Guaranty associations were created by states to protect, among others, annuity owners and beneficiaries of an insolvent insurance company. All insurance companies licensed to write annuities in a state are required, as a condition of doing business in the state, to be members of the guaranty association.

What they cover (fixed annuity-related)
They do not cover any portion of a policy in which investment risk is borne by the individual, and they may or may not cover guaranteed investment contracts or unallocated annuity contracts purchased by retirement plans. Every state (plus Puerto Rico) provides $100,000 in withdrawal and guaranteed cash values for all other annuities (California provides 80 percent of the present value, up to a maximum of $100,000). Thirteen states (and one district) have higher limits:

  • $100,000 (or $250,000 for IRAs) in Virginia
  • $130,000 (adjusted for inflation) in Minnesota
  • $200,000 in Utah
  • $250,000 in Iowa
  • $300,000 in Arkansas, D.C., North Carolina, Oklahoma, Pennsylvania, South Carolina and Wisconsin
  • $500,000 in Connecticut, New York and Washington

Guaranty associations limit protection to residents of their own state, and you are covered if the failed insurer was licensed in your state of residence. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the insolvent insurer’s state of domicile.

If the insurance company fails. When a state determines that an insurer is insolvent, and there is a shortfall of funds needed to meet the obligations to policyholders, the remaining member insurers doing business in a particular state are assessed a share of the amount required to meet the claims of resident policyholders.

The amount member insurers are assessed is based on the amount of premiums they collect in that state on
the kind of business for which benefits are required. Fixed annuity values up to state guaranty funds limits have always been protected when an insurer failed, although it can take time, often years, before the values are paid out. Every state guaranty fund covers at least $100,000 of cash value in the event of carrier insolvency.