People typically buy long-term care insurance years before they need it. As a result, they’re taking a gamble that the company will still be around when it’s time to pay out. What happens if the company goes out of business?

Usually, insurance companies don’t just suddenly shut their doors. Most commonly, another insurance company will buy out or absorb a company that’s in trouble, and the new company will honor the old company’s policies.

But in cases where an insurance company simply fails, every state has an insurance guaranty association that protects consumers. The purpose of this association is to take over the policies of an insurance company that’s experiencing financial difficulties and ensure that claims are paid. The guaranty association may provide insurance coverage directly to consumers, or it may facilitate the sale of the policies to another insurance company. It’s also possible that policyholders will be given the opportunity to cash in their policies.

The downside of the state guaranty association is that it provides coverage only up to a certain limit. Each state caps the maximum amount its association will pay out, and the figure is typically between $100,000 and $500,000 per policy, with most states offering about $300,000.

If your policy is purchased by another company or is taken over by a guaranty association, be sure to continue paying your premiums, because failing to do so could result in the policy’s termination.