DEFINITION of 'State Guaranty Fund'

A fund administered by a U.S. state to protect policy holders in the event that an insurance company defaults on benefit payments or becomes insolvent. The fund only protects beneficiaries of insurance companies that are licensed to sell insurance products in that state.

BREAKING DOWN 'State Guaranty Fund'

These state funds act as a form of insurance for insurance, and are funded by insurance companies that sell insurance in a given state.

The amount of funding an insurance company is required to pay is a percentage, ranging from 1- 2% of the net amount of insurance it sells within any particular state.

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