What Happens When A Company Becomes Insolvent And Is Liquidated?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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When an insurance company becomes insolvent, other life insurance companies that are headquartered or do business in the same state will rescue the faltering company. This is recognized as one of the responsibilities of companies that do business in that state. The state’s life companies can be assessed by the state regulators to help with the bailout, but frequently (especially if it is a small company that is in trouble), a larger company will take it over on their own initiative, or with only the slightest encouragement by the regulator.

The policyholders of the failed company may be unable to withdraw money from their policies for some time, but eventually they will probably get all, or nearly all of what they are entitled to under their contracts.

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