What is an 'insurance guaranty association' and what protection does it provide to policyholders?

STATE INSURANCE GUARANTY ASSOCIATIONS are the insurance industry's equivalent of FDIC protection for bank deposits — they protect consumers from the insolvency of their insurance carrier. STRUCTURE: Every state has a life and health insurance guaranty association AND a separate property and casualty guaranty association; participation is mandatory for licensed insurers; funded by assessments on solvent insurers after an insolvency occurs (not a pre-funded reserve). COVERAGE LIMITS (vary by state, common limits): Life insurance death benefits: typically $300,000-$500,000 per insured; Cash values: typically $100,000-$300,000 per policyholder; Annuity values: typically $100,000-$250,000 in accumulation, $250,000 in payout; Health insurance: typically $500,000 in benefits. IMPORTANT LIMITATIONS: Coverage limits are PER POLICYHOLDER per COMPANY — not per policy; policyholders with multiple policies from the same failed insurer are still capped at the per-policyholder limits; it does NOT guarantee the same policy terms — the guaranty association may reduce benefits to the statutory minimums; NOT FEDERAL PROTECTION — this is state-level, not FDIC; HOW IT WORKS: State insurance department declares insolvency; guaranty association takes over; policies are paid or transferred to solvent carriers; assessments are levied on other insurers to fund the bailout. AGENT OBLIGATION: Agents are prohibited in most states from marketing their products using guaranty association coverage as a sales point (can't say 'your money is guaranteed by the state even if we fail').