State annuity protection

Alabama Annuity Guaranty Protection: $250,000 Limit Explained

Alabama generally provides up to $250,000 in protection for the present value of covered annuity benefits with respect to one life, including eligible net cash surrender and withdrawal values, subject to eligibility requirements and statutory exclusions.

Alabama annuity protection at a glance

Annuity benefit limit
$250,000
Covered annuity benefits measured at present value, including qualifying net cash surrender and qualifying net cash withdrawal amounts
Overall benefit cap
$300,000
Most covered life, annuity, and structured-settlement benefits are subject to a $300,000 aggregate with respect to one life. The ordinary annuity limit remains $250,000.
Who provides protection
Alabama Life and Disability Insurance Guaranty Association
The Alabama Life and Disability Insurance Guaranty Association (ALDIGA) may act for an impaired member insurer under rehabilitation or conservation and has specified duties when a member insurer is ordered into liquidation with a finding of insolvency.
Insurer requirement
Member insurer
The issuing insurer must qualify as a member insurer under Alabama law, and the policy or contract must otherwise be covered under Chapter 44.

How the $250,000 limit works

Alabama law provides up to $250,000 in present-value annuity benefits with respect to one life, regardless of the number of policies or contracts. ALDIGA’s FAQ illustrates the limit using a per-owner example. The current statutory schedule became effective January 1, 2013.

Technical note: Alabama’s statute states the ordinary annuity limit with respect to one life, while ALDIGA’s FAQ uses owner-based examples. Unusual owner/annuitant or joint-ownership structures may require case-specific confirmation. Act 2012-319 and the amended Alabama Code provisions became effective January 1, 2013; this article uses that date rather than the FAQ’s inconsistent “Post July 1, 2012” label.

Multiple annuity contracts covering the same life with the same impaired or insolvent member insurer do not each receive a separate $250,000 limit.

Coverage limits are generally applied separately to each impaired or insolvent member insurer, subject to Alabama’s eligibility and interstate coordination rules.

The $300,000 aggregate does not increase Alabama’s separate $250,000 ordinary annuity limit.

  • A qualifying structured-settlement payee, or the beneficiary or beneficiaries of a deceased payee, may receive up to $250,000 in present-value annuity benefits, subject to Alabama’s eligibility rules and applicable $300,000 aggregate.

A $300,000 annuity example

Assume an individual has an eligible deferred annuity with a covered present value of $300,000 at one impaired or insolvent member insurer and no other covered benefits subject to the same aggregate.

Annuity value

$300,000

Potential protection

$250,000

Possible receivership claim

$50,000

In this example, up to $250,000 may qualify for ALDIGA protection, while the remaining $50,000 may remain a claim against the insurer’s receivership estate.

This example assumes that the claimant, insurer, and contract satisfy Alabama’s eligibility requirements and illustrates only the ordinary annuity limit.

Which annuities are covered?

  • Fixed annuity

    Generally covered

    Fixed annuities are generally covered up to Alabama’s $250,000 present-value annuity limit, subject to eligibility requirements and statutory exclusions.

  • Fixed indexed annuity (FIA)

    Generally covered

    FIAs are generally covered to the extent of qualifying insurer-guaranteed benefits. Certain uncredited or forfeitable index-linked amounts may be excluded; however, when value is credited less frequently than annually, Alabama determines the value as though the earlier impairment or insolvency date were the contractual crediting date.

  • Multi-year guaranteed annuity (MYGA)

    Generally covered

    MYGAs are generally treated as fixed deferred annuities and are subject to Alabama’s $250,000 annuity limit, statutory interest-rate restrictions, and other exclusions.

  • Variable annuity

    Guaranteed portions may be covered

    Protection is limited to qualifying obligations guaranteed by the insurer. Separate-account gains and losses assigned to the contract owner are generally outside Alabama’s guaranty protection.

  • Registered index-linked annuity (RILA)

    Contract-specific

    RILA protection may extend to a qualifying obligation guaranteed by the insurer, but not to the portion of value exposed to market or index risk borne by the contract owner.

  • Unallocated annuity contract

    Generally excluded

    Unallocated annuity contracts are generally excluded, except to the extent specific annuity benefits are guaranteed to an individual under the contract or certificate.

Who may qualify?

  • Residency is determined on the date of entry of the court order determining the member insurer to be impaired or insolvent.
  • For ordinary annuities, eligibility generally follows the qualifying owner or certificate holder. Structured-settlement coverage instead follows the qualifying payee or, if the payee is deceased, the beneficiary or beneficiaries.
  • A nonresident may qualify in limited circumstances when the issuing insurer is Alabama-domiciled, the state of residence has a similar guaranty association, and the person is not eligible for protection from that association because of the insurer’s licensing status there.
  • Alabama’s interstate coordination rules are intended to provide coverage through only one state guaranty association and prevent duplicate recovery.

What is not covered?

  • Portions of a policy or contract that are not guaranteed by the member insurer, or where the policy or contract owner bears the investment risk, are generally excluded from guaranty protection.
  • Interest, crediting rates, or similar factors above Alabama’s statutory limits based on Moody’s Corporate Bond Yield Average may be excluded from guaranty protection.
  • Certain uncredited or forfeitable index-linked amounts may be excluded. If index-linked value is credited less frequently than annually, Alabama calculates the value as though the earlier impairment or insolvency date were the contractual crediting date and treats that amount as credited and nonforfeitable.
  • Unallocated annuity contracts are generally excluded, except to the extent an annuity benefit is specifically guaranteed to an individual and therefore falls outside the statutory definition of an unallocated annuity contract.
  • Claims based on marketing materials, unauthorized side letters or riders, misrepresentations, bad faith, and other extra-contractual obligations are generally excluded.
  • Punitive or exemplary damages, attorneys’ fees and costs, penalties, and consequential or incidental damages are excluded from guaranty protection.
  • A reinsurance obligation is outside guaranty protection unless the insurer issued an assumption certificate.
  • Self-funded or uninsured employer benefit arrangements are generally excluded.
  • Guaranty protection does not generally include dividends, experience-rating credits, or voting rights.
  • Policies or contracts issued in Alabama by a member insurer that lacked authority to issue them are generally excluded.
  • Book-value accounting guarantees for defined-contribution benefit plans are excluded.
  • Medicare Part C and Part D benefits are excluded from guaranty protection.

What happens when an insurer becomes impaired or insolvent?

  1. 1

    Determine which statutory benefit schedule applies

    Determine whether the relevant impairment or insolvency occurred under the current schedule effective January 1, 2013 or under Alabama’s earlier guaranty limits.

  2. 2

    Confirm eligibility

    ALDIGA determines whether the claimant, issuing insurer, and contract satisfy Alabama’s residency, ownership, member-insurer, and coverage requirements.

  3. 3

    Apply the annuity and aggregate limits

    The Association determines the covered present value, applies the $250,000 annuity-specific limit, and then applies any relevant $300,000 aggregate limit.

  4. 4

    Amounts above guaranty protection may remain in receivership

    Amounts above ALDIGA’s protection may remain claims against the impaired or insolvent insurer’s receivership estate, with any additional recovery depending on available estate assets and the receivership process.

How the guaranty system is financed

ALDIGA is funded through assessments of member insurers when funds are needed to carry out its statutory obligations.

Assessment allocation
Member insurers
Member-insurer assessments are allocated among Alabama’s statutory disability, life-insurance, and annuity accounts under the assessment rules in Chapter 44.
Annual assessment cap
1%
For each account, total annual assessments generally cannot exceed 1% of the member insurer’s average annual Alabama premiums on covered business during the three calendar years preceding the year in which the affected insurer became impaired or insolvent.
Premium-tax treatment
20% per year for five years
A member insurer may offset 20% of a qualifying assessment against Alabama premium-tax liability in each of the five calendar years following the year in which the assessment was paid.
Coverage limits do not change with funding
How ALDIGA is funded does not change consumer coverage limits; eligible benefits remain subject to Alabama’s statutory exclusions, annuity limit, and aggregate limits.

What to know before buying

  • Guaranty protection is limited statutory protection and is separate from the issuing insurer’s own financial strength and contractual guarantees.
  • This article does not state an Alabama-specific rule about referring to ALDIGA in a sale.

How state protection differs from FDIC insurance

  • What it covers
    State protection: Alabama guaranty protection may apply to covered annuity obligations when a member insurer becomes impaired or insolvent, subject to Chapter 44.
    FDIC: FDIC insurance addresses an eligible deposit after its insured bank fails.
  • What system stands behind it
    State protection: ALDIGA is a nonprofit unincorporated legal entity created by statute, funded through assessments of member insurers, and supervised by the Alabama Commissioner of Insurance.
    FDIC: Federally insured banks support the national deposit-insurance system.
  • Coverage-limit basis
    State protection: Alabama generally provides up to $250,000 in present-value annuity benefits with respect to one life, subject to statutory eligibility, exclusions, and the applicable aggregate limit.
    FDIC: Federal limits aggregate balances by depositor, insured bank, and ownership category.
  • Whether it applies to annuities
    State protection: Eligible annuity benefits may receive Alabama guaranty association protection, but annuity contracts are not bank deposits and are not insured by the FDIC.
    FDIC: An annuity is an insurance contract, not an FDIC-insured deposit.

Sources and last verified

Last verified: September 25, 2026