State Guaranty Funds

State Guaranty Fund

A fund administered by the government of a U.S. state protecting policyholders and pensioners from the default of an insurance company. That is, if an insurance company is licensed to operate in a given state, policyholders within that state are protected because, if the company defaults on its payments, the state guaranty fund will pay the policyholder instead. Insurance companies pay a small percentage of their revenues to different states to finance state guaranty funds.

---

State guaranty funds. State guaranty funds, which are offered in every state, protect contract owners against the insolvency of an insurance company that has issued insurance contracts, including annuity contracts.

However, each state's laws set different limits on benefits and coverage. The guaranty funds are backed by an association of insurance companies, not the state or federal government.

But all insurance companies in the state must belong and contribute to the fund in order to be licensed to sell their products. However, if you buy your contract from a highly rated company, its financial strength and reputation stand behind your contract.

Rating services such as Standard & Poor's, Moody's, A.M. Best, and Fitch rank insurance companies on their overall financial condition, which underlies their ability to meet their obligations. You can request these reports from the insurance company. They are also available in public libraries, on the Internet, and from your financial adviser.