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What does liquidation of an insurance company mean?

Insurance insolvency is like bankruptcy; however federal bankruptcy laws do not apply to insurance companies. Broadly speaking, a court determines whether an insurance company is able to meet its ongoing obligations. If it is not, it is placed in liquidation, meaning a receiver or liquidator is appointed to liquidate the company and settle its affairs. Among other things, the liquidator cancels existing policies and arranges for open claim files to be transferred to guaranty associations in states where the insolvent company was licensed. Most guaranty associations, including South Dakota’s, do not cover claims if the insolvent insurer was not licensed in the state.

faq | by Dr. Radut