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What does it mean when an insurance company is placed into liquidation?

It’s similar to bankruptcy, except the process is managed by state courts and state insurance departments.  When an insurance company has been found by a court to have insufficient funds to pay all of its claims, the court orders the company into liquidation, and the insurance department in the company’s home state becomes the Receiver or Liquidator of the company in order to liquidate its assets for the benefit of policyholders and claimants.  Claims payments are usually stopped, and all of the company’s insurance policies are canceled.  Existing claims are then referred to the appropriate state guaranty association for handling.

faq | by Dr. Radut