benefit payments or becomes insolvent. These state funds act as a form of insurance for annuities. Most states operate guaranty funds with money obtained from assessments on insurance companies. The assessments are typically made after an insurer has been declared insolvent.

Once an insurer has been declared insolvent, the insurance department determines the value of the company's remaining assets. It then calculates the amount of money the guaranty association will need to pay claims. State laws typically specify a maximum amount that insurers may be assessed. This is typically one or two percent of the net premium an insurer collects in any given state.

If you own an annuity policy, the state guaranty fund for the state where you reside protects your benefits up to set limits. The most common limits are between $250,000 - $300,000, but can be as much as $500,000 in select states. For more information on your state policies, the bottom of this article provides the contact information of state guaranty websites.

General Awareness and Limitations

Few people are aware of these guaranties that apply to insurance and annuity protection. That's because the National Association of Insurance Commissioners (NAIC), which is the chief regulatory body overseeing all insurance activity in the nation, has specifically prohibited insurance companies and agents from advertising the existence of the state guaranty fund network.

Knowing that your state has a guaranty fund should never be a substitute for purchasing your annuity from a company that is well-managed and financially stable. The reason for that is that if your insurance company was ever declared bankrupt, even though your state fund may become active in providing some protection, you may not get full coverage. Plus, payments to policyholders are never automatic. They depend on court approval and approval by your state legislature.

Further Contact Information

Below you can find websites and phone numbers by state guaranty associations. You can also find more state-specific information via the National Association of Insurance Commissioners. 

State Guaranty Associations

Disclaimer: This article is provided for informational purposes only and not for the purpose of sales, solicitation or inducement to purchase any annuity product. Blueprint Income is not responsible for the accuracy of this information. If you wish to confirm the information contained herein, prior to making an annuity purchase, please call your state insurance department.