What happens if a car insurance company goes bankrupt?
What would happen if my car insurance company went bankrupt right when I was filing a claim or about to? Would I still be properly compensated?
Answer
The solvency of insurance companies is so crucial that each state heavily regulates and monitors companies to avoid this situation.
Of course, it isn’t something you should worry about too much, but let’s review what happens if it does and how it can impact you as a policyholder.
Each state has a guaranty association that will come to the rescue if a car insurance company becomes insolvent. At first, when a company becomes unstable and can’t pay out on claims, the state insurance commissioner will attempt to rehabilitate the company and see if they can save it.
If this effort fails, the commissioner will declare it insolvent and sell off any valuable company assets.
During this time, the state will take over the claim payouts or transfer policyholders to a new insurance company to ensure coverage is maintained. This is why it is so important to keep making your premium payments during this transition.
If you have a claim during this time, you will still be covered, however, if the state makes the claim payouts, there is a limit on the amount of liability and property damage coverage you have.
This limit usually only impacts customers that have chosen a higher limit of coverage. The most a state will pay out on property and casualty claims is $300k, the standard maximum of most car insurance policy limits.
If you have an umbrella policy or carry limits over $300k, move your coverage to a new insurance producer right away.
Now that you know your claim will still be paid, your next question may be, “Is there a way to avoid this situation?” Yes, there is!
Before you sign up with an insurance company, check their financial stability rating with one of these independent rating companies:
- A.M. Best
- Fitch
- Moody’s
- Standard & Poor’s
If you are unhappy with your current insurance company’s rating, the time to switch your policy is now!
Downloading the free Jerry app is a great place to start. Jerry shops low prices from over 50 insurance providers and only partners with companies after thoroughly reviewing their financial stability, customer service, and claims processes. You will get quotes in seconds and as soon as you purchase a policy, your insurance documents are emailed to you instantly.
Shannon Martin
Answered on Sep 16, 2021
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