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 15, 2021

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When a company becomes insolvent — or is about to become insolvent — the insurance commissioner of the state with authority will step in and attempt to protect the policyholders. In many instances there is a guaranty association that was formed to provide financial assistance to protect policyholder interests. With the approval of the court, the insurance commissioner will take the company under supervision and develop a plan to either rehabilitate or liquidate the company. The results will vary from state to state and from situation to situation, but policyholders are likely to forfeit some of the benefits that they were entitled to under the policy that they purchased. That is why it is so important to choose a financially sound company when you purchase insurance.

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