State RegulationsNJ specificDifficulty 2/5
How is the New Jersey Life and Health Guaranty Association funded to meet the obligations of an insolvent member insurer?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under N.J.S.A. 17B:32A-1 et seq., the association raises the money it needs by assessing its member insurers — the companies licensed to write life and health coverage in the state. When a member insurer fails, the surviving members are assessed to continue coverage or pay the insolvent insurer's obligations within the act's limits. The system is industry-funded under the supervision of the New Jersey Department of Banking and Insurance, so the cost of insolvency is shared by the market rather than dumped on policyholders or taxpayers.
Why the other options are wrong
- A) The association is not a state agency drawing legislative appropriations; it is funded by the insurance industry itself.
- C) Policyholders are not billed a guaranty surcharge; the assessment burden falls on member insurers.
- D) No federal grants support state guaranty associations; the funding mechanism is member insurer assessments.
Memory hook
Member insurers pay the bill — the safety net is woven from industry assessments.