Arizona Life and Health Practice Exam

What does the Arizona Life and Disability Insurance Guaranty Fund protect against?

1. High premium rates

2. Insurer's insolvency

3. Increased deductibles

4. Coverage exclusions

The correct answer is: Insurer's insolvency

The Arizona Life and Disability Insurance Guaranty Fund is designed to provide a safety net for policyholders in the event that an insurance company becomes insolvent. This means that if a licensed life or disability insurer is unable to meet its financial obligations or fails altogether, the Guaranty Fund steps in to protect policyholders. It ensures that customers can recover some of their benefits and claims even when their insurer cannot fulfill its promises due to financial failure. This protection is crucial because it adds stability to the insurance market and reassures consumers that their coverage will remain intact, even in unfortunate circumstances. The fund is funded by assessments on member insurance companies, thereby spreading out the risk across the industry rather than placing it solely on individual policyholders. This function of the Guaranty Fund addresses the concern that policyholders might face significant financial loss or coverage gaps due to insurer insolvency. Other options, such as high premium rates, increased deductibles, and coverage exclusions, do not relate to the function of the Guaranty Fund. These factors pertain more to the terms and conditions of individual insurance policies or market conditions rather than a safety net for financial solvency.