What If My Insurance Company Goes Bankrupt?

Problems with AIG, one of the world's largest insurers, have people wondering if there are holes in their safety nets.

Should You Be Worried?

No, and here's why.

Insurance is regulated on a state-by-state basis, and insurers are required to have enough cash on hand to pay claims.

And when it comes to the current AIG crisis, it is important to keep in mind that the problems are with the AIG holding company, not the AIG subsidiaries that underwrite insurance policies.

Even if AIG holding files for bankruptcy, the subsidiary that sold you your life insurance policy will continue to operate normally.

If Your Insurer Becomes Insolvent

You're still ok.

You're protected by your state's guaranty fund.

All 50 states have at least two or three of them, with one fund taking care of health and life insurance claims, the other property and casualty claims (homeowners, auto insurance, etc.).

These funds function much like the Federal Deposit Insurance Corporation (FDIC), which was created after the bank failures of the Great Depression. They protect consumers when financial institutions fail.