State Guaranty Associations

Annuities are regulated by nonprofit insurance guaranty associations at the state level. These state guaranty associations will pay claimants in the unlikely event that an insurance company becomes insolvent and cannot pay. Coverage is limited and varies by state. The typical statutory coverage limit is $250,000.

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    Jennifer Schell

    Jennifer Schell

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    Jennifer Schell is a professional writer focused on demystifying annuities and other financial topics including banking, financial advising and insurance. She is proud to be a member of the National Association for Fixed Annuities (NAFA) as well as the National Association of Insurance and Financial Advisors (NAIFA).

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  • Updated: August 27, 2023
  • 7 min read time
  • This page features 10 Cited Research Articles
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Key Takeaways

  • State guaranty associations protect annuity owners if the issuing insurance company becomes insolvent.
  • The individual states regulate insurance companies, and all 50 states along with the District of Columbia and Puerto Rico have their own state guaranty associations.
  • Most states have annuity coverage limits of $250,000.

What Are State Guaranty Associations?

State guaranty associations act as a safety net to protect policyholders if the insurance company that issued an annuity or insurance policy cannot meet its financial obligations.

This protection works similarly to how the Federal Deposit Insurance Corporation (FDIC) protects bank funds up to a maximum amount in the event of insolvency. But unlike the FDIC, insurance guaranty associations are nonprofit organizations and — since insurance companies are not federally regulated — operate at the state level.

All 50 states, plus the District of Columbia and Puerto Rico, have their own insurance guaranty associations. Any company selling insurance policies or annuities is required to belong to the state guaranty association in each state where they do business.

“State life and health guaranty associations are established in all 50 states to provide financial protection for their state residents from life and health insurance companies going insolvent. They cover the life and health insurance products that are guaranteed such as life insurance, annuities and health insurance,” Alan Shortell, Administrator at Life Insurance Company Guaranty Corporation of New York, told

Most states operate at least two separate guaranty associations — one for covering life and health insurance products and a distinct entity for property and casualty products.

Insurance products covered by state guaranty associations include:

  • Annuities
  • Group life insurance
  • Individual life insurance
  • Group health insurance
  • Individual health insurance

Source: National Organization of Life & Health Insurance Guaranty Associations

The state’s insurance commissioner and an appointed board of directors typically govern state guaranty associations.

Most people are familiar with how the FDIC protects bank deposits in the event the institution fails. State guaranty associations provide similar protection to insurance companies. This provides an additional backstop for your annuity payments and life insurance death benefits.

How Do Guaranty Associations Work?

Guaranty associations work by collecting funds from participating insurance companies and putting those funds to use when a participating agency can no longer meet its obligations. The roles and responsibilities of guaranty associations include protecting policyholders, administering state guaranty funds and regulating insurance companies.

State guaranty associations work in tandem with state insurance departments to ensure the solvency of licensed insurers and provide protection if an insurer fails.

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Protecting Policyholders

The primary responsibility of state guaranty associations is to take over the obligations of an insolvent insurer. This includes not only paying out claims but also continuing insurance coverage of the insolvent company’s customers and protecting the benefits of those customers’ insurance policies and annuities.

Each state’s guaranty association acts quickly in the event of an insurer becoming insolvent. The association will coordinate with other member agencies to transfer the insolvent agency’s policy to a healthy insurance carrier, much like how the FDIC moves deposits from a failing bank to a stronger one.

Administration of State Guaranty Funds

If an insurance company becomes insolvent — meaning it can’t afford to pay its obligations — the state guaranty association levies an assessment against all the other companies selling the same type of annuity or insurance product.

The money raised from this levy — along with the failed company’s remaining assets — is used to pay customer claims against the failed insurer up to the limit set by each state’s law. These limits vary by state.

As previously mentioned, guaranty associations will first attempt to transfer the policies at an insolvent institution to a healthy one, in which case paying out all the customers’ claims is usually not necessary.

Every state guaranty association may also voluntarily join the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA). NOLHGA raises funds from its members to pay claims to policyholders if an insolvent insurer does business in multiple states and becomes unable to pay the claims themselves.

Regulation and Oversight

While state guaranty associations are always ready to step in during an insurer’s insolvency, they also work to regulate their member insurance carriers so that insolvency and other negative outcomes can be prevented.

“State guaranty associations work in tandem with state insurance departments to ensure the solvency of licensed insurers and provide protection if an insurer fails,” Linda Chavez, a licensed insurance agent and founder of Seniors Life Insurance Finder, told

Chavez explained that guaranty associations fulfill their regulation requirements by monitoring their member insurers to see that they are complying with industry standards. “The association also works closely with the state insurance department to investigate consumer complaints and provide assistance when needed,” Chavez said.

What Are the Coverage Limits Each State’s Guaranty Association Has for Insurance and Annuity Contracts?

Each state defines its own limits — set through state laws — on the maximum amount of coverage.

Every state plus the District of Columbia guarantees total annuity coverage of up to at least $250,000 in the event of an insurer’s insolvency.

Policyholder Protection: Annuity Benefit Limits
80% of the annuity contract value up to
a $250,000 limit
District of Columbia
$250,000 in most cases, or up to $410,000 for structured settlements
New Hampshire
New Jersey
$100,000 (if the annuity is deferred) or
$500,000 (if the annuity is in payout status)
New Mexico
New York
North Carolina
$300,000 for most annuities with an exception of
$1,000,000 for structured settlement annuities
North Dakota
Rhode Island
South Carolina
South Dakota
West Virginia
$250,000 compiled the above data from information in the National Organization of Life and Health Insurance Guaranty Associations’ Benefit Limits Report. The above protection limits apply to individual annuity contracts or group annuity certificates issued to and owned by an individual or under which the insurer guarantees annuity benefits to an individual under the contract. These protections are subject to applicable limits and exclusions on coverage.

You can check your state’s specific laws on overall coverage limits at the National Organization of Life and Health Insurance Guaranty Associations website.

To ensure you receive all your annuity benefits, it’s wise to investigate the annuity company’s ratings before purchasing an annuity. If you plan on purchasing annuities worth more than your state guaranty association limits, ‌consider purchasing multiple annuities from different companies to avoid exceeding the guaranty limits on a single annuity.

How Are State Guaranty Associations Funded?

State guaranty associations are funded by assessments of their members. Solvent insurance carriers contribute to the associations’ funds when a member insurer becomes impaired or insolvent.

The amount each member must pay in assessments differs for each insurer. The guaranty association calculates the assessments based on the share of premium each insurer had during the previous three years.

In many states, insurers who pay assessments are granted an offset on their state premium taxes to recoup some of the cost.

Most insurers factor the money they pay in guaranty association assessments into their premium calculations. When an insurer in the association becomes insolvent, some other member insurers may raise their premiums to offset the assessment’s effect on their bottom line.

Frequently Asked Questions About State Guaranty Associations

How does a state guaranty association differ from state insurance departments?

State guaranty associations focus on covering policies at insolvent insurance companies, while insurance departments are more geared to regulation and compliance, including handling customer complaints.

Are all insurance policies covered by state guaranty associations?

The types of insurance policies covered by guaranty associations vary by state.

Can state guaranty associations refuse coverage?

In some states, businesses cannot seek coverage from guaranty associations if their net worth is over a specified amount.

What happens to my annuity if the insurance company fails?

State guaranty associations provide some degree of safety in the unlikely event that your insurance carrier fails. Receiving a payout can take weeks or months after a company’s failure, and there are limits on how much the guaranty association will cover.

What is the difference between state guaranty associations and FDIC insurance?

The FDIC is an independent federal agency that provides deposit insurance for bank deposits. State guaranty associations are nonprofit organizations that operate at the state level to protect insurance policyholders.

Are secondary annuities covered by the state guaranty association?

Most state guaranty associations only cover directly issued annuities, but some do provide coverage for secondary market annuities such as those resulting from structured settlements.

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Last Modified: August 27, 2023