Both consumers and producers are calling insurance guaranty funds to learn more about how the funds work, an official says.

Peter Gallanis, president of the National Organization of Life & Health Insurance Guaranty Associations, Herndon, Va., notes that insurers entering rehabilitation pay policyholders first, and that state investment and risk-based capital laws have required insurers to invest more conservatively than other financial institutions have been investing.

If guaranty associations must step in, then they will protect holders of annuities as well as holders of life insurance policies, Galanis says.

Annuities are subject to coverage limits, with most states offering $100,000 in protection for the present value of the annuity and some states providing up to $500,000 in protection, according to Gallanis.

A guaranty association would cover the insurance component of a variable annuity, but not the subaccounts, Galanis says.

If an insurer goes into rehabilitation and the subaccounts remain strong, then the subaccount investments will be safe, but, if the subaccounts are in financial jeopardy, then the guaranty association would not protect the subaccounts, Galanis says.

Galanis says the precise details of coverage would depend on the product and the specifics of the contract language.

Life insurance contracts are treated more uniformly by state guaranty associations, Gallanis reports.

Death benefits are covered up to at least $300,000 in all states with the exception of California, which provides $250,000 in coverage, and 5 states – Connecticut, New Jersey, New York, Utah and Washington – provide up to $500,000 in protection, Gallanis says.

Most states offer a minimum of $100,000 in protection for cash values, Galanis says.