State annuity protection

Kentucky Annuity Guaranty Protection: $250,000 Annuity Limit Explained

Kentucky 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 net cash withdrawal values. A separate $300,000 aggregate applies across the health and annuity categories specified in KRS 304.42-030, subject to the $500,000 health-benefit-plan exception.

Kentucky annuity protection at a glance

Annuity benefit limit
$250,000
Present value of covered annuity benefits, including eligible net cash surrender and net cash withdrawal values, whether benefits are deferred or already in payout
Health + annuity aggregate
$300,000
KRS 304.42-030 applies a $300,000 aggregate with respect to one life across the health-insurance and annuity categories listed in subsection (3)(a)(2) and (3). Qualifying health-benefit-plan benefits are instead subject to a $500,000 aggregate with respect to one individual.
Who provides protection
Kentucky Life and Health Insurance Guaranty Association
The Kentucky Life and Health Insurance Guaranty Association may act for an impaired member insurer and has specified duties for an insolvent member insurer, coordinating with the receiver and court as appropriate.
Insurer requirement
Member insurer
The issuing insurer must qualify as a member insurer under Kentucky law, and the policy or contract must otherwise be covered under Subtitle 42.

How the $250,000 limit works

Kentucky generally applies the same $250,000 present-value annuity limit with respect to one life whether the covered annuity is deferred or already paying benefits.

Multiple annuity policies or contracts with respect to the same life at one impaired or insolvent member insurer share the $250,000 annuity limit. Covered health and annuity benefits within KRS 304.42-030(3)(a)(2) and (3) also share the applicable $300,000 aggregate.

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

KRS 304.42-030 applies a $300,000 aggregate with respect to one life across the health-insurance and annuity categories listed in subsection (3)(a)(2) and (3). Qualifying health-benefit-plan benefits are instead subject to a $500,000 aggregate with respect to one individual.

  • For qualifying health-benefit-plan benefits, the applicable aggregate can be as high as $500,000 with respect to one individual; Kentucky’s ordinary annuity-specific limit remains $250,000.
  • 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 Kentucky’s eligibility and applicable aggregate rules. Rights transferred through a structured-settlement factoring transaction are excluded.

A $300,000 annuity example

Assume an eligible annuity has a covered present value of $300,000 with respect to one life at one impaired or insolvent Kentucky member insurer and there are no health benefits affecting the aggregate.

Annuity value

$300,000

Potential protection

$250,000

Possible receivership claim

$50,000

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

This example illustrates only the statutory guaranty limit and does not estimate the timing or amount of any additional recovery from the receivership estate.

Which annuities are covered?

  • Fixed annuity

    Generally covered

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

  • Fixed indexed annuity (FIA)

    Generally covered

    FIAs are generally covered to the extent of qualifying insurer-guaranteed contractual obligations. Nonguaranteed or owner-borne investment risk is excluded, and Kentucky’s statutory interest-rate limitations may apply. Current KRS 304.42-030 contains no express provision deeming an impairment or insolvency date to be the contractual crediting date for an FIA.

  • Multi-year guaranteed annuity (MYGA)

    Generally covered

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

  • Variable annuity

    Guaranteed portions may be covered

    Only qualifying insurer-guaranteed benefits may receive protection; investment gains or losses borne by the policy or contract owner through a separate account are generally excluded.

  • Registered index-linked annuity (RILA)

    Contract-specific

    For a RILA, qualifying insurer-guaranteed contractual obligations may be covered, while portions where the contract owner bears market or index risk are generally excluded.

  • Unallocated annuity contract

    Generally excluded

    Unallocated annuity contracts are generally excluded. However, Kentucky’s definition does not treat an annuity benefit as unallocated to the extent that the insurer specifically guarantees that benefit to an individual under the contract or certificate.

Who may qualify?

  • Residency is determined on the date the member insurer is determined to be impaired or insolvent, whichever occurs first.
  • For ordinary annuities, eligibility generally follows the qualifying owner or certificate holder. Kentucky defines the owner as the legal owner under the contract or a person holding legal title through a valid assignment completed under the contract and recorded on the insurer’s books; a mere beneficial interest is not ownership. Structured settlements use separate payee and beneficiary rules.
  • A nonresident may qualify in limited circumstances when the issuing insurer is Kentucky-domiciled, the person’s state of residence has a similar guaranty association, and the person is not eligible there because the insurer lacked the required license under that state’s guaranty law.
  • Kentucky’s interstate-coordination rules provide protection through only one state guaranty association and prevent duplicate coverage for the same obligation.
  • The issuing insurer must qualify as a member insurer under Kentucky law, and the policy or contract must otherwise be covered under Subtitle 42.

What is not covered?

  • Portions not guaranteed by the member insurer, or under which the policy or contract owner bears the risk, are generally excluded.
  • Reinsurance is excluded unless assumption certificates were issued under the reinsurance policy or contract.
  • Interest or crediting above Kentucky’s statutory limits based on Moody’s Corporate Bond Yield Average may be excluded.
  • Self-funded or uninsured employer, association, or other arrangements, including specified MEWA, minimum-premium, stop-loss, and administrative-services-only arrangements, are excluded.
  • Dividends, experience-rating credits, fees, allowances, and voting rights are excluded.
  • A policy or contract issued in Kentucky when the member insurer lacked authority to issue it is excluded.
  • Unallocated annuity contracts are generally excluded, except that a benefit specifically guaranteed to an individual is not treated as unallocated to that extent under KRS 304.42-050.
  • Benefits for which the required assessment is preempted by federal or state law are excluded.
  • Claims based on marketing materials, unauthorized side letters or riders, misrepresentations, extra-contractual theories, penalties, or consequential or incidental damages are generally excluded.
  • Book-value accounting guarantees tied to a plan-owned portfolio are excluded.
  • Medicare Part C or Part D and Medicaid healthcare benefits are excluded.
  • Structured-settlement annuity benefits transferred through a structured-settlement factoring transaction are excluded, regardless of when the transfer occurred.

What happens when an insurer becomes impaired or insolvent?

  1. The insurer enters rehabilitation, conservation, or liquidation proceedings

    If a member insurer is impaired, KLHIGA may, with the required approval, guarantee, assume, reissue, or reinsure covered policies or provide financial support. If the member insurer is insolvent, KLHIGA must provide protection through one of the methods authorized by KRS 304.42-080.

  2. Claimant, insurer, and contract eligibility are determined

    KLHIGA determines whether the claimant, issuing insurer, and policy or contract satisfy Kentucky’s residency, member-insurer, coverage, ownership, and interstate-coordination requirements.

  3. Covered contractual benefits and applicable limits are determined

    For ordinary annuities, KLHIGA applies the $250,000 present-value annuity limit and then the $300,000 aggregate across the health-insurance and annuity categories specified in KRS 304.42-030(3)(a)(2) and (3).

  4. Amounts above guaranty protection may remain in receivership

    Amounts above KLHIGA’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

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

Assessment allocation
Member insurers
Class B assessments are allocated among Kentucky’s health, life-insurance, and annuity accounts and among member insurers based generally on covered Kentucky premiums under KRS 304.42-090.
Annual assessment cap
Defined by state law
For each account, total annual assessments against a member insurer generally cannot exceed 2% of its average annual Kentucky premiums on covered policies and contracts during the three calendar years preceding the year in which the affected insurer became impaired or insolvent.
Premium-tax treatment
State-specific rule
A qualifying member insurer may offset 20% of an eligible assessment against Kentucky tax liability in each of the five calendar years following the year in which the assessment was paid.
How the $300,000 aggregate applies
Kentucky’s $300,000 aggregate expressly applies across the health-insurance and annuity categories in KRS 304.42-030(3)(a)(2) and (3). The statute does not include the life-insurance category in that particular $300,000 aggregate.

What to know before buying

  • When covered health and annuity benefits involve the same life at one member insurer, Kentucky’s $300,000 aggregate can apply; qualifying health-benefit-plan benefits are subject to the separate $500,000 aggregate exception.
  • Kentucky prohibits using the existence of the Guaranty Association for sales, solicitation, or inducement to purchase insurance or other covered protection.

How state protection differs from FDIC insurance

  • What it covers
    State protection: Kentucky guaranty protection may apply to eligible contractual annuity benefits, including qualifying present-value benefits and net cash surrender or withdrawal values.
    FDIC: FDIC insurance applies to eligible deposits at an insured bank, not insurance-product benefits.
  • What system stands behind it
    State protection: KLHIGA is a nonprofit legal entity created by statute and funded primarily through assessments of member insurers; individual member insurers do not directly guarantee another member insurer’s contracts.
    FDIC: Insured banks fund the federal deposit-insurance system through assessments.
  • Coverage-limit basis
    State protection: Kentucky generally caps covered annuity benefits at $250,000 in present value with respect to one life at an impaired or insolvent member insurer, subject to the applicable aggregate and statutory exclusions.
    FDIC: Federal deposit limits aggregate by depositor, insured bank, and ownership category.
  • Whether it applies to annuities
    State protection: Eligible annuity benefits may receive KLHIGA protection, but annuity contracts are not bank deposits and are not insured by the FDIC.
    FDIC: An annuity is an insurance contract rather than an FDIC-insured deposit.

Sources and last verified

Last verified: October 6, 2026