Whenever you review insurance documents, you may find the term “guarantor” — but do you know what it means?
In short, a guarantor is a person or organization that provides a guarantee of payment or other contractual fulfillment.
The who and how of insurance guarantors change depending on what kind of policy you’re referring to, such as:
- Life insurance
- Health insurance
- Home, Auto, Property, or Casualty insurance
In this guide, we’ll explain everything you need to know about the role of the guarantor in your insurance policies.
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What Is a Guarantor for Life Insurance?
A life insurance contract provides a payout to a beneficiary after the death of the insured individual.
If you have life insurance, the insurance company is under contract to make a payment upon your death. Even though you are choosing someone else — your beneficiary — to receive the money, the contract is between you and the insurance company.
A company that offers life insurance contracts is on the hook for large payouts. Therefore, the insurance company provides a guarantor to back up their promise to you.
Who Guarantees Your Life Insurance Policy Will Be Paid?
In short: your state insurance regulator. Every state, as well as the District of Columbia and Puerto Rico, has a life and health insurance guaranty association (LHIGA) that backs up the life insurance policies.
The LHIGA steps in if a company goes bankrupt, dissolves, or is otherwise unable to meet its obligations.
Your insurance company is legally required to be a member of your state’s LHIGA to be licensed to do business in your state. Members are collectively responsible if another company goes under. In this case, they help to pay out on insolvent insurers’ outstanding claims.
The downside? The guarantee isn’t necessarily for the full amount of your coverage.
How Much Do Insurance Guaranty Associations Pay on a Life Insurance Policy?
Most states follow a model created by the National Association of Insurance Commissioners (NAIC) specific to LHIGAs. This model covers:
- Life insurance death benefits up to $300,000
- Life insurance net cash surrender or withdrawal values up to $100,000
- Maximum of $300,000 total across multiple policies for one individual
This is one situation where the ease and possible discounts of using a single insurance company for all your needs can have a big drawback. The $300,000 maximum would include life, long-term medical care, and disability insurance benefits.
Be sure to read those pesky fine print details, which can be found near the end of your insurance policy packet.
What if the Life Insurance Guarantor Doesn’t Pay Out Your Full Claim?
If your life insurance plan was over the $300,000 maximum used by most state LHIGAs, your beneficiary may still be able to recoup some of the promised payout.
They can submit a priority claim against the failed insurer. When the company assets are liquidated, they may be able to receive all or some of the claim amount.
What Other Policies Are Covered by Life and Health Insurance Guaranty Associations?
The terms above for life insurance also cover:
- Long-term medical care insurance policies
- Disability income policies
In terms of LHIGA coverage, one difference to note is whether a workers’ compensation claim is involved. Workers’ compensation may provide an additional layer of protection or ability to recover losses beyond a guaranty association maximum or a claim against company assets.
What About Home, Auto, Property, and Casualty Insurance Guarantors?
A property or casualty insurance contract is there to help in dire circumstances when either your property is harmed or a person is injured in connection with your property. Common types include:
- Automobile insurance
- Homeowner’s insurance
- Insurance to protect against fires, accidents, natural disasters
- Workers’ compensation
- Professional liability insurance
After you figure out what combination of personal or business insurance you need, you pay your premiums and the insurance company promises to cover disasters down the road as specified in your policy.
Again, the insurance company is required to provide a guarantor that steps in if they cannot fulfill those promises.
Who Guarantees Your Property or Casualty Insurance Policy Will Be Paid?
Just like with life insurance, every United States district has its own property and casualty insurance guaranty associations (or funds), often simply called IGAs.
Companies licensed in that state are required to belong to the state IGA and essentially share the costs if another insurer becomes insolvent.
How Much Do Guaranty Associations Pay on a Property or Casualty Insurance Policy?
The IGA is there to provide a limited safety net, not to fully replace your coverage. There will be a state-specific IGA statement near the end of any written policy.
Just as with life and health insurance guaranty associations, property and casualty IGAs often follow the NAIC guaranty model. There are state variations but you can expect that:
- Workers’ compensation claims are generally covered in full
- Other policies may be capped, often at $300,000
However, some states limit IGA payouts to high net worth individuals or companies
What if the Property or Casualty Insurance Guarantor Doesn’t Pay Out Your Full Claim?
Policyholders can submit an insurance claim on company assets during the liquidation of an insolvent insurance company.
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What Is a Guarantor for Health Insurance?
There are a couple of different answers when it comes to talking about health insurance.
A discussion about health insurance guarantors might refer to:
- The contract between the patient and the health insurance provider
- The contract between a health insurance company and the insured individual
When Are You the Guarantor for Health Costs?
“Guarantor” is a term you may see on hospital or clinic forms, and in that case, it is generally referring to the person who is guaranteeing payment of health care costs.
From a health care provider’s perspective, your health insurance plan is the first stop for billing, but the person signing the forms is the one saying, “Yep, I will make full payment for whatever my insurance doesn’t cover.”
The guarantor in this case is:
- The patient. Even if you are not the primary insured—for instance, if you are covered by health insurance through your spouse’s employer—the participating provider is contracting directly with the patient to guarantee payment.
- A spouse or second party in cases where the patient is unable to sign for themself or medical costs are anticipated to be significant and therefore depend on assurance of payment.
- A parent or guardian for a child or an adult with a legal guardian.
Who Is the Guarantor for My Health Insurance Carrier?
Health insurance is a contract between a health insurance company and the insured individual.
A health insurance policy is generally limited to a single year. Even if you “roll over” your health insurance year to year passively, you will receive a new contract that has changes to the premium cost and sometimes to what is covered.
- Even if your employer, union, or other affinity group arranges a low rate and specific coverage offering for you to take advantage of, health insurance is a contract between you and the insurance company.
- Although premiums might be paid through your employer out of your paycheck (a common employee benefit to drive down taxable income), the health insurance policy is still a legal contract between you and the insurance company.
Who Needs a Guarantee With Health Insurance?
With a health insurance policy, the insurance company is making a promise to you to fulfill the contract in question. It may be a complicated contract, but at the end of the day, it details an agreement whereby each party agrees to make certain payments.
The insurance company doesn’t really need you to have a guarantor, since your payments are pretty much as-you-go. If you stop paying your premiums, they can simply cancel your policy.
But what happens if the insurance company can’t meet its obligations? You could be held responsible for the full cost of:
- Medical bills you have previously guaranteed full payment on
- The full price of prescription drugs
- Massive hospitalization or catastrophic medical costs
Who Guarantees Your Health Insurance Policy Will Be Fulfilled?
Similar to other types of insurance, every state requires companies operating on their turf to belong to and support an insurance guaranty association that backs up health insurance in that state.
The insurance guaranty association steps in if a company goes bankrupt or dissolves or is otherwise unable to meet its obligations.
But again: that guarantee isn’t necessarily for the full amount of your coverage.
How Much Do Insurance Guaranty Associations Pay on a Health Insurance Policy?
States vary on the terms required by their health insurance guaranty models.
Generally, they will continue your coverage based on the contract in place, but impose a cap on benefits for the remainder of the year.
In most states, a $500,000 maximum is applied. Because most health insurance policies no longer impose an annual cap on coverage, this means having a maximum payout at all will be a reduction in coverage if a health insurance guaranty association takes over.
What if the Health Insurance Guarantor Doesn’t Cover Your Medical Bills?
If medical costs that would have been paid by your original health plan exceed the maximum imposed by your state health insurance guaranty association, you may have recourse to try to recover that money.
You can submit a priority claim against the failed insurer during the asset liquidation process to potentially receive all or some of the insurance claim amount.
What Happens at the End of the Covered Health Insurance Policy Year? At the end of the year, your health insurance coverage simply stops.
There is no longer a functioning insurance company to offer you a new policy, so you (or your employer or group association) will have to shop for a new company and policy.
Ready to Select an Insurance Provider You Can Trust?
Long story short? An insurance guarantor is there to guarantee that you’ll receive your benefits regardless of your insurers’ financial health.
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