Insurance

By Stephen Gandel and Paul J. Lim
When AIG had to be rescued by the U.S. government, holders of annuities and home insurance policies everywhere got spooked. If AIG could be vulnerable, couldn't anybody? To find out what could happen to your policy in the event of catastrophic failure, read on.
What would happen if my insurer went under?
You may have wondered that very thing before the federal government stepped in with an $85 billion loan guarantee to save American International Group from bankruptcy. Since then no other large insurance company appears to be in similar peril. That's because few insure mortgage bonds, the business that contributed to AIG's problems.
In the event that your insurer goes belly up, you have protections. If you have an outstanding claim when your insurer fails, a state guaranty fund will cover it. The rules vary, but funds typically pay up to $300,000 in claims on most policies.
In nearly all states, disability payouts have no caps. With a variable annuity, you are completely protected because you're investing in mutual-fund-like separate accounts held in your name, and insurance companies can't touch those assets when they liquidate.
If you have yet to collect on your insurance policy, will you face any coverage gaps? With life insurance, you shouldn't lose coverage: In past failures, regulators have moved policies of failed insurers to healthy ones. For most other types of insurance, you'll have 30 days to find another insurer. And if you have paid in advance for, say, a year's worth of homeowners insurance, you can apply for a refund from your state insurance fund.