Insurance Carrier Sold: What's Next?

If your insurance carrier is sold, it's important to understand what this means for your coverage and what steps you can take to protect yourself. Firstly, don't panic—states regulate insurance companies, and all 50 states have systems in place to safeguard policyholders if an insurance company goes out of business. Your policy will either be transferred to another insurer or continued by the state guaranty association. To ensure uninterrupted coverage, continue paying your premiums. You may also want to consider switching to another insurance company, especially if your current carrier is exiting the market mid-year, as this will likely impact your out-of-pocket spending. Be sure to review your policy and know your rights as a policyholder, including the process for filing a claim and disputing any issues.

Understand how the guaranty system works and what protection it offers

If your insurance carrier is sold, understanding how the guaranty system works and what protection it offers is essential. Here's a detailed overview:

The guaranty system is designed to protect policyholders in the event of an insurance company's impairment or insolvency. This protection is provided by state-sanctioned organizations called Insurance Guaranty Associations (IGAs). IGAs are legal entities that guarantee policyholders' claims will be resolved and ensure they remain covered. Each state has an IGA, and these associations are given their powers by the state insurance commissioner, who also oversees their operations.

The primary source of funding for IGAs comes from assessments collected from member insurers. When an insurance company faces financial difficulties, the state's IGA steps in. The state insurance department attempts to rehabilitate the company first, but if that fails, the company is declared insolvent. At this point, the state insurance commissioner, the IGA's board, and the courts collaborate to determine how to pay the covered claims.

The IGA uses the remaining assets of the insolvent company and assessments from other insurance companies in the state to pay the claims. Additionally, they may extend policy coverage through the association or transfer policies to another insurance company. This process ensures that policyholders continue to receive coverage despite their original insurer's financial instability.

It's important to note that there are caps on the amount of benefit payouts that states will cover. Most states follow the National Association of Insurance Commissioners' (NAIC) model, which includes the following maximum benefits:

• $300,000 in life insurance death benefits
• $100,000 in net cash surrender or withdrawal values for life insurance
• $250,000 in the present value of annuity benefits
• $500,000 in medical, hospital, and surgical policy benefits
• $100,000 in other health insurance benefits
• $300,000 in long-term care insurance benefits
• $300,000 in disability insurance benefits
• $300,000 for property and casualty claims

It's worth noting that there are no caps on workers' compensation claims. While these limits may be frustrating for those with higher-value policies, receiving a partial payout is better than no payout at all. Additionally, policyholders can apply to the insolvent company's estate to seek full payment, although this process can take several years.

In summary, the guaranty system provides essential protection for policyholders by ensuring their claims are honoured and coverage continues even if their insurance carrier is sold or goes out of business.

Know your rights as an insurance policyholder

As an insurance policyholder, it is important to understand your rights and responsibilities to take full control of your insurance protection coverage and investments. Here are some key rights that you should be aware of:

Right to Information

You have the right to obtain a copy of your insurance policy and understand the terms and conditions outlined in it. If anything in the policy seems unclear, you can contact your insurance agent for clarification. It is important to keep your policy documentation up to date, especially after major life changes such as marriage, the addition of a new family member, or a death.

Right to Cancel or Withdraw

You have the right to cancel your insurance policy, typically within a specified period after receiving the policy document. If you are dissatisfied with the policy or disagree with any of the terms, you can return it, stating your reasons for objection. After cancelling, your premium will be refunded, and the policy will be terminated. Additionally, in the case of life insurance policies, you may have the right to withdraw a partial amount of the cash value from your policy while it is still in effect.

Right to Make Changes

As the policyholder, you have the control to make changes to your policy, such as adding or removing beneficiaries, increasing or decreasing coverage, and changing the mode of payment for your premium. In the case of life insurance, you have the sole right to add, remove, or replace beneficiaries. You can also request modifications to accommodate life changes, career changes, family milestones, or financial situation alterations.

Right to Appeal

If you are unhappy with a decision made by your insurance provider during the claims process, you have the right to appeal. You can ask your insurance company to reconsider its decision and conduct a full and fair review. If your claim is denied or your coverage is cancelled, you may have the right to an internal appeal within the company or an external review by an independent third party.

Right to Switch Funds

As a policyholder, you can choose which fund to allocate your money to and switch between investment funds within your policy. However, there may be administrative rules and fees associated with switching funds, so be sure to review the details of your policy.

Right to Transfer Ownership

You have the right to transfer ownership of your insurance policy to another person or entity. This can be done to redirect the premium and save on estate taxes in the event of your death. However, it is important to note that transfer of ownership between spouses may not be permitted in certain jurisdictions.

Learn how to choose a new insurance plan

Choosing a new insurance plan can be a complicated process, but there are several steps you can take to make it simpler. Here are some key considerations to help you select a new insurance plan:

• Assess your family's needs: Consider the healthcare requirements of your family members, including yourself, your spouse, and your children. Think about any pre-existing health conditions, regular medications, and the level of coverage each family member may need. If you and your spouse have significantly different healthcare needs, you may benefit from separate plans with different levels of coverage or pricing.
• Understand the types of health insurance plans: Familiarize yourself with the different types of health insurance plans available, such as HMOs (Health Maintenance Organizations), PPOs (Preferred Provider Organizations), EPOs (Exclusive Provider Organizations), and POS (Point of Service) plans. Each type has its own set of rules regarding provider networks, referrals, and out-of-pocket costs.
• Review your coverage options: Health insurance plans are often categorized into "metal" tiers, such as Platinum, Gold, Silver, and Bronze, which indicate how costs are shared between you and the insurer. These categories do not reflect the quality of care but rather the level of coverage and cost-sharing.
• Compare out-of-pocket costs: Understand the various out-of-pocket expenses associated with health insurance plans, including premiums (monthly payments), copayments (fixed fees for specific services), deductibles (costs before insurance coverage kicks in), and coinsurance (percentage of a medical charge that you pay). Consider your budget and anticipated medical needs when evaluating these costs.
• Check the provider networks: Make a list of the healthcare providers, specialists, hospitals, clinics, and pharmacies you prefer or anticipate using. Ensure that your chosen insurance plan includes these providers in its network to minimize out-of-pocket costs. Keep in mind that provider networks can change over time.
• Consider Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs): HSAs and FSAs allow you to set aside pre-tax dollars to pay for eligible healthcare expenses. However, they may not be available to everyone, and there are specific requirements for enrollment.
• Evaluate the scope of services: Review the summary of benefits for each plan to understand the range of services covered. Some plans may offer better coverage for specific types of care, such as physical therapy, fertility treatments, or mental health services. Choose a plan that aligns with your anticipated healthcare needs.
• Discontinue your old plan: If you are transitioning from an existing plan, remember to discontinue it before the new one starts to avoid unnecessary overlap in coverage and associated costs.

Understand the special enrollment period

If your insurance carrier is sold and you experience a major life change, it could affect your health insurance coverage. A "special enrollment" period is triggered by certain life changes or a household income that falls below a certain amount. This lets you get or change your private coverage outside of the yearly Open Enrollment Period.

Special enrollment periods can be as short as 30 days, so it's important to act quickly. To avoid a gap in coverage, you can apply for a new plan up to 60 days before your current insurance ends. If you have health insurance through your job, you may only have 30 days after the qualifying event to make changes to your coverage.

Some life changes that trigger a special enrollment period include:

• Losing job-based health insurance
• Moving to a different ZIP code or county
• Getting married or entering into a domestic partnership
• Getting divorced or legally separated
• Having a baby, adopting a child, or placing a child in foster care
• Becoming a US citizen, national, or lawfully present individual
• Losing health coverage or expecting to lose coverage in the next 60 days

Know when to switch insurance companies

Knowing when to switch insurance companies is a crucial aspect of managing your finances effectively. Here are some detailed guidelines to help you make an informed decision:

Review your policy regularly:

It is recommended to review your car insurance coverage annually to ensure you are getting the best rates and not paying for unnecessary coverage. Life changes such as moving to a new location, getting married, adding a new driver, or experiencing a milestone birthday can impact your insurance rates. By reviewing your policy regularly, you can identify if your current coverage still aligns with your needs and circumstances.

Compare rates from multiple insurers:

Shopping around is essential to finding the best insurance deal. Get quotes from at least three insurance companies, comparing rates, coverage options, and discounts offered. Ensure you are comparing the same types and amounts of coverage to make an accurate assessment. This process will help you determine if switching insurers could result in better rates or improved coverage.

Evaluate your reasons for switching:

There are several valid reasons to consider switching insurance companies. For example, you may be experiencing poor customer service, a sudden spike in your insurance premium, or a life change that impacts your coverage needs. Additionally, if you find that your current insurer falls short in handling claims or providing adequate customer support, it may be a sign to look for a company that better suits your requirements.

Research the new company thoroughly:

When considering a switch, don't focus solely on price. Review other metrics such as customer complaints, coverage options, and financial stability. Utilize resources like Bankrate insurance company reviews, the National Association of Insurance Commissioners (NAIC) scores, J.D. Power rankings, and AM Best financial strength ratings to make an informed decision.

Be mindful of the timing:

You can switch insurance providers at any time, but certain events may prompt a sooner switch. For instance, if you're approaching your renewal date, switching before the expiration of your current policy term can help you avoid cancellation fees. Additionally, some insurers offer discounts for switching before the policy term ends. On the other hand, if you have an open claim, it's generally advisable to wait until the claim is resolved before making the switch.

In summary, knowing when to switch insurance companies involves regular policy reviews, comparing rates and coverage options, evaluating your reasons for switching, researching alternative companies thoroughly, and considering the timing of your switch to avoid unnecessary fees or coverage gaps. By following these guidelines, you can make a well-informed decision that aligns with your financial goals and insurance needs.

Frequently asked questions