News headlines about the failure of long-term care insurer Penn Treaty American Corp. of Allentown, Pennsylvania, underscore that while failures of U.S. insurers are rare, they are possible.
The New York Times reports that the order from state authorities calling for the liquidation of the medium-sized insurer and the closure of its operations leaves tens of thousands of Penn Treaty policyholders in limbo.
The good news is that a safety net exists to protect policyholders.
For decades, life/health (including long-term care) and annuity policyholders, as well as property/casualty insurance customers have been protected against the insolvency of an insurance company through what is known as a guaranty fund system.
So in this case, state life and health insurance guaranty funds will continue to service the policies of Penn Treaty policyholders, ensuring that they continue to receive coverage, despite the insurer’s failure.
To be eligible for guaranty fund coverage protection, it is important that policyholders continue to pay their policy premiums in full and on time.
Maximum levels and types of policies covered by state guaranty funds vary from state to state. Here is a list of the maximum amount each state’s guaranty fund will pay.
More information on the Penn Treaty Network America Insurance Company liquidation via the National Organization of Life & Health Insurance Guaranty Associations.
And here is additional background information on insolvencies and state guaranty funds, via the I.I.I.