Before the creation of guaranty associations, a typical claimant could have waited for years for payment of a claim and then still receive only a fraction of what was due under the terms of the policy or contract.
Guaranty associations, subject to statutory limitations, were created to alleviate these problems and ensure the stability of the insurance market.
Guaranty associations were created to aid consumers in the event of an insurance company becoming insolvent during the claims process.
[5] Annuity contracts are protected against insurance company insolvency up to a specific dollar limit, often $100,000, but as high as $500,000 in New York,[6] New Jersey,[7] and the state of Washington.
When an insolvency occurs, the guaranty association steps in to protect annuity holders, and decides what to do on a case-by-case basis.