Glossary

Guaranty fund

A state safety net, funded by assessments on other insurers, that pays covered claims when a licensed insurance company goes insolvent.

Also called: guaranty association, insurance guaranty association, insolvency fund

A guaranty fund, formally a property and casualty insurance guaranty association, steps in when an insurer licensed in the state becomes insolvent and is ordered into liquidation. It pays covered claims that the failed company cannot, such as an open collision claim or a liability claim against you, and generally refunds unearned premium so you can buy a new policy.

According to the National Conference of Insurance Guaranty Funds, every state, the District of Columbia, Puerto Rico and the Virgin Islands has such an association. They are not funded by taxes. After an insolvency, they assess solvent insurers that write similar business in the state, and most states cap property and casualty claims at $300,000. Policyholders may also face a deductible and strict claim deadlines.

Protection generally applies only to policies from an admitted insurer, one licensed by your state's state department of insurance; surplus lines policies and unlicensed sellers are usually outside it. Large auto insurer failures are rare, but small insurers do fail from time to time, and the process can slow claims. If your insurer fails, you will usually get a notice telling you when coverage ends and how to file claims. Checking an insurer's AM Best rating before buying is a simple precaution. See what happens if your car insurer goes insolvent.

Last reviewed October 4, 2026

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Related terms

Admitted insurer An insurance company licensed by a state's insurance department, which regulates its rates and forms and backs its claims through the state guaranty fund. AM Best rating A letter grade from rating agency AM Best on an insurer's ability to pay claims, running from A++ (Superior) down to D (Poor). State department of insurance The state agency that licenses insurers and agents, reviews rates and policy forms, monitors solvency and handles consumer complaints. NAIC The standard-setting organization of the chief insurance regulators of the 50 states, D.C. and five U.S. territories, founded in 1871. Fronting carrier A licensed insurer that issues policies under its own name for another company and passes most of the risk to that company through reinsurance.

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