Life and Annuity License Practice Exam

The Insurance Guaranty Association is funded by its members, specifically authorized insurers. This funding structure is crucial because it allows the association to fulfill its primary purpose: to protect policyholders in the event that a member insurer becomes insolvent and is unable to meet its financial obligations. The contributions from the member insurers create a pool of funds that can be used to pay claims and ensure that policyholders do not suffer financial loss due to the failure of an insurer.

Typically, insurers pay assessments to the Association, and these assessments are usually calculated based on the amount of premiums they collect. This system helps ensure a stable funding source that can reliably support policyholders when necessary. The other options, such as government grants or fees collected from consumers, do not accurately represent how the Insurance Guaranty Association operates and sustains its funding. Premiums collected from policyholders go directly to insurers rather than the association itself; therefore, the correct understanding is that the funding comes from the authorized insurers that are members of the association.