DEFINITION of Central Guarantee Fund
A fund set aside by state insurance regulators to pay out claims to policyholders in the event an insurance company becomes insolvent. The central guarantee funds are accumulated from regular assessments charged to operating insurance companies. When an insurance company is declared insolvent by the state courts, regulators recover the company's remaining assets into the central guarantee fund. Remaining policyholder claims are then paid out of the fund.
BREAKING DOWN Central Guarantee Fund
The individual consumer is ill equipped to assess the solvency of an insurance company. The use of a central guarantee fund by some state insurance regulators gives consumers piece of mind that their claims will be honored even if their insurer goes bankrupt. State insurance regulators enforce strict collateral requirements meant to ensure prudence, keep insurers solvent and limit the need for payouts from the guarantee fund.