What Does Guaranty Fund Mean?
A guaranty fund is a fund that is administered by a U.S. state for the purpose of protecting policyholders in case an insurance company defaults on benefit payments or goes into insolvency.
The fund only protects beneficiaries of insurance companies that hold licenses to sell insurance products in a particular state.
It is also known as a guaranty association.
Insuranceopedia Explains Guaranty Fund
A guaranty fund pays the claims that an insurance company would otherwise cover if it had not become financially impaired. The fund is governed by a board of directors who are elected by participating insurance companies, and is overseen by the state's insurance commissioner.
Guaranty funds are active in all fifty states. Most states maintain separate funds for property/casualty insurance and life/health insurance.
Insurance companies are obligated to pay an amount into the fund, ranging from one to two percent of the net amount of insurance it sells within the state.