the main points

  • Pet insurance claims are protected by a state warranty association.
  • These claims must be filed before the pet insurance company becomes insolvent.
  • Your state foster care association will insure pet insurance claims up to a maximum, usually $300,000.

The insurance industry, like banks, is highly regulated. When major insurance companies run into financial difficulties, the US government usually swoops in to bail them out. But what happens when small insurance companies falter—like some pet insurance companies? Who steps in to ensure policyholders get paid for their claims?

What happens if a pet insurance company fails?

Pet insurance companies are protected by state guarantee associations. If the insurance company becomes insolvent, these associations will pay claimants a certain amount—usually $300,000 each—for claims made before the insurance company failed.

All 50 states, plus the District of Columbia and Puerto Rico, have surety associations. Wherever a pet insurance company is headquartered, you must become a member of that state’s warranty.

Bankruptcies are rare. But when that happens, the state guarantor union usually does several things:

  • Putting the company in receivership. The guarantee union will try to prevent the company from going bankrupt. If that fails, the warranty will move to the next 3 steps.
  • Transfer of documents to another insurance company. Much like FDIC auctions of failed bank deposits, a state guarantee will look to other insurance companies to pick up policies.
  • Sale of insurance company assets. This money will be used to pay off the claims that were made before the company became insolvent.
  • Diving into the state’s guarantor funds. State guarantee associations are non-profit organizations and are funded by the insurance companies themselves. If the insurance company’s assets cannot pay the claims, the state guarantee will dip into its funds to pay a certain amount to the policyholders.

Will You Get Full Compensation for Your Pet Insurance Claims?

Unless you’re performing heart surgery on a humpback whale, then yes, you’ll likely get paid the full amount your policy allows.

Most state warranties will award a maximum of $300,000 for property and injury claims, which pet insurance, such as auto and home insurance, falls under. That’s enough to cover the unexpected average vet bill for both dog ($1,270 to $2,803) and cat ($961 and $2,487).

However, you will not get the full return unless you submit your claim before The insurance company became insolvent. If you file a claim after the company fails, the bail bond in your state cannot promise to pay your claim.

How to avoid risky insurance companies

Before choosing a pet insurance company, take a look at its credit rating to assess its financial strength. These ratings range from A to C or D, and you can usually find them on the company’s website. Alternatively, you can search for a company profile 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 insurance company’s ability to pay policyholders and meet its financial obligations. However, C or D ratings mean that the rating agency lacks confidence in the insurance company’s financial obligations.

Even if a company is in good financial standing, it can be downgraded to a lower rating over time. It is good practice, then, to check the financial condition of your pet insurance company the day before you renew your policy. If the company is still financially strong, you can continue with your policy. Otherwise, you may want to choose a better pet insurance company if your current insurance company’s finances are running low.

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