4.3 Kansas Life and Health Insurance Guaranty Association

Purpose and Structure

The Kansas Life & Health Insurance Guaranty Association (KLHIGA) was created by the Legislature in 1972 and is governed by K.S.A. 40-3001 et seq. Its job is to protect Kansas resident policyholders, insureds, and beneficiaries when a member insurer becomes insolvent and can no longer pay claims. Every life and health insurer licensed in Kansas must be a member as a condition of doing business.

How a failure is handled

1. Liquidation order — a court, on the Commissioner's petition, declares the insurer insolvent and orders liquidation.
2. Association activates — KLHIGA assumes responsibility for covered Kansas policies.
3. Coverage continues — the Association continues coverage, transfers blocks to a solvent insurer, or pays claims directly, up to statutory limits.
4. Assessment — member insurers are assessed to fund the shortfall.

Coverage Limits

KLHIGA pays each type of benefit up to its own cap, but an overall aggregate maximum of $300,000 per individual applies across all coverages with the same insolvent insurer, no matter how many policies the person held.

Worked example: A Kansas resident holds, with one failed insurer, a life policy paying a $400,000 death benefit and an annuity worth $200,000. The death benefit is limited to the $300,000 life cap, and the annuity to $250,000 — but the overall $300,000 aggregate per individual controls, so the Association's total payment for that person is capped at $300,000.

What Is Covered and What Is Not

KLHIGA covers direct individual and group life insurance, health insurance, disability income, long-term care, and annuity contracts issued by member insurers to Kansas residents.

Generally NOT covered

• Policies from insurers not licensed in Kansas or not Association members
• Self-funded employer (ERISA) health plans and multiple-employer welfare arrangements
• Federal programs (Medicare, Medicaid, FEHB)
• Surplus lines and reinsurance
• Portions of any benefit that exceed the statutory caps
• The portion of a variable contract's value tied to a separate account the policyholder bears the investment risk on
• Synthetic/indexed guarantees and dividends not yet credited

Funding by Assessment

KLHIGA is not a pre-funded reserve held by the state. When an insolvency occurs, the Association levies assessments on its member insurers, allocated roughly in proportion to each member's Kansas premium volume in the relevant line. Insurers may, over time, recoup a portion through a premium-tax offset or rate adjustment, but consumers are not assessed directly.

Producer Restrictions — The Most-Tested Rule

K.S.A. 40-3019 forbids any person from using the existence of the Guaranty Association to sell, solicit, or induce the purchase of insurance. Producers therefore cannot:

• Advertise or promote KLHIGA protection as a benefit
• Imply a policy is "guaranteed" the way an FDIC-insured bank deposit is
• Suggest coverage exceeds the statutory caps

Producers may provide accurate information if a consumer asks, and the statutorily required notice of the Association's protections and limitations is delivered with the policy — but it cannot be used as a marketing pitch.

Exam Tip: The single most repeated point here is that the guaranty association cannot be used as a selling point. Pair that with the $300,000 life death benefit and the $250,000 annuity figure.

Kansas residents needing help with an insolvency can contact the Kansas Insurance Department consumer line at 800-432-2484.

The Required Disclosure Notice and Exam Anchors

While producers cannot market the Association, Kansas law requires that a Notice of Protection summarizing KLHIGA coverage and its limitations be provided with new life, annuity, and health policies. The notice is informational and must state plainly that it does not guarantee that all losses will be covered and that coverage is subject to the statutory caps.

Why the cannot-advertise rule exists

The Legislature feared producers would steer consumers toward weaker insurers by implying the state safety net makes carrier solvency irrelevant. Treating the Association like FDIC deposit insurance would distort the market and is exactly what K.S.A. 40-3019 forbids.

Residency and coverage triggers

Coverage generally follows the insured's residency in Kansas at the time the insurer is determined insolvent, not where the policy was sold. An out-of-state resident with a Kansas-licensed insurer typically looks to their own state's guaranty association instead.

Quick-recall set for the exam: $300,000 life death benefit; $100,000 life cash value; $250,000 annuity; $500,000 major medical; $300,000 aggregate per individual; funded by post-insolvency assessments; cannot be used as a selling point. Memorize these seven anchors, since they cover the bulk of likely questions on this topic.