Finding security in guaranty associations

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.