Which entity exists to protect policyholders by paying claims when an insurer becomes insolvent?

• A. It handles insurer audits
• B. It pays all claims automatically
• C. It sets premium rates
• D. It protects policyholders by paying claims when an insurer becomes insolvent

Answer: (D)

Policyholder protection when an insurer fails is provided by state guaranty associations. These organizations exist to pay covered claims after an insurer becomes insolvent, up to statutory limits set by state law. They’re funded by assessments on member insurance companies and are managed under state oversight. They cover life and health insurance (including annuities in many cases), but with specific limits and exclusions. They are not funded by taxpayers and they do not guarantee every claim—only those within the association’s coverage limits.