- Pet insurance claims are protected by a state guarantee association.
- These claims must be made before the pet insurance company goes bankrupt.
- Your state guaranty association will insure your pet up to a maximum amount of insurance claims, usually $300,000.
The insurance industry, like banking, is heavily regulated. When large insurance companies get into financial trouble, the US government usually jumps in to bail them out. But what happens when smaller insurers — like some pet insurance companies — falter? Who takes steps to ensure that policy holders get paid for their claims?
What happens if your pet insurance company fails?
Pet insurance companies are protected by state guaranty associations. If an insurance company goes bankrupt, these associations will pay claimants up to a certain amount — usually $300,000 per person — for claims filed before the insurance company failed.
There are guaranty associations in all 50 states, plus the District of Columbia and Puerto Rico. Wherever a pet insurance company is headquartered, it must be a member of Guaranty in that state.
Incontinence is rare. But when they do happen, a state guaranty association will usually do several things:
- Place the company in receivership. The guarantee association will try to prevent the company from going bankrupt. If it fails, the guarantee will move on to the next three steps
- Transfer the policy to another insurance company. Much like the FDIC auctioning off deposits from failed banks, the state guarantee will look to other insurance companies to pick up policies.
- Selling assets to insurance companies. The money will be used to pay back claims filed before the company went bankrupt.
- Dive into state guarantee funds. State guaranty associations are nonprofit and funded by insurance companies. If an insurance company’s assets cannot pay back claims, the state guaranty will dip into its fund to pay policyholders up to a certain amount.
Will you receive full payment for your pet insurance claim?
If you’re not performing heart surgery on a humpback whale, then, yes, you’ll probably get the full payment your policy allows.
Most state guarantees will pay a maximum of $300,000 for property and casualty claims, which pet insurance, like auto and homeowners insurance, covers. That’s enough to cover the average unexpected vet bill for both a dog ($1,270 to $2,803) and a cat ($961 to $2,487).
That said, you will only receive full payment if you file your claim before The insurance company went bankrupt. If you file after the company fails, your state’s guaranty association may not 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 company profiles on the websites of the following five major credit rating agencies:
A rating of A or higher (A++, AAA, Aaa) indicates that crediting agencies have confidence in the insurer’s ability to pay policyholders and meet its own financial obligations. A rating of C or D, however, indicates the rating agency’s lack of confidence in the insurance company’s financial commitment.
Even if a company is in good financial condition, it can be downgraded to a lower rating over time. Then, a good practice is to check the financial standing of your pet insurance company the day before your policy renewal. 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 coverage drops.