First of all, don't panic. Chances are you're still at least partially covered. Most states have established "guaranty associations" or "guaranty funds" that cover insurance company failures; in much the same way as the FDIC covers bank failures. Although the coverage provided by a guaranty association or guaranty fund is limited (typically $300,000 for auto, home, and life insurance policies) and depends upon the financial resources of the guaranty association, in most cases it should prevent you from being left completely without protection if your insurance company goes belly-up. Typically, the state insurance regulators will persuade another insurance company to take over the policies of the company being liquidated. You will most likely still have coverage, but you may not receive all of the benefits you had hoped for (e.g., projected interest rates on a cash value life insurance policy).Next, just follow instructions. If your insurance company goes into receivership, you should be contacted by the insurance company itself, the company's receiver (usually the state insurance commissioner), or by the guaranty association. The communication you receive will tell you what you need to do and often contains the forms you need to move your policy to another insurance company. If you don't hear from someone soon after the insurance company is declared insolvent or taken over by a receiver, call the company, your agent, your state's guaranty association, or the state insurance department.If you decide to purchase a new policy elsewhere, do your homework first. Although any company can go bankrupt, it's less likely when the company is financially stable. Insurance company rating information is available through several independent rating agencies, such as Moody's Standard and Poor's and A.M. Best. To get rating information, contact the rating service directly either through its website or by calling its customer service department. If you don't want to look up the information yourself, ask your insurance agent or financial planner to do some research for you.
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