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 two guaranty associations — one covering life and health insurance and another covering property and casualty policies.
- Each state sets its own limits on annuity coverage. 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 other insurance policy has insufficient assets and 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.
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
- Disability income insurance
- Group life insurance
- Individual life insurance
- Long-term care insurance
Source: American Council of Life Insurers
The state’s insurance commissioner and an appointed board of directors typically govern state guaranty associations.
How Do Guaranty Associations Work?
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.
This coverage may not be necessary because often when an insurance company becomes insolvent, the company’s contracts are purchased by other insurance companies. When this happens, customers still have the same insurance and annuity contracts worth the same amount of money — but from different companies.
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.
While each state has its own guaranty laws and limits, all are based on a model act drafted by NOLHGA in 1971 and updated several times since. This provides core protections across the U.S., but allows states to provide more protections if they so choose.
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Limits on Annuity Coverage
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. The limit in Puerto Rico is $100,000.
| Policyholder Protection: Annuity Benefit Limits | |
|---|---|
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $300,000 | |
| 80% of the annuity contract value up to a $250,000 limit |
|
| $500,000 | |
| $250,000 | |
| $300,000 | |
| $250,000 (if the annuity is deferred) or $300,000 (if the annuity is in payout status) |
|
| $250,000 (if the annuity is deferred) or $300,000 (if the annuity is in payout status) |
|
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 in most cases, or up to $410,000 for structured settlements and for annuities that have been annuitized for not less than lifetime or for a period certain not less than 10 years |
|
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $100,000 (if the annuity is deferred) or $500,000 (if the annuity is in payout status) |
|
| $250,000 | |
| $500,000 | |
| $300,000 for most annuities with an exception of $1,000,000 for structured settlement annuities |
|
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $300,000 | |
| $250,000 | |
| $250,000 | |
| $300,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $250,000 | |
| $500,000 | |
| $250,000 | |
| $300,000 | |
| $250,000 |
Annuity.org compiled the above data from information made publicly available in “The Nation’s Safety Net” published by NOLHGA on January 1, 2022. 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 making an annuity purchase. 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.
FAQs Surrounding State Guaranty Associations
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.
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.
State guaranty associations only cover directly issued annuities. They do not cover secondary market annuities. SMAs are often the result of a lump sum sale of structured settlements or lottery winnings.
