Life insurance, long term care and future financial protection are one of the main and utmost concerns of any policy holder. But what if in the course of being covered under an insurance policy your insurance company is declared to be an impaired insurer?
What is an impaired insurer?
An impaired insurer can be described as an insurance provider that has been placed under the status of bankruptcy by a court from its home state or another state. This necessarily means that the insurance company is no longer able to or doesn’t have sufficient amount of money to pay all of the policyholder’s claims. But there is a process that an insurance provider is required to go through before the declaration of bankruptcy.
What happens to the impaired insurer?
Individual state laws dictate that prior to the declaration of bankruptcy of an insurance company it is required to go through a process called rehabilitation. This process is intended to exhaust all remedies and make every attempt to help the insurer recover its losses and to regain its former financial standing. State insurance regulators require insurance providers to comply regular reports and financial statements which display the financial condition of the insurance company. This will give the state regulators the chance to help in case the insurer is in deep financial trouble by taking steps to avoid more complications. But after all the efforts made it is finally concluded that the insurance company cannot be rehabilitated, the insurer is then declared bankrupt or insolvent. The most immediate action the court takes in handling an insurance company’s bankruptcy status is to order liquidation of the insurer. However, the state insurance guaranty associations will take care of the existing insurance coverage, claims and collection of premiums under the impaired insurer. And this is also required to be in accordance with coverage limits set by the state. Insurance guaranty association is created to provide protection to policyholders in the event that their insurer is declared impaired or bankrupt. This association is required in some states and it receives funding from insurers who are also required to participate.
What happens to you if your insurer is declared impaired?
In the event that the insurance company is declared bankrupt, the policyholder will receive a notice informing him or her that the insurance coverage will end around 30 days after notice. This notice applies even if the expiration date of the policyholder’s insurance coverage is due in a few months or years. These 30 days is intended to give an ample time for the policyholder to find insurance coverage replacement from other company. Most often, other insurance companies automatically assume the policy holder’s insurance coverage from the impaired insurer and guarantees continuous coverage. The notice given by the court, state regulators and others contains guidelines for the submission of the new insurance claims. You may file for reimbursements when you have made prepaid insurance premium payments. This is also the best time to file a potential claim that you haven’t reported yet to your insurer. The state guaranty association will take care of your claims and other concerns pertaining to the impaired insurer.