In most cases, a guaranty association will continue coverage as long as premiums are paid or cash value exists. It may do this directly, or, most often, it may transfer the policy to another insurance company. In any case, policyholders should continue making premium payments to keep their coverage in force.
Coverage is determined by South Dakota law and policy language at the time the guaranty association is activated to provide protection (when the member insurer is found to be insolvent and ordered liquidated by a court). In light of potential changes in the law and the dramatic variations in policy language, the association cannot make statements regarding coverage of a specific policy unless it is a policy with a company for which the association has been activated to provide protection.
The South Dakota Life and Health Insurance Guaranty Association was created by the South Dakota legislature in 1989 to protect state residents who are policyholders and beneficiaries of policies issued by an insolvent insurance company, up to specified limits. All insurance companies (with limited exceptions) licensed to write life and health insurance or annuities in South Dakota are required, as a condition of doing business in the state, to be members of the guaranty association. If a member company becomes insolvent, money to continue coverage and pay claims is obtained through assessments of the guaranty association's other member insurance companies writing the same line or lines of insurance as the insolvent company. All 50 states, the District of Columbia, and Puerto Rico have life and health insurance guaranty associations.
Life and health insurance guaranty associations cover individual policyholders and their beneficiaries; typically, persons protected by certificates of insurance issued under policies of group life or group health insurance are also covered. Limits on benefits and coverage are established by state law. For more information about coverage, see the questions below or contact the guaranty association or state insurance department.
If you purchased a policy from a company that is a member insurer of the state guaranty association where you reside, you will have coverage. Guaranty association protection is generally provided by the association in your state of residence at the date of the liquidation order regardless of where your policy was purchased. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the state where the failed company was domiciled.
Generally, direct individual or direct group life and health insurance policies as well as individual annuity contracts issued by the guaranty association's member insurers are covered by the association. Such coverage is limited by the terms of the South Dakota Life and Health Insurance Guaranty Association Act (see the Additional Info section).
Types of property and casualty insurance--such as automobile, homeowners, professional liability, medical malpractice, workers' compensation, etc.--may be protected by the South Dakota Insurance Guaranty Association. That guaranty association can be reached at:
Long term care insurance is considered health insurance and thus is covered by the Association. Currently the limit on the amount of coverage the Association will provide for long term care insurance is $300,000 per life insured.
Not always. If your insurance company fails, the maximum amount of protection provided by the South Dakota guaranty association for each type of policy issued by the same company, no matter how many of that type of policy you bought from that company, is:
Life Insurance Death Benefit: $300,000 per insured life
Life Insurance Cash Surrender: $100,000 per insured life
Basic Hospital, Medical and Surgical Insurance, or Major Medical Insurance: $500,000 per insured life
Disability Insurance: $300,000 per insured life
Long term care insurance: $300,000 per life insured
All Other Health Insurance: $100,000 per insured life
Annuity Benefits (Present Value): $250,000 per contract owner
In no event, however, will the guaranty association be liable for more than $300,000 in the aggregate for any one insured life for all policies issued by an insolvent insurance company on that life, except with respect to basic hospital, medical, and surgical insurance and major medical insurance, in which case the Guaranty Association will be liable for no more than $500,000 in the aggregate for any one insured life.
The total protection per owner per member company is $250,000 for all annuity contracts. As a result, if an individual owned three $100,000 annuities with the same insolvent insurance company, the individual would have total guaranty association coverage of only $250,000. The value in excess of this statutory coverage limit would be eligible for submission as a policyholder claim in the receivership, and the annuity holder may receive distributions as the company's assets are liquidated by the receiver.
Protection can be provided in one of several different ways. For example, a financially sound insurer may take over the troubled company's policies and assume the responsibility for continuing coverage and paying covered claims. The South Dakota guaranty association may provide coverage directly by continuing the insurer's policies or issuing replacement policies with the guaranty association; in some situations, the South Dakota guaranty association may work with other state guaranty associations to develop an overall plan to provide protection for the failed insurer's policyholders. The amount of protection provided and when you receive it may depend on the particular arrangement worked out for handling the failed insurer's obligations.
For group health and cancelable individual health insurance, state law allows the guaranty association to terminate your coverage after a specified period of time, but not less than 30days after the guaranty association becomes obligated to provide benefits.
If your insurer is no longer able to fulfill its obligations, ongoing benefit payments to you may be reduced or suspended by the courts in order to sort out the affairs of the financially troubled insurer. As a result, you may have to wait many months before the guaranty association is activated to provide benefit payments. Hardship provisions may be instituted by the receiver to continue benefit payments.
Policies with insurers not licensed to do business in South Dakota; Health Maintenance Organization (HMO) contracts; policy benefits the insurer does not guarantee or for which the policyholder bears the risk (such as the non-guaranteed portion of a variable life insurance or annuity contract); self-insured employer plans; interest rate yields that exceed an average rate; and fraternal benefit society insurance certificates. Certain, less commonly known insurance policies and arrangements not listed here are also not protected. If you are unsure about whether your policy is excluded from guaranty association protection, you should review the current Guaranty Association Act (a link to the Act can be found in the Additional Info section).
You will receive a notification from the liquidator and/or the South Dakota guaranty association if your insurance company is found to be insolvent and ordered liquidated.
Call the South Dakota Division of Insurance at 605.773.3563. The Division of Insurance maintains complete and current records of all insurance companies licensed to do business in the state. Information about companies licensed to write insurance in South Dakota may also be obtained from the Web site of the South Dakota Division of Insurance.
The law prohibits insurance agents and companies from using the South Dakota guaranty association in any advertising. The guaranty association is not and should not be a substitute for your prudent selection of an insurance company that is well managed and financially stable. Agents are prohibited by statute from using this Web site or the existence of the guaranty association as an inducement to purchase insurance. For more information, see that portion of the Guaranty Association Act found at SDCL 58-29C-62.
The guaranty association does not provide financial advice or comment on the financial condition of any particular company. You can obtain advice from captive insurance agents, independent insurance brokers, and rating agencies. Generally, captive agents sell products from a single insurer. Brokers usually can sell the products of multiple insurers.
Rating agencies assign comparative ratings to insurers based on various criteria. Most rating agencies are paid by the insurer to do an assessment examination and to issue a rating. This is the case with the largest and most well-known agencies, such as Standard and Poor’s, A. M. Best, Moodys, and Fitch Ratings. Since the companies pay to have themselves rated, those ratings are generally available to the public without charge. One rating agency does not accept payment from the insurer being rated—TheStreet.com. You must pay to obtain its rating results.
You may also wish to contact your state insurance department regarding information on a particular company.
No. The guaranty association is a private entity, with its membership made up of all the life and health insurers licensed in the state (in fact, under state law an insurer must be a member of the association to be licensed to do business). The association was created by the legislature to serve as a safety net (subject to statutory limits) for residents should their life or health insurer fail. By creating the association, the legislature was able to ensure continued coverage to residents affected by their insurer’s failure. The association does work in cooperation with the Insurance Department in fulfilling its role of protecting residents whose insurance company is being liquidated.
Consumers can contact the Division of Insurance (605.773.3563) to determine if an insurance company is licensed to write business in South Dakota. Consumers can also check the financial strength ratings of the company, which are issued by various ratings agencies (see “Where can I get advice on purchasing life, health, or annuity products?” above).
Surrenders and loans may be allowed on a case-by-case basis for genuine hardship situations upon written application to the Receiver. Hardship circumstances and procedures will differ from company to company and (after liquidation) from guaranty association to guaranty association. Examples of hardship cases may include (1) terminal illness or permanent disability; (2) substantial medical expenses not covered by medical insurance; (3) financial difficulties resulting in inability to pay for essential life support needs like food and shelter; (4) imminent removal from a hospital, nursing home, or other medical care facility due to inability to pay; (5) imminent bankruptcy; and (6) immediate need for college tuition payments for a dependent child.
Generally speaking, a variable annuity contract with general account guarantees will be eligible for guaranty association coverage, subject to applicable limits and exclusions on coverage. However, specific questions regarding coverage will be determined by the applicable guaranty association based on the terms of the contract, other relevant facts, and the guaranty association law in effect at the time of liquidation.
If your insurance company is liquidated, you will receive a notice from the court-appointed Receiver (typically the Insurance Commissioner of the company’s state of domicile), who will oversee the liquidation of the company and inform you of any new claims procedures. There may be no change in the claims submission process—guaranty associations, working with the Receiver, sometimes continue processing claims using the liquidated company’s existing claims staff if that will maximize the speed and efficiency with which claims are processed. In other cases, the associations process the claims themselves or use an independent processing company, known as a third-party administrator, to process claims. In any event, you will be notified of the ongoing claims process. If you wish to continue coverage, you must continue to pay the premium required by your policy.
Yes. If you are paying premiums to your company and wish to keep your coverage in place, you must continue to do so—those premiums go to the guaranty association providing you continuing coverage. If you stop paying premiums, your insurance coverage may be terminated.
The guaranty association provides coverage to owners of covered policies issued by member insurers (life, health, and annuity insurers licensed to write business in the state). To determine if a company is licensed to write business in South Dakota, you may call the Division of Insurance at 605.773.3563. The Department maintains complete and current records of all insurance companies licensed to do business in South Dakota. Information about companies licensed to write insurance in South Dakota may also be obtained from the Department’s Web site.
Guaranty associations, in conjunction with the Receiver, may be able to negotiate a transfer of a company’s policies, up to the amount of the guaranty association benefit limits, to a financially sound insurer. If an association administers claims against the policy and the benefit limits are reached, any claim in excess of that limit may be submitted as a policyholder-level claim against the estate of the failed insurance company, and the contract holder may receive distributions as the company’s assets are liquidated by the Receiver.
NOTE: This information is not intended as legal advice, and no liability is assumed in connection with its use. The applicable state guaranty association statute is the controlling authority, regardless of any information presented on this site. Users should seek advice from a qualified attorney and should not rely on this compilation when considering any questions relating to guaranty association coverage.