Main points
- Pet insurance claims are protected by a state insurance association.
- These claims must be filed before the pet insurance company receives a claim.
- Your state insurance association will insure your pet insurance up to a maximum of $300,000.
The insurance industry, like banking, is heavily regulated. When big insurance companies get into financial trouble, the US government usually steps in to bail them out. But what happens when smaller insurers — like some pet insurance companies — fail? Who is responsible for ensuring that policyholders get paid on their claims?
What happens if your pet insurance company fails?
Pet insurance companies are protected by government insurance companies. If an insurance company goes bankrupt, these associations pay claimants up to a certain amount — usually $300,000 per individual — before the insurance company rejects them.
All 50 states, as well as the District of Columbia and Puerto Rico, have guaranty associations. Where a pet insurance company is headquartered, it must be a state guarantor.
Loss is rare. But when they do happen, the state guaranty association does several things:
- Place the company in receivership. The surety bond tries to protect the company from bankruptcy. If this fails, the warranty will move to the next three stages.
- Transfer policies to another insurance company. Just as the FDIC auctions off the deposits of failed banks, it looks to other insurance companies to take out government guarantee policies.
- Sell the assets of the insurance company. This money will be used to repay claims made before the company went bankrupt.
- Enter the state bailout fund. State guaranty associations are not-for-profit and are sponsored by insurance companies. If the insurance company’s assets fail to cover claims, government guarantees will step in to pay policyholders up to a certain amount.
Do you get full coverage for your pet insurance?
Unless you’re having heart surgery at Humpback Whale, yes, you may get the full payout your policy allows.
Most state warranties offer a maximum of $300,000 for property and casualty claims. That’s enough to cover the average unexpected pet bill for both a dog ($1,270 to $2,803) and a cat ($961 to $2,487).
That said, you’ll only get the full payout if you submit your claim. before The insurance company suffered a loss. If you filed after the company failed, your state’s insurance association can’t promise that your claim will be paid.
How to avoid dangerous insurance companies
Before choosing a pet insurance company, check its credit rating to assess its financial strength. These grades range from A to C or D, and you can usually find them on the company’s website. Alternatively, you can search for company profiles on the websites of the following five major credit rating agencies:
A rating of A or higher (A++, AAA, Aaa) indicates that the credit agency has confidence in the insurer’s ability to pay policyholders and meet its own financial obligations. C or D ratings, however, mean the rating agency has no confidence in the insurance company’s financial obligations.
Even if a company has a good financial position, it can fall to a low level over time. A good practice is to check the financial status of your pet insurance company the day before your policy is due to renew. If the company is still financially strong, you can continue your policy. Otherwise, you may want to choose a better pet insurance company if your current insurer’s financing is reduced.