4.3 Maine Life and Health Insurance Guaranty Association

Purpose and Structure

The Maine Life & Health Insurance Guaranty Association (MELIFEGA) is a nonprofit safety net created under Title 24-A, chapter 62. Every insurer licensed to write life, health, or annuity business in Maine must be a member. When a member company becomes insolvent, the association steps in to continue coverage or pay covered claims, up to statutory limits, for Maine residents (and in defined cases, the policyholders of a Maine-domiciled failed insurer).

How a Failure Is Handled

1. Regulatory takeover — the Superintendent of Insurance petitions a court to place the troubled insurer into rehabilitation and, if it cannot recover, liquidation.
2. Liquidation order — a court declares the insurer insolvent and appoints the Superintendent as receiver.
3. Association activation — MELIFEGA assumes responsibility for covered policies, either by continuing them, transferring them to a solvent insurer, or paying claims.
4. Assessment of members — the association raises the money by assessing the remaining member insurers.

Funding

MELIFEGA has no standing fund of its own; it is post-assessment. After an insolvency, surviving member insurers are assessed in proportion to their Maine premium volume in the relevant account (life, annuity, or health). Insurers may recoup these assessments over time through a premium-tax offset or rate adjustments, so the cost can ultimately flow to policyholders. This post-funding design is why the association cannot guarantee instant, full payment the way a pre-funded bank guarantee might — and it is one reason advertising it is forbidden.

Exam Tip: The association is funded by assessments on member insurers after an insolvency occurs, not by a pre-built fund and not by the State of Maine's general revenue.

Coverage Limits

These per-life limits are the most heavily tested numbers in the chapter. The cap applies per insured life, per insolvent insurer, regardless of how many policies the person owns.

Life Insurance

Note the relationship: the death-benefit cap is $300,000, but if the claim is for cash value the limit drops to $100,000. A policy with a $500,000 face amount is protected only to $300,000.

Annuities

Structured settlement annuities are also limited to $250,000 in the aggregate per payee.

Health Insurance

Overall Aggregate

No matter how many contracts an individual holds with a single insolvent insurer, the association's total obligation for that one life is capped at $5 million.

What Is and Is Not Covered

Covered: individual and group life, annuities, individual and group health, disability income, and long-term care issued by licensed member insurers to Maine residents.

Not Covered:

• Policies from insurers never licensed in Maine, or from non-member insurers
• Self-funded employer (ERISA) plans and multiple-employer welfare arrangements
• Government programs such as Medicare and Medicaid
• Surplus lines and most unallocated annuity contracts beyond statutory caps
• Any amount exceeding the per-life limits above
• Synthetic guaranteed-investment, fraternal benefit, and certain charitable-gift-annuity products as carved out by statute

Producer Advertising Prohibition

Maine law bars producers and insurers from using the existence of the guaranty association in any advertising or sales presentation. A producer may not:

• Say a policy is "backed" or "guaranteed" by the association or the State
• Compare the association to FDIC bank insurance
• Use the association as a reason to buy from a weaker carrier

Exam Tip: The required notice (a disclaimer) is delivered with the policy by the insurer; it is never a marketing tool. Treat any answer that lets a producer "sell" the guaranty fund as wrong.

Worked Scenarios

The exam often tests the limits with layered fact patterns. Work through these:

• A Maine resident holds two annuities from the same failed insurer: one worth $180,000 and one worth $120,000 in present value. The combined $300,000 exceeds the $250,000 annuity cap, so the association pays $250,000 total — the limit aggregates per insured, not per contract.
• A policyholder has a $250,000 term life policy and a separate $250,000 deferred annuity with the same insolvent carrier. These fall in different coverage categories, so the life death benefit (up to $300,000) and the annuity present value (up to $250,000) are evaluated under their own caps, subject to the overall $5 million per-life aggregate.
• A Maine couple bought a policy from a company licensed only in another state. Because the insurer was never a Maine member, MELIFEGA provides no coverage — residency alone does not trigger protection.

Comparison: Guaranty Association vs. FDIC

Drawing this comparison to a client is exactly what the advertising prohibition forbids, even though the comparison is useful for your own understanding.

Why the Limits Matter to Producers

Understanding these caps helps a producer give honest, suitable advice without crossing the advertising line. If a high-net-worth client wants $1 million of permanent life coverage, the producer may quietly factor carrier financial strength (for example, an independent rating) into the recommendation — but must frame the discussion around the insurer's soundness, never around association backup. The association is a backstop for solvency failures, not a substitute for placing business with a financially sound, properly licensed Maine member insurer.