What Does Insurance Guaranty Association Mean?
An insurance guaranty association is an organization that protects policyholders and their beneficiaries in case an insurance company goes insolvent or closes down. Every state has one, and all insurance companies are required to be a member of the state’s insurance guaranty association to protect the interest of its insured and their beneficiaries.
Insuranceopedia Explains Insurance Guaranty Association
All U.S. states, the District of Columbia, and Puerto Rico each have an insurance guaranty association. A board of directors heads each to ensure the organization fulfills its duties and obligations while operating effectively and efficiently. Because states regulate insurance companies and they do not enjoy the protection of federal bankruptcy laws, insurance guaranty associations help fill in the gap. Although there are many checks and balances to ensure insurers do not fall into financial trouble, some inevitably fail. In case an insurer becomes insolvent, the state commissioner, the insurance guaranty association, and the courts must determine how to cover the insurer's claims. Often, the funds the association collects from its members helps satisfy claims.