Which entity pays claims and protects policyowners when an insurer fails?

• A. The Federal Reserve
• B. The Insurance Guaranty Corporation
• C. The State Insurance Department
• D. The National Association of Insurance Commissioners

Answer: (B)

When an insurer fails, policyowners are protected by a state-established guaranty mechanism. The Insurance Guaranty Corporation acts as the payer of covered claims and provides protection to policyowners up to statutory limits when an insolvent insurer cannot pay. This system is funded by assessments on solvent member insurers and operates independently of the failed company and state regulators. The guaranty corporation ensures that ongoing claims and certain refunds are covered, within the limits set by state law, helping to maintain policyholder confidence and market stability. The Federal Reserve doesn’t insure or pay insurance claims, the State Insurance Department regulates and licenses insurers but doesn’t guarantee payment, and the National Association of Insurance Commissioners coordinates regulation rather than handling claims payments.