What Happens If a Life Insurance Company Goes Bankrupt?

Shawn Plummer

CEO, The Annuity Expert

Don’t let the thought of your life insurance company going bankrupt keep you up at night. While it sounds scary, understanding what would happen if this event occurred and how to protect yourself can give you peace of mind. In this guide, we will explore all aspects of a life insurance company’s bankruptcy proceedings so that you know strictly what to do should such an unfortunate incident occur.

What Happens If a Life Insurance Company Goes Bankrupt?

Should an insurance company fail, policyholders are safeguarded by the state guaranty association and fund. Insurance administrations in all fifty states, including D.C., Puerto Rico, and Guam step in to protect customers from unlawful practices – canceling existing policies as well as prohibiting any new or renewals policies during this time period of receivership. Thus allowing consumers to rest assured that their interests remain protected even if an insurer collapses.

In addition, the funds and assets of the insurance company are sold off, and the state court will order the company to pay out any remaining claims. 

Reinsurance can also reduce the risk of losses when an insurance company goes bankrupt. The states regulate insurers, and all 50 states have systems to protect policyholders if an insurance company fails. To avoid relying on the state for protection, policyholders should check the ratings of potential insurers from independent agencies like A.M. Best, Fitch, Kroll Bond Rating Agency, Moody’s, and Standard & Poor’s.

Paying premiums will keep coverage intact, and policyholders should be aware of the limits set by states on benefit payouts. In some cases, policyholders may be able to apply to the company’s estate if they have a claim that exceeds the state limit.

However, there may be delays in the death benefit payment if the insurance company is going through bankruptcy proceedings. This is because the company will have to sell its assets and pay off its creditors before it can pay out policy claims. This can take some time, but the state insurance guaranty association will typically step in to ensure that policyholders receive their payments promptly.

It’s important to note that life insurance companies are highly regulated and must maintain a certain level of financial stability. This means the chances of a life insurance company going bankrupt are relatively low. However, suppose you are concerned about the financial stability of your life insurance company. In that case, you can check its rating with independent agencies such as A.M. Best or Standard & Poors. These agencies rate insurance companies based on their financial strength and ability to pay claims.

Next Steps

In conclusion, if a life insurance company goes bankrupt, your life insurance policy will still be in effect, and your beneficiary will still be entitled to receive the death benefit. However, there may be delays in the death benefit payment due to bankruptcy proceedings. Therefore, it’s essential to choose a financially stable life insurance company and to regularly check its rating to ensure the security of your policy.

Need Help Getting Life Insurance Coverage?

Contact us if you need help purchasing a life insurance policy. The service is free of charge.

Life Insurance Inquiry

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

Scroll to Top