4.3 Indiana Life and Health Insurance Guaranty Association
Key Takeaways
- The Indiana Life and Health Insurance Guaranty Association (ILHIGA) pays covered claims when a member life/health insurer becomes insolvent, with limits set for insolvencies on or after January 1, 2013
- Life death benefits are covered to $300,000 and cash surrender/withdrawal value to $100,000; annuity present value to $250,000
- Health coverage is tiered: $500,000 for basic hospital/medical/major medical, $300,000 for disability and long-term care, $100,000 for other health
- An overall aggregate cap of $300,000 applies per individual life regardless of how many policies the person holds with the insolvent insurer (annuity present value still caps at $250,000)
- IC 27-8-8 makes it an unfair practice to use ILHIGA coverage as an inducement to buy insurance — producers may not advertise or sell on the guaranty
Purpose and Statutory Basis
The Indiana Life and Health Insurance Guaranty Association (ILHIGA), created under IC 27-8-8, is the safety net that protects Indiana policyholders, insureds, and beneficiaries if a member life or health insurer becomes insolvent. Every insurer licensed to write life, annuity, or health business in Indiana must belong to ILHIGA as a condition of doing business. The association is funded by assessments levied on member insurers in proportion to their Indiana premium — not by taxpayers.
How an Insolvency Unfolds
| Step | What happens |
|---|---|
| 1. Supervision | IDOI Commissioner identifies a troubled insurer |
| 2. Court order | Insurer placed in rehabilitation or liquidation |
| 3. ILHIGA activates | Association assumes covered obligations |
| 4. Continuation | Coverage continued or transferred to a solvent insurer |
| 5. Assessment | Member insurers assessed to fund the shortfall |
Key distinction: rehabilitation is an attempt to rescue the insurer; liquidation is a wind-down. ILHIGA's statutory limits apply once an order is entered, and the limits in force today govern insolvencies on or after January 1, 2013.
Why Producers Must Know the Limits
The exam tests the limits as exact dollar figures and — just as often — tests the rule that producers cannot sell on them. Knowing both halves protects clients (who should not over-rely on the guaranty) and keeps the producer out of an unfair-practice violation. A client who asks directly is entitled to accurate information, but the producer may not volunteer the guaranty as a reason to buy or to switch carriers.
ILHIGA Coverage Limits (Insolvencies On or After Jan 1, 2013)
These figures are exam gold. Note the overall aggregate cap: regardless of how many policies or contracts an individual holds with the insolvent insurer, total protection is capped at $300,000 per individual life — except that the annuity present-value figure is $250,000.
Life Insurance
| Benefit | Maximum |
|---|---|
| Death benefit | $300,000 per life |
| Net cash surrender / withdrawal value | $100,000 per life |
Annuities
| Benefit | Maximum |
|---|---|
| Present value (incl. cash/withdrawal value) | $250,000 per contract |
| Covered unallocated annuity (benefit plan) | $5,000,000 per plan/contract holder |
Health Insurance (Tiered)
| Health category | Maximum |
|---|---|
| Basic hospital, medical/surgical, or major medical | $500,000 |
| Disability income and long-term care | $300,000 |
| Other health insurance | $100,000 |
Exam tip: The single most-tested numbers are $300,000 life death benefit and $250,000 annuity present value, with the $300,000 overall per-individual aggregate cap. Watch a trap where a person holds two life policies totaling $500,000 — ILHIGA still pays only up to $300,000.
Worked Example
A retiree owns a $250,000 term life policy and a $200,000 annuity with the same now-insolvent insurer. The life death benefit ($250,000) is within the $300,000 life cap, and the annuity present value ($200,000) is within the $250,000 annuity cap. Because life and annuity caps are applied to their own categories, both are fully protected here. Had the life policy been $400,000, ILHIGA would pay only the $300,000 life maximum.
What ILHIGA Covers — and Doesn't
Covered
- Individual and group life insurance for Indiana residents
- Annuity contracts (allocated and certain unallocated)
- Health insurance, including major medical, disability income, and long-term care
- Supplemental and Medicare-supplement (Medigap) policies
Not Covered (Common Exclusions)
- Policies from insurers not licensed/not members in Indiana
- Self-funded (ERISA) employer health plans
- Government programs and Medicare Parts C & D
- Surplus-lines and unauthorized-insurer policies
- PBGC-protected plan annuities
- Any amount above the statutory limits
- The portion of an interest rate or crediting rate above the average rate ILHIGA may guarantee
Funding by Assessment
ILHIGA has no standing fund waiting in a vault. When an insurer fails, ILHIGA assesses solvent member insurers based on their share of Indiana premium for that line. Insurers may, over time, recoup assessments through premium-tax offsets or rate adjustments — but the consumer never pays ILHIGA directly.
The Producer Advertising Prohibition
This is among the most frequently tested single rules in Chapter 4. Under IC 27-8-8 it is an unfair trade practice to use the existence of ILHIGA as an inducement to purchase or retain insurance.
| A producer may NOT | A producer MAY |
|---|---|
| Advertise or print ILHIGA in marketing | Answer factual questions if asked |
| Say a policy is 'guaranteed' by the state | State the accurate coverage limits when asked |
| Compare ILHIGA to FDIC insurance | Direct the client to the IDOI/ILHIGA for details |
| Imply protection exceeds the real limits | Provide the statutory disclaimer at delivery |
Exam tip: Remember the asymmetry — volunteering the guaranty to make a sale is prohibited; answering accurately when a consumer raises it first is allowed. Comparing ILHIGA to FDIC bank insurance is specifically called out as improper.
Claim Process After Insolvency
- The court-appointed liquidator notifies affected policyholders.
- ILHIGA reviews which policies and amounts are covered.
- Benefits are continued, transferred, or paid within the statutory limits.
- Amounts above the limits become claims against the insolvent estate, paid only if estate assets allow.
An Indiana resident holds a $400,000 life insurance policy with an insurer that is placed in liquidation in 2026. How much of the death benefit will ILHIGA cover?
A prospect asks, 'If my new insurer fails, am I protected?' The most compliant producer response is to:
Which of the following is NOT covered by ILHIGA?
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