Florida Annuity Guaranty Association: Coverage Limits

If the life or health insurance company that issued your annuity is found to be insolvent and is liquidated by a court, the Florida Life and Health Insurance Guaranty Association takes over covered claims. Florida law caps what it pays. For deferred annuity contracts the limit is $250,000 in net cash surrender and net cash withdrawal values per life, per failed insurer.

What the Florida guaranty association is

The Florida Life and Health Insurance Guaranty Association, known as FLAHIGA, is a nonprofit statutory entity. Section 631.715 of the Florida Statutes creates it and says there is created a nonprofit legal entity to be known as the Florida Life and Health Insurance Guaranty Association, and that all member insurers shall be and remain members of the association as a condition of their authority to transact insurance in this state. Membership is not optional. Every life or health insurance company licensed to write covered business in Florida belongs.

The association was created in 1979 when the Florida Legislature enacted the Florida Life and Health Insurance Guaranty Association Act, now Part III of Chapter 631, sections 631.711 through 631.738. Section 631.711 gives the short title. Section 631.713 sets out who and what the act applies to. Section 631.714 defines terms. Section 631.717 lists the powers and duties of the association, including the coverage limits. Section 631.718 covers assessments.

The purpose is narrow and mechanical. The act provides a mechanism for the payment of covered claims when a member insurer becomes insolvent, so that individual policyholders and their beneficiaries are not left with nothing. It is a statutory safety net, not a guarantee fund you can draw on at will and not a substitute for an insurance contract that pays.

Which Florida guaranty association covers annuities

Florida runs more than one guaranty association, and they are frequently confused. Only one of them touches annuities.

FLAHIGA handles life and health insurance policies and annuity contracts. This is the applicable guaranty association for an annuity.
The Florida Insurance Guaranty Association (FIGA) handles property and casualty lines such as homeowners and auto. It does not cover annuity policies.
The Florida Workers Compensation Insurance Guaranty Association handles workers compensation claims.
The Florida Self-Insurers Guaranty Association handles self-insured workers compensation employers.

Searches for the Florida guaranty association often surface FIGA first, because Florida property insurer insolvencies generate more news. If the question is about an annuity, FIGA and its assessments are the wrong body of law.

Guaranty association coverage limits for annuities

Section 631.717(12) of the Florida Statutes states that the association’s liability for the contractual obligations of the insolvent insurer must be as great as, but no greater than, the contractual obligations of the insurer in the absence of such insolvency, and that the aggregate liability of the association with respect to one life shall not exceed the following:

$100,000 for life insurance, in net cash surrender and net cash withdrawal values, under 631.717(12)(a).
$250,000 for deferred annuity contracts, in net cash surrender and net cash withdrawal values, under 631.717(12)(b).
$300,000 for all other benefits, including in long-term care policies, including cash values, under 631.717(12)(c).
$500,000 for basic hospital expense, basic medical-surgical, or major medical expense health insurance policies, effective January 1, 2020, under 631.717(12)(d).

The statute also says that in no event is the association liable for any penalties or interest.

FLAHIGA describes the same structure in consumer terms on its own site: $300,000 for the present value of annuity benefits per contract owner, $300,000 per insured life for a life insurance death benefit, and $100,000 per insured life for life insurance net cash surrender value. The two descriptions are consistent. The $250,000 figure is a sub-limit that applies specifically to cash surrender and withdrawal values on a deferred annuity contract; the $300,000 figure is the aggregate ceiling on all other annuity benefits with respect to one life.

Two features of the coverage limit are easy to miss. First, the cap is per life per member insurer, not per contract. FLAHIGA states that the total annuity cash surrender protection per owner per member company is $250,000, and that the per person limit is a maximum that applies without regard to the number of annuity contracts. Three separate deferred annuity contracts with the same failed insurer do not produce three separate limits. Second, benefits above the applicable limit are not simply erased. FLAHIGA states that if an association administers claims against the policy and the benefit limits are reached, any claim in excess of that limit may be submitted as a policyholder-level claim against the estate of the failed insurance company. A claim against the estate is unsecured in practice and may pay partially, late, or not at all.

Who is covered by the association

Section 631.713(2) of the Florida Statutes ties coverage to residency. The act generally covers policies and contracts issued to and owned by a person who is a resident of Florida. A nonresident can still be covered in a narrow case: the insurer that issued the contract was domiciled in the state of Florida, that insurer was not licensed in the person’s home state at the relevant time, the person’s home state has a guaranty association similar to Florida’s, and the person is not eligible for coverage by that association.

Residency is measured at the date of liquidation, not the date of sale. FLAHIGA states that guaranty association protection is generally provided by the association in your state of residence at the date of the liquidation order regardless of where your policy was purchased. Every state, plus the District of Columbia and Puerto Rico, has a guaranty association, so moving between states usually shifts which association would handle the claim rather than removing protection. The applicable limits and exclusions on coverage are then set by that state’s laws, which differ from Florida’s.

How the state guaranty system works nationally

Guaranty association protection is built state by state, not federally. Every state, the District of Columbia and Puerto Rico has a guaranty association for life and health insurance, and each one operates under its own state laws with its own coverage limit. Because the systems are separate, an annuity contract owner in one state and an identical contract owner in another can face different results after the same insolvent insurance company fails.

The associations coordinate through the National Organization of Life and Health Insurance Guaranty Associations, a voluntary body that assembles a task force when a multistate insolvency occurs so that a failed insurer’s book is handled once rather than fifty times. It is a coordinating body. It holds no money and pays no claims; the applicable guaranty association in each state does that.

Coordination matters because a large life or health insurance company writes in most states. When a member insurer is found to be insolvent, the receivership court, the receiver, and the guaranty funds of each affected state have to agree on how policy blocks are valued and transferred before claims are covered anywhere.

What is excluded from guaranty association coverage

Section 631.713(3) lists the exclusions. The ones that matter most to annuity owners:

Any portion of a variable life insurance or variable annuity contract that is not guaranteed by the insurer. Separate account value that rises and falls with the subaccounts is outside the association. A guaranteed element inside the same contract may be covered.
Any portion of a policy or contract under which the policyholder bears the investment risk.
Unallocated annuities, meaning annuity contracts not issued to and owned by an individual, subject to specific carve-outs for certain individual retirement arrangements and custodial accounts. A group annuity funding a plan at the plan level is generally outside the act even though individuals ultimately benefit.
Portions of a contract crediting interest above stated benchmarks tied to Moody’s corporate bond yield averages, and index-based gains that have not been credited and remain subject to forfeiture.
Reinsured business without an assumption certificate, federal employee group policies, and certain Medicare, Medicaid, and CHIP-related benefits.
Products of fraternal benefit societies, health maintenance organizations, dental, pharmaceutical and optometric service plans, prepaid health clinics, ambulance service associations, and preneed funeral contracts.

The exclusions matter as much as the limits. An annuity owner who assumes the association backs the full account value of a variable contract has misread the statute.

What happens when an insurance company fails in Florida

Nothing happens at the association level until a court acts. The trigger is a court order of liquidation with a finding of insolvency. Before that point, a struggling company is typically under supervision, rehabilitation, or conservation, and the Florida Department of Financial Services acts as receiver through its Division of Rehabilitation and Liquidation, while the Florida Office of Insurance Regulation supervises solvency on the front end.

During rehabilitation or conservation a court can impose a moratorium that limits withdrawals, loans, and surrenders. That restriction comes from the receivership court, not from the association. Once an insurer is liquidated by a court and the association’s obligation attaches, FLAHIGA works to continue coverage on covered claims within the statutory limits, which can mean transferring blocks of business to a solvent insurer, issuing substitute coverage, or paying claims directly. Section 631.733 provides for a stay of proceedings and section 631.734 for reopening default judgments, so litigation involving the failed insurer pauses while the receiver and the association get organized.

Two Florida offices sit on either side of that line and are easy to mix up. The Florida Office of Insurance Regulation, headed by the Insurance Commissioner, licenses and monitors the financial condition of insurance companies licensed to do business in Florida and petitions the court when a company is impaired. The Florida Department of Financial Services, through the Division of Rehabilitation and Liquidation, is the receiver once the court acts. The association is neither; it is a private nonprofit that the state insurance department deals with as a creditor and successor on covered policies.

Policyholders are notified through the receivership process. There is no need to monitor for it independently, though the Division of Rehabilitation and Liquidation at the Florida Department of Financial Services publishes the status of companies in receivership.

Who funds the Florida guaranty association

The association holds no standing fund of consequence. It is funded after the fact by assessments on member insurers under section 631.718. The board of directors assesses member insurers separately for each account, at such time and for such amounts as the board finds necessary. Class A assessments cover administrative and general expenses. Class B assessments cover the association’s duties with respect to an impaired or insolvent insurer.

There is a ceiling. The statute provides that the total of all assessments upon a member insurer for each account may not in any one calendar year exceed 1 percent of the sum of the insurer’s premiums written in this state regarding business covered by the account received during the three calendar years preceding the year in which the assessment is made, divided by three. A lower cap of 0.5 percent applies to long-term care business. Section 631.72 then allows member insurers a credit against Florida premium or income tax for assessments paid, which means the cost is ultimately shared between the surviving insurance companies and the state of Florida’s tax base.

This funding design is why the association is described as a safety net rather than an insurance policy. Its capacity in any single year is bounded by what member insurers can be assessed.

Why your agent cannot use this in a sales pitch

Florida law restricts talking about the guaranty association in the context of selling. Section 631.735 of the Florida Statutes provides that a person may not make, publish, disseminate, circulate, or place before the public any advertisement, announcement, or statement which uses the existence of the Insurance Guaranty Association of this state for the purpose of sales, solicitation, or inducement to purchase any form of insurance covered by the Florida Life and Health Insurance Guaranty Association Act.

FLAHIGA states the same rule plainly: the law prohibits insurance agents and companies from using the existence of FLAHIGA for the purpose of sales, solicitation or inducement to purchase any form of insurance. That is the reason so little is written about state guaranty funds by insurance agents, and the reason a producer who is asked about it will often answer briefly and point to the association’s website.

This page is published for that reason and no other. It explains a statutory mechanism. It is not a solicitation or inducement to purchase any form of insurance covered by the act, and the existence of guaranty association protection is not a reason to buy, keep, or surrender anything.

Frequently asked questions

What is the Florida guaranty fund for annuities?

It is the Florida Life and Health Insurance Guaranty Association, created by Part III of Chapter 631 of the Florida Statutes. It pays covered claims on annuity contracts issued by a member insurer that a court has found to be insolvent and ordered liquidated.

What is the maximum amount the Florida guaranty association will cover for annuities?

Under section 631.717(12), $250,000 in net cash surrender and net cash withdrawal values for deferred annuity contracts, and $300,000 for all other benefits, both measured with respect to one life. FLAHIGA describes the annuity limit as $300,000 in present value of annuity benefits per contract owner. Confirm current figures with the association before relying on them.

Are variable annuities covered by the guaranty association?

Only the guaranteed portion. Section 631.713(3) excludes any unguaranteed portion of a variable annuity contract and any portion under which the policyholder bears the investment risk. Separate account value is outside guaranty association coverage.

What if I have two annuities with two different companies and both become insolvent?

The statutory limit applies with respect to one life per member insurer. Two separate insolvencies at two separate member insurers are handled as separate matters, each subject to its own limit. This is a description of how the limit is computed, not a suggestion about how to hold contracts.

Are the protections transferable if I move states?

Protection follows your state of residence at the date of the liquidation order, not the state where the annuity contract was purchased. Every state has a guaranty association, so a move usually changes which association applies and which limits and exclusions govern.

Is long-term care insurance covered?

Yes, within the $300,000 aggregate figure in section 631.717(12)(c), which expressly includes long-term care policies. Long-term care is excluded from the higher $500,000 health insurance limit in paragraph (d).

Can FLAHIGA tell me what to do?

No. The association states that it will do the best it can to help you understand your options, but it cannot give legal advice or advice on what course of action to follow.

Is my money held in a separate account that is safe if the company folds?

For a general account annuity, no. The assets backing the contract are the insurer’s general account assets and are subject to the receivership. Variable separate account assets are held apart from the general account under insurance law, but they are also the portion the guaranty association does not cover.

How can I check whether an insurance company is financially stable?

Licensing and financial filings for insurance companies licensed to do business in Florida are available from the Florida Office of Insurance Regulation. Independent rating agencies publish financial strength opinions. Neither the association nor a state insurance department endorses or recommends any company.

Who pays for the guaranty association?

Member insurers, through assessments under section 631.718, with a credit against Florida premium or income tax under section 631.72. No general appropriation funds it and policyholders are not billed directly, though the cost of assessments is ultimately reflected in what insurance companies charge.

Where can I read the law itself?

Part III of Chapter 631, Florida Statutes, sections 631.711 through 631.738, on the Florida Senate website. The coverage limits are in section 631.717, the application and exclusions in section 631.713, assessments in section 631.718, and the advertising prohibition in section 631.735. The association’s own consumer material is at flahiga.org, and the receivership process is described by the Florida Department of Financial Services at myfloridacfo.com.

Disclosures

This page is general information about Florida insurance law. It is not intended as legal advice, tax advice, or financial advice, and it is not a recommendation to buy, keep, or surrender any insurance contract or annuity. Statutory citations are to Part III of Chapter 631, Florida Statutes; coverage will be determined by the association under the law in effect at the time of a liquidation, and applicable limits and exclusions should be confirmed directly with the Florida Life and Health Insurance Guaranty Association. Nothing here uses the existence of the association as a solicitation or inducement to purchase any form of insurance. Annuity guarantees rest on the claims-paying ability of the issuing insurer and are not insured by the FDIC. Lifeworth Insurance Agency is a trade name of Lifeworth Financial Group LLC, National Producer Number 21228343, licensed in Florida.