Insurance Guarantee Associations (California)

What happens if an insurance company becomes insolvent?

The California Insurance Guarantee Association (CIGA) was established in 1969 to pay claims to policyholders of insurance companies who have severe financial problems and cannot pay their own claims.   There are three separate funds, organized by line of business (Workers Compensation, Homeowners and auto, and “other” to include products liability and commercial property and liability).  Claims maximum is $500,000 on all lines except Workers Compensation. 

There is a California Life & Health Guarantee Association also, which was established in 1991.  This association is composed of all insurance companies licensed in California to sell Life Insurance, Health Insurance and annuities.

Revenue is from assessments of the member insurance carriers, investment income, and distributions from the liquidation of insolvent member insurers.  Carriers pay a percentage of written premium into the funds annually.  When a member insurer is found to be insolvent and ordered to be liquidated by a court, a receiver takes over the insurer under court supervision and processes the liquidation.  The Receiver notifies all customers of the insolvent insurance company of the claim procedures to be used. In some cases, another carrier (financially sound) may take over the assets and policies and assume responsibility for coverage and paying claims.  In other situations there may be a special administrator appointed.  The amount of protection provided depends on the particular arrangment worked out for handling the insolvent insurer’s obligations and the amounts set by law. 

Briefly, Life insurance death benefit protection is 80% of the policy death benefit up to a maximum of $300,000.  Life Insurance net cash surrender/withdrawal values are limited to 80% of the policy value up to a maximum of $100,000.  Present value of annuity benefits are also limited to 80% of the present value, up to a maximum of $250,000. 

Health Insurance protection was originally limited to $200,000, but that limit is subject to increase or decrease based on the consumer price index from January 1, 1991 to current.  As of April 1, 2011, the maximum coverage has grown to $470,125, which is the latest information available as of January, 2013.  Some health coverage, like that provided by managed care organizations and associations, is not protected by the Guarantee Association.

Long Term Care insurance is typically considered health insurance and is also covered by the Guarantee Association.

Coverage varies by state, so if you purchase a policy in California and move to another state, and then your insurance company becomes insolvent, your benefits may be paid by the association in your new state, and may be different than those just discussed.

Here’s an example of a notice included in covered health policies: 

Notice of Protection Provided by California Life and Health Insurance Guarantee Association


For additional information, here are the websites for the Guarantee Associations:

California Life & Health Insurance Gurantee Association

California Insurance Guarantee Association


HMO plans and other Managed Care Organizations that are not insurance companies are regulated and overseen by the Department of Managed Health Care in California:

California Department of Managed HealthCare


When you purchase a policy or buy a health plan, checking the A. M. Bests or Moody’s financial ratings and other data available on the financial solvency of the insurance company is a good idea.  Buying a policy from a “non-admitted” carrier means you may not have the protection of a guaranty association.  Knowing if the health plan you’re considering is through an Insurance Company (California Department of Insurance oversees) or a Managed Care Organization (California Department of Managed Health Care) may help you decide which plan to purchase.


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