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. Since ALDIGA is a safety net, but not an insurance company, we will seek to transfer policies to a sound insurer as soon as it is practical. When possible, and if allowed under the terms of the insolvent company’s policy, ALDIGA may also elect to cancel policies after notice is given to you and after all valid claims have been paid.
How is policy coverage determined?
Coverage is determined by Alabama 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 is placed under a final order of liquidation, rehabilitation or conservation by a court of competent jurisdiction). In light of changes in the law and the dramatic variations in policy language, ALDIGA cannot make statements regarding coverage of a specific policy unless it is a policy with a company for which the guaranty association has been activated to provide protection. Any coverage is subject to the legal limits set forth in the ALDIGA Act and the statutory listing of excluded products.
What is the Alabama Life & Disability Insurance Guaranty Association?
The Alabama Life & Disability Insurance Guaranty Association was created by the Alabama legislature in 1983 to protect Alabama residents who are policyholders and beneficiaries of policies issued by an insolvent insurance company, up to specified limits. All insurance companies (with limited exceptions) licensed to write life and health insurance or annuities in Alabama are required, as a condition of doing business in the state, to be members of the guaranty association. If a member company becomes insolvent, money to continue coverage and pay claims is obtained through assessments of the guaranty association's other member insurance companies writing the same line or lines of insurance as the insolvent company. All 50 states, the District of Columbia, and Puerto Rico have life and health insurance guaranty associations. A link to the original ALDIGA Act as well as the amended version of the ALDIGA Act effective as of January 1, 2013 can be found in the Additional Info section.
Can ALDIGA advise me what to do?
The purpose of ALDIGA is to provide underlying protection to policyholders in the event of a liquidation. We will do the best we can to help you understand your options, but we cannot give legal advice or advice on what course of action to follow. In important matters, you should seek professional assistance from your insurance agent or financial advisor. In many areas the public library system has a wealth of information on insurance matters and the library may be able to recommend other resources.
Who is protected?
Life and health insurance guaranty associations cover individual policyholders and their beneficiaries; typically, persons protected by certificates of insurance issued under policies of group life, group health insurance, disability insurance, annuity contracts and contracts supplemental to life and disability insurance policies, are also covered. Annuities that are directly issued to and owned by individuals, or annuities that directly guarantee benefits to individuals by the insurer are generally covered. What are known as "unallocated" annuities are not covered. Coverage is limited to policy holders and beneficiaries who are live human beings. Limits on benefits and coverage are established by the ALDIGA Act in effect at the time of the insolvency. For more information about coverage, see the questions below.
If I move to another state after purchasing a policy, will I still have guaranty association coverage? If so, who will provide it?
If you purchased a policy from a company that is a member insurer of the state guaranty association where you reside, you will have coverage. Guaranty association protection is generally provided by the association in your state of residence at the date of the liquidation order regardless of where your policy was purchased. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the state where the failed company was domiciled.
What contracts are covered?
Generally, direct individual or direct group life and health insurance policies as well as individual annuity contracts issued by the guaranty association's member insurers are covered by the association. Such coverage is limited by the terms of the Alabama Life & Disability Insurance Guaranty Association Act (links to the original Act as well as the amended version of the Act effective as of January 1, 2013 can be found in the Additional Info section).
Types of property and casualty insurance--such as automobile, homeowners, professional liability, medical malpractice, workers' compensation, etc.--may be protected by the Alabama Insurance Guaranty Association. That guaranty association can be reached at:
Alabama Insurance Guaranty Association
2020 Canyon Road
Birmingham, AL 35216
Are all policies fully protected?
There are limits to ALDIGA coverage set by the Alabama Legislature through the ALDIGA Act. A policy must meet coverage requirements, and there are limits to the amounts ALDIGA pays as a maximum. Please note that as of January 1, 2013, these limits were changed. If your insurance company fails, the maximum amount of protection provided by ALDIGA for any one person is:
Pre January 1, 2013 Insolvencies:
Life Insurance Death Benefit: $300,000 per insured life
Life Insurance Cash Surrender: $100,000 insured life
Health Insurance Claims: $300,000 per insured life
Annuity Cash Surrender: $100,000 per contract owner
Annuity in Benefit: $300,000 per contract owner
Post July 1, 2012 Insolvencies:
Life Insurance Death Benefit: $300,000 per insured life
Life Insurance Cash Surrender: $100,000 per insured life
Hospital, medical, and surgical insurance, or major medical: $500,000 per insured life
Disability, Long Term Care, or other covered health insurance: $300,000 per insured life
Present Value Annuity Benefits (including cash surrender values): $250,000 per contract owner
(All the above limits assume the policy or contract is covered)
ALDIGA’s liability is never greater than the obligations for which the insolvent insurer would have been contractually liable but for its insolvency. ALDIGA is never liable for punitive or exemplary damages.
For example, if I own three annuities and each has a cash surrender value of $250,000, and my insurance company fails, how much will ALDIGA pay if I want to cash surrender my annuities?
The total annuity cash surrender protection per owner per member company is $250,000. That per person limit is a maximum that applies without regard to the number of annuity contracts. As a result, if an individual owned three $250,000 annuities with the same insolvent insurance company, ALDIGA would pay a maximum total of $250,000 in cash surrender values. The value in excess of this statutory coverage limit would be eligible for submission as a policyholder claim against the estate of the failed insurer. The receiver will furnish claim forms and set a bar date for filing during the course of the receiver's administration of the estate.
What will happen to my insurance coverage if the guaranty association becomes liable for my policy?
In general, your policy will be continued under its terms and conditions while ALDIGA determines its course of action. Valid claims will be paid, premiums will be collected and your policy will continue under ALDIGA administration. However, since ALDIGA is not an insurance company, efforts will be made to find another viable insurance company that is willing to acquire the policies. If this happens, you will be notified in advance and ALDIGA will fund the transfer process. If no viable market exists for the policies of the liquidated insurer, ALDIGA may cancel the policies, in accordance with the policy terms, but only if that right was available to the insurer had a liquidation not occurred. Depending on the type of policy, state or federal law may impose extensions of the time for which you are covered even after a cancellation. ALDIGA also has the authority under the ALDIGA Act to offer substitute policies of substantially the same type.
In most insolvency situations, ALDIGA works with other state guaranty associations to develop an overall plan to provide protection for the failed insurer's policyholders. The amount of protection provided, and when you receive it, may depend on the particular arrangement worked out but you will be entitled to the benefits of ALDIGA protection and coverage to its limits.
When might the guaranty association provide benefits?
If your insurer is no longer able to fulfill its obligations, ongoing benefit payments to you may be reduced or suspended by the courts in order to sort out the affairs of the financially troubled insurer. As a result, you may have to wait many months before the guaranty association is activated to provide benefit payments. Hardship provisions may be instituted by the receiver to continue benefit payments.
What products are not protected by ALDIGA?
The ALDIGA Act specifies that policies and contracts from non-licensed insurers are not covered. Beyond that, the ALDIGA Act excludes all of the following:
a) That portion or part of a variable life insurance contract or a variable annuity contract that is not guaranteed by a licensed insurer;
b) That portion or part of any policy or contract under which the risk is borne by the policyholder;
c) any policy or contract or part thereof assumed by the failed insurer under a contract of reinsurance, unless assumption certificates were issued;
d) any policy or contract issued by to a plan or program of an employer, association or other person to provide life, disability, or annuity benefits to its employees, members or others, to the extent that the plan or program is self-funded or uninsured;
e) an unallocated annuity contract;
f) any policy, contract, or product not issued to a live human being.
Certain, less commonly known insurance policies and arrangements not listed here are also not protected. If you are unsure about whether your policy is excluded from guaranty association protection, you should review the current ALDIGA Act.
How will I know if my life or health insurance company has failed or is unable to fulfill its obligations to its policyholders?
You will receive a notification from the receiver and/or the Alabama guaranty association if your insurance company is found to be insolvent and ordered liquidated.
How can I find out if my company is licensed, or the status of a receivership proceeding, in Alabama?
Contact the Alabama Department of Insurance at 334.269.3550; fax: 334.241.4192; e-mail: Insdept@insurance.alabama.gov. The department maintains complete and current records of all insurance companies licensed to do business in the state. The Receivership Division contact information is 334.240.7560; fax: 334.240.7562.
Call the Alabama Department of Insurance. The department maintains complete and current records of all insurance companies licensed to do business in the state.
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 Insurance Department (334-269-3550) to determine if an insurance company is licensed to write business in Alabama. 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 Alabama, you may call the Department of Insurance at 334-269-3550. The Department maintains complete and current records of all insurance companies licensed to do business in Alabama. Information about companies licensed to write insurance in Alabama 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.