Is it true that an insurance policy is backed dollar for dollar?

Question

Is it true that an insurance policy is backed dollar for dollar?

Answer 1

Some yes, some no. Ask your insurance agent for details instead of asking complete strangers.

Answer 2

Part of the problem with sub prime mortgages arose from the failure of insurers who held far too little reserves.

But it would have been unreasonable to require a 100% reserve when the risk of loss might have toped out below 20%.

We make estimates or risk, and insist that insurers carry that much reserve. If we estimate wrongly we can see the insurer fail, unable to satisfy claims.

Answer 3

No.  Insurance companies are required to maintain certain cash reserves to cover expected claims.

Answer 4

Not exactly.  

Insurance companies do NOT have enough money to pay off the policy limit, if every single policy they held, had a policy limit claim at the same time.  That's why there are general exclusions for flood, radiation, war, etc - it's not insurable, it's too much of a disaster.

However, if your policy is from an insurance company admitted to do business in your state, then any claims are "guaranteed" by a state insurance solvency fund.  It's not advertised, because it's illegal to advertise about that, but it's still there - so if your admitted insurance company goes broke, YOUR claim can still be paid from the state solvency fund.

But it might take a long, long time to get the money.