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Debt Relief – Insolvency – Bankruptcy Information » Bankruptcy Info, Bankruptcy Law, Insolvency » If a life insurance company goes bankrupt, what happens to whole life insurance benefits?

If a life insurance company goes bankrupt, what happens to whole life insurance benefits?

My Dad purchased whole life insurance through AXA Equitable which is all paid for. What happens if the life insurance company goes bankrupt or their assets are under water like so many other financial institutions these days? Will the benefits still be payable?

I also think it’s strange that he had to pay $700 more to this insurance company as an “adjustment”(?) recently even though the policy was fully paid for a long time ago. Is this normal?

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8 Responses to "If a life insurance company goes bankrupt, what happens to whole life insurance benefits?"

  1. Chris C says:
    If an insurance company goes bankrupt, typically the company that buys that bankrupt one has to honor the policies that were inforce.

    Example: Sun Life in Canada has bought out several companies including Prudential, Clarica and Met Life. Sun Life still maintains those policies, they just have a different logo on the letterhead now.

    FYI, AXA has more than $660 Billion in assets under management. I doubt that they will be going bankrupt. Liquidity issues maybe, but not bankrupt. There are a lot of financial companies that peopel think are going bankrupt becuase of vague headlines in the news. IE: AIG…they are no where near being bankrupt, they just have liquidity problems…think of it like you get laid off work for 2 months and you don’t have any easily available cash…you use your credit card to get buy…now imagine this bailout as being your credit card, only the AIG situation has A LOT more zero’s at the end. They just need a little cash until they can free up some of thier own.

    Not sure about that adjustment. Depends on what type of policy it is that you have. If it’s a U/L policy or something where perhaps dividends were paying the premiums then an adjustment could be very normal. Best bet is to speak with your agent and inquire obout what the adjustment is for and why it is what it is.

  2. Donnie T says:
    Life insurance companies are highly regulated and have to have enough money in reserves to pay out claims and there are reinsurance companies that insure that the company that they insure does have a problem paying claims on existing policies in case of an unexpected senario, like a bad flu epidemic with a high percentage of their policy holders. So, yes it will still pay the benifits upon your father’s death.
  3. mbrcatz says:
    If the carrier goes bankrupt, the policy gets transferred to another insurance company licensed to do business in your state. It happens ALL THE TIME, companies going out of business and policies being transferred.

    Yep, that “adjustment” happens, and if the policy is actually not whole life, but a different kind of policy, it’s going to start costing every year as the investment returns won’t be enough to pay the premium every year. I’d suggest that the policy is not “paid up”.

  4. car253 says:
    There are some great answers here. But Chris had the best one.

  5. Barry auh2o says:
    You wouldn’t even know it. You would get a letter,
    ” Dear policyholder,
    Your policy with AXA will now be serviced by XAX Life. If you have any questions, call 1-800.— —-. Please put this notice with your policy.”

  6. Michael R says:
    If the company went into liquidation (Ch-7), that means that all of its assets will be sold to pay its debts. The money will got to a receiver, who will then pay the claims against the company. There is a time limit to file a claim, and you should contact your state insurance department immediately for instructions on how to do this. Beware, you will get only pennys on the dollar, as the company would not be in liquidation if it had anywhere near enough assets to cover. Also, most states have liquidation bureau that is funding by all insurance companies in the state so that there is some money for people entitled to collect. Those funds are generally limited.

    If the company filed CH 11, that means that you will probably be okay and the company will operate, for your purposes, normally. Under this circumstance, it will re-negotiate with its creditors and probably come out of bankruptcy relatively unscathed. This is what most airlines have done to continue operating. They are burdened by huge obligations from past contracts, they minimize those obligations and then are able to operate in a profitable manner.

  7. vbgore says:
    Sit back and relax my friend. The fact of the matter is that insurance companies do not go bankrupt in the normal sense. They simply get acquired by other insurers. Sounds like your dad may have had a hybrid policy that has an investment component to it. The investment is not doing well and isn’t covering the cost of maintaining the policy costs. Hard for me to advise further without seeing the policy etc. But in any case don’t be concerned about the solvency of the insurance carrier.
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