Does IIGF pay all the claims of an insolvent insurer?
No. The state insurance guaranty funds are designed as a safety net to pay certain claims arising out of policies issued by licensed insurance companies. In the event that an insurer becomes insolvent and is ordered into liquidation, IIGF handles claims in accordance with 215 ILCS 5/Article XXXIV. These statutory provisions set forth the full definition of a "covered claim" and establish several important limits on coverage.
Guaranty funds do not pay non-policy claims or claims of self-insured groups, or other entities that are exempt from participation in the guaranty fund system.
In addition, some lines of business are excluded from guaranty fund coverage, such as surety bonds, warranty coverage and credit insurance. Life, health and annuity claims are covered by the life and health guaranty funds, which are usually separate from the property and casualty system.
Guaranty fund coverage is limited to licensed insurers (the members of the guaranty funds that, in turn, pay insolvency-related assessments). When a licensed insurance company becomes insolvent, the guaranty funds pay eligible claims. A company does not have guaranty fund coverage if it is self-insured, and IIGF does not cover non-admitted or unlicensed products, such as surplus lines. These limits on guaranty fund coverage are necessary to balance the need to provide a safety net to those who would be most harmed by the insolvency of their insurance company and keep the burden of providing the safety net at an acceptable level.
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