4.3 Connecticut Life and Health Insurance Guaranty Association
Key Takeaways
- CLHIGA pays covered claims of insolvent life and health insurers, funded by post-insolvency assessments on member insurers
- Connecticut's per-insured-life aggregate cap is \$500,000 across all coverages — higher than the common \$300,000 in many states
- Annuity present-value protection in Connecticut is \$500,000 (corrected from the often-cited \$250,000 NAIC model figure)
- Coverage requires the insurer to have been licensed in Connecticut; surplus lines and self-funded plans are excluded
- Conn. Gen. Stat. § 38a-867 prohibits producers from advertising or using CLHIGA coverage as a sales inducement
Purpose of CLHIGA
The Connecticut Life and Health Insurance Guaranty Association (CLHIGA) is a statutory safety net that protects Connecticut residents when a member life or health insurer becomes insolvent and cannot pay claims. It is created and governed by the Connecticut Guaranty Association Act, Conn. Gen. Stat. §§ 38a-858 through 38a-875. Every insurer licensed to write life, health, or annuity business in Connecticut is required to be a member as a condition of its license — there is no opting out.
How it is funded — assessment, not a pre-paid fund
A crucial and frequently tested point: CLHIGA holds no large standing reserve. When an insurer fails, the association levies assessments on the remaining solvent member insurers to raise the money needed to cover claims. Insurers may, in turn, recoup a portion of those assessments through premium-tax offsets. This is the opposite of the FDIC's pre-funded model — a comparison the exam expects you to keep distinct.
The insolvency process
- Liquidation order: The Insurance Commissioner petitions a court to place the insolvent insurer into receivership/liquidation.
- Association activates: CLHIGA assumes responsibility for covered policies of Connecticut residents.
- Coverage continues: Policies may be continued, reinsured, or transferred to a solvent insurer, up to statutory limits.
- Claims paid: Benefits and cash values are paid up to the caps below; amounts above the caps become claims against the insolvent estate.
Coverage Limits (Connecticut)
Connecticut sets relatively generous limits and applies an overall aggregate cap of $500,000 for any one insured life, no matter how many policies that life holds with the failed insurer.
| Coverage type | CLHIGA maximum |
|---|---|
| Life insurance death benefit | $500,000 per insured life |
| Life insurance net cash surrender value | $500,000 per insured life |
| Health insurance / healthcare-center benefits | $500,000 per insured life |
| Annuity present value | $500,000 per contract owner |
| Aggregate — all coverages on one life | $500,000 total |
Exam correction: Older study notes cite a $250,000 annuity limit — that is the NAIC model act figure, not Connecticut's. Per the CLHIGA FAQ, Connecticut protects annuity present value up to $500,000, with a single $500,000 aggregate across all coverages on one insured life. If a Connecticut-specific question offers $250,000 for annuities, it is a distractor.
Worked example: A Connecticut resident holds a $400,000 life policy and a $300,000 deferred annuity, both with the same insolvent insurer. The death benefit ($400,000) and annuity value ($300,000) total $700,000, but CLHIGA caps recovery at the $500,000 aggregate for that one life. The remaining $200,000 is a claim against the liquidation estate, payable only if estate assets allow.
What Is and Is Not Covered
Coverage hinges on whether the insurer was a licensed member and whether the policyholder is a Connecticut resident.
Covered
- Individual and group life insurance on Connecticut residents
- Annuities (including structured settlement annuities for residents)
- Health insurance, disability income, and long-term care issued by licensed health insurers
- Cash surrender values, up to the aggregate cap
NOT covered (high-yield exclusions)
| Excluded | Reason |
|---|---|
| Policies from insurers not licensed in Connecticut | Non-member insurers pay no assessments |
| Self-funded employer (ERISA) plans | Not "insurance" subject to state guaranty law |
| Surplus lines and unauthorized insurers | Outside the licensed-member system |
| Federal/government programs (Medicare, Medicaid) | Backed by government, not CLHIGA |
| Amounts above the statutory caps | Become claims against the estate |
| Investment risk in variable products (separate-account portion) | Held in segregated accounts, not the general account |
| Policies where the insured was not a Connecticut resident on the relevant date | Residency triggers coverage |
The Producer Advertising Prohibition
This is the most heavily tested CLHIGA rule. Conn. Gen. Stat. § 38a-867 makes it an unlawful practice to use the existence of the guaranty association in any advertising or as an inducement to buy insurance. The reasoning: allowing producers to market "your policy is backed by the state" would let weak insurers compete on a false safety promise and undermine sound underwriting.
A producer may NOT:
- Use CLHIGA coverage as a selling point or close a sale by citing it
- Advertise, circular, or print guaranty-association protection in sales literature
- Imply a policy is "guaranteed" or "insured by the State of Connecticut"
- Compare the protection to FDIC or any bank deposit insurance
Connecticut law instead requires insurers to deliver a standardized disclaimer/notice explaining the association's limits and the prohibition — but only as a consumer disclosure, never as a marketing tool.
Exam tip: Two facts win most CLHIGA questions: (1) the $500,000 aggregate per insured life, and (2) producers cannot use the association to sell. Pair them with the funding fact — claims are paid by post-insolvency assessment on solvent members, not a pre-paid fund — and you cover the chapter's most common items.
Quick Comparison: CLHIGA vs. FDIC
| Feature | CLHIGA | FDIC |
|---|---|---|
| Protects | Life/health/annuity policyholders | Bank depositors |
| Funding | Post-insolvency assessments on insurers | Pre-funded federal reserve |
| Marketing use | Prohibited by § 38a-867 | Banks may advertise FDIC membership |
| Connecticut cap | $500,000 aggregate per life | $250,000 per depositor, per bank |
A Connecticut resident's insurer becomes insolvent. She held a $400,000 life insurance death benefit and a $300,000 annuity with that insurer. What is the most CLHIGA will pay on her behalf?
Which statement about how CLHIGA is funded is correct?
Under Connecticut law, a producer may do which of the following regarding the guaranty association?
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