What if the life insurance company goes bankrupt? What happens to my policy?
There are multiple layers of protection for your life insurance policy. Life insurance companies are required to have large cash reserves to be able to pay out a certain percentage of claims. Their cash reserve requirements are much larger than banks. Life insurance companies are reinsured through a Guaranty Association, which is a group of life insurance companies that reinsures any remaining risk that is not accounted for in the cash reserves of the life insurance company. Members of the Guaranty Association will take over the policies in the case of a Member of the Association going bankrupt. If all else fails, the ultimate reinsurer is the state. Life insurance policyholders are insured for a certain amount that differs in each state. For example, in Florida, the state will pay out $300,000 of death benefit and $100,000 cash value for each insured life if needed. They will pay out in the event that all Members of a Guaranty Association are bankrupt (although this scenario is highly unlikely and would represent a severe situation for the U.S. economy overall).
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