To protect the public against the severe financial consequences of an insurance company failure, all states have established a Life and Health Insurance Guaranty Association. Which of the following statements correctly describe the purpose and funding of this regulatory entity? (Select two that apply)
- It provides protection to resident policyowners, insureds, and beneficiaries if an authorized insurer is ordered into liquidation.Answer
- BIt serves as a mandatory state reinsurer that assumes the direct liability for all policies issued by admitted insurers.
- CIts primary function is to provide emergency financial bailouts to impaired member insurers to prevent them from declaring bankruptcy.
- It is funded through post-insolvency assessments levied on all authorized member insurers operating within the state.Answer
Answer
The Guaranty Association protects resident policyholders and beneficiaries when an insurer is liquidated, and it is funded by post-insolvency assessments on other admitted member insurers.
The correct statements accurately identify that the Guaranty Association exists to protect resident policyholders from unpaid claims due to insurer insolvency, and that it generates funds by assessing the remaining solvent member insurers in the state.
Step-by-Step Solution
Key Concept
Guaranty Association Purpose and Funding