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What happens when a company is liquidated?

The state insurance commissioner or a representative is appointed receiver by the appropriate court and begins the process of collecting assets and determining the company’s outstanding liabilities. When all policy claims have been determined and resolved and all assets recovered and other obligations handled, a final distribution is made to the company’s creditors. This is almost always less than 100 percent of what is owed; usually this final distribution is made a number of years after the company is ordered liquidated.

In most cases, an estate will not yield sufficient money to pay claims in full; and most are not able to pay claims in a timely manner. For this reason, one or more guaranty funds step in (depending on the states where the company was licensed to sell insurance and then wrote business) to cover certain claims. The estate’s creditors not covered by the guaranty funds (among them large corporate entities that opt to buy less expensive alternative risk products) usually receive only partial payment on their claims.

faq | by Dr. Radut