What's the Guaranty Fund?

Your insurance policy is only as good as the insuring company that writes it and unfortunately, insurance companies become insolvent all the time.  So what happens to your existing claims when your insurance company goes belly-up?

To protect consumers from bankrupt insurers, most states have what's known as a Guaranty Fund.  Funded by insurance carriers admitted with the State, the Guaranty Fund acts as a backup plan in the event an insurance cannot meet its financial obligations to policyholders and claimants.   When an insurance company becomes insolvent, there are typically a number of open and outstanding claims as well as already-existing claims that haven't been reported yet. In this instance, the Guaranty Fund would step in and pick up the liability for these claims, acting as a backup insurer to policyholders.

It should be noted that all Guaranty Funds have limitations to the coverage they will provide and in many states, Texas included, policyholders can be held responsible for the difference between the amount of the loss and the amount paid by the Guaranty Fund.  In addition, if the Guaranty Fund is not able to assess enough money from its member companies, it can turn to the residents and taxpayers for funding.

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