What Happens If Your Insurance Company Fails? (CBS MoneyWatch)

What happens when an insurance company fails? This is one question it’s important to know the answer to if you’re considering the purchase of an immediate annuity to generate retirement income. First, consumers should know that each state has an insurance guaranty association (GA) that backs up insurance company policies in the event of the insurance company’s bankruptcy. The amount of protection provided by a GA varies by state and type of insurance; common amounts are $300,000 for life insurance death benefits, $100,000 for cash surrender values of life insurance policies, and $100,000 or $250,000 for annuity contracts. Second, it’s important to realize that, unlike banks, insurance companies generally aren’t substantially leveraged and don’t face the possibility of a run on the business. These two factors make insurance companies a pretty safe place to invest — but it’s still smart to do your research and buy products from only top-rated companies.