Insurance grants you peace of mind by reducing your financial risks. It’s always a pleasure to know that you and your family are insured should the unexpected happen. But have you ever wondered what are the real guarantees that you would get paid the exact amount you deserve? Have you ever wondered whether your insurer has a plan B?
Today we’re going to talk about insurance guarantors, which, depending on the situation, can back up insurers (Part 1) or the insured (Part 2).
In the United States, different types of insurance have different state insurance guarantors that guarantee the validity of contracts between insurance companies and the insured.
Your life and health insurance guarantor is your state insurance regulator. You can find a list of state associations on the website of the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), a voluntary association uniting all life and health insurance guarantors in the United States.
State insurance departments monitor the financial health of all domiciled insurance companies and help them regain footing during difficult times. It is the responsibility of a state commissioner to determine the insolvency of a company and then proceed to rehabilitation or liquidation, taking control of the company’s operations firsthand through a special deputy receiver.
If an insurance company is determined to be insolvent, its assets are transferred to cash and distributed to the claimants with the payment priority specified by state law. All life and health insurance companies licensed to operate in the United States must be a member of the state’s guaranty association, which guarantees the fulfillment of the contractual obligations to the insured.
The maximum limits depend on the state and type of policy. However, the limits established by the NAIC Model Act are as follows (most states comply with these limits):
If your due payment exceeds the maximum limit established by the state, then – provided you have submitted a priority claim – you may still be able to receive the payout after the liquidation of the company’s assets.
Following the practices in life and health insurance, all states run insurance guaranty associations (IGAs) and oblige insurers to hold membership there. In Europe, this function is taken by insurance guarantee schemes (IGS).
The coverage limits for home, auto, and other types of insurance depend on the state and type of policy. For example, workers’ compensation claims are generally covered in full, whereas other policies may be capped at $300,000.
As you already know, the term “guarantor” applied to a contract between, for example, a health insurer and the insured means the party that guarantees the payment of medical costs (for example, the policyholder’s spouse, family member, or friend).
Whether you rent property, use costly medical services, or purchase any product or service, you need a guarantor if you are not sure that you are capable of paying the bill on your own or if having a guarantor will give you peace of mind. Whether it is reasonable to have a guarantor depends on your financial situation and risk tolerance.
No. A guarantor only guarantees that the medical services will be paid for, but does not receive these services.
No. A guarantor is a person who accepts financial responsibility to pay the bill if the owner of the policy – the policyholder – cannot pay it. This doesn’t make the guarantor a policyholder.
No. A guarantor steps in only when an individual needs financial help (for example, cannot pay the rent), whereas a co-signed shares a contract as a second party.
Yes. A guarantor can confirm the applicant’s identity when the latter applies for a driving license, visa, and other documents that require photo identification.
Depending on the duration of the agreement between the guarantor and the insured, and the amount of maximum compensation that the guarantor undertakes, guarantors can be:
The ability to choose between limited and unlimited guarantors makes it easier to configure a mutually beneficial insurance agreement.
Secondary insurance is insurance that provides extra coverage on top of your major insurance. It may come in handy when the amount of coverage provided by your primary insurance is not enough.
If your guarantor fails to fulfill its obligations, your credit score will be lowered and it will become increasingly complex for you to get loans in the future.
It’s easier to renegotiate than terminate your guarantor agreement. However, if you are determined to terminate the agreement, you can conclude an individual voluntary arrangement (IVA), a debt management plan (DMP), or a debt relief order (DRO) to gradually pay back the loan on your own.
A guarantor must be at least 18 (UK) or 21 years old (US), have a good credit history, and earn the minimum amount required by the agreement (for example, two times the amount of annual rent).
Oleksandr is an expert in deep research. He covers various insurance topics across verticals, adopting to every local law.
