Guaranty Fund
What Does Guaranty Fund Mean?
A guaranty fund is managed by a U.S. state to protect policyholders if an insurance company defaults on benefit payments or becomes insolvent.
The fund only covers beneficiaries of insurance companies that are licensed to sell insurance products in that specific state.
It is also referred to as a guaranty association.
Insuranceopedia Explains Guaranty Fund
A guaranty fund pays claims that an insurance company would have otherwise covered if it had not become financially impaired. The fund is managed by a board of directors elected by participating insurance companies and is overseen by the state’s insurance commissioner.
Guaranty funds operate in all fifty states, with most states maintaining separate funds for property/casualty insurance and life/health insurance.
Insurance companies are required to contribute to the fund, typically paying an amount ranging from one to two percent of the net amount of insurance they sell within the state.
