State annuity protection

Utah Annuity Guaranty Protection: Covered-Portion Formula and $500,000 Aggregate

Utah does not use a simple $250,000 annuity cap. For most annuities, it calculates a covered percentage using a numerator capped at $250,000, applies that percentage to each contractual benefit, and then applies a separate $500,000 aggregate with respect to one life.

Utah annuity protection at a glance

Annuity benefit limit
$250,000
Covered percentage of each contractual benefit, using cash surrender value or, when none exists, the minimum statutory reserve and a numerator capped at $250,000
Overall benefit cap
$500,000
Utah’s $500,000 aggregate with respect to one life applies after the covered-portion formula; it does not turn the formula’s $250,000 numerator ceiling into a flat annuity benefit.
Who provides protection
Utah Life and Health Insurance Guaranty Association
The Utah Life and Health Insurance Guaranty Association is a nonprofit legal entity, not a state agency. It may use statutory remedies while a member insurer is impaired and must provide an authorized form of protection after insolvency.
Insurer requirement
Member insurer
The issuing insurer must be a Utah member insurer for the covered business, and the claimant, contract, and obligation must otherwise satisfy the statutory coverage rules.

How the $250,000 limit works

For an annuity with cash surrender value, Utah divides the lesser of $250,000 or the statutory cash surrender value by that cash surrender value, then applies the resulting percentage to each contractual benefit. For an annuity without cash surrender value, the denominator is the minimum statutory reserve and the numerator is the lesser of $250,000 or that reserve.

Contractual benefits for one life at the affected member insurer first pass through the covered-portion formula and are then tested against the broader $500,000 aggregate.

A different impaired or insolvent member insurer starts a separate eligibility and covered-portion calculation.

Utah’s $500,000 aggregate with respect to one life applies after the covered-portion formula; it does not turn the formula’s $250,000 numerator ceiling into a flat annuity benefit.

  • For governmental retirement plan coverage, Utah caps each qualifying participant at $250,000 in present value when a covered unallocated annuity funds the arrangement.
  • Certain other covered unallocated annuities have a separate $5 million aggregate for one eligible contract owner or sponsoring plan.
  • A covered unallocated annuity issued to or in connection with a government lottery uses Utah’s separate lottery residency and eligibility rules and is subject to the applicable $5 million owner limit.
  • An otherwise eligible structured-settlement payee or beneficiary is subject to Utah’s covered-portion formula and applicable $500,000 per-life aggregate; payment rights acquired through a structured-settlement factoring transaction are excluded.

A $300,000 annuity example

Assume an eligible Utah fixed annuity has a statutory cash surrender value of $300,000 and $300,000 of contractual benefits for one covered life, with no other covered benefits affecting the aggregate.

Annuity value

$300,000

Potential protection

$250,000

Possible receivership claim

$50,000

The fraction is $250,000 divided by $300,000. Applying that fraction to $300,000 of contractual benefits produces $250,000 of potential Association protection. The remaining $50,000 may be a policyholder claim in the receivership, where recovery may be less than the full amount.

This illustration assumes the claimant, member insurer, contract, contractual benefits, and aggregate conditions satisfy Utah law; actual results depend on the statutory covered-portion calculation.

Which annuities are covered?

  • Fixed annuity

    Generally covered

    A fixed annuity may qualify only for the percentage of each contractual benefit produced by Utah’s covered-portion formula.

  • Fixed indexed annuity (FIA)

    Generally covered

    An FIA may qualify only for covered insurer obligations. Owner-borne investment risk, interest or crediting above the statutory limits, and index-linked amounts that are uncredited or forfeitable by the earlier impairment or insolvency date are excluded. Utah has no less-than-annual crediting exception.

  • Multi-year guaranteed annuity (MYGA)

    Generally covered

    A MYGA is generally analyzed as a fixed deferred annuity under the covered-portion formula and Utah’s statutory interest-rate limits.

  • Variable annuity

    Guaranteed portions may be covered

    Separate-account investment gains and losses borne by the contract owner remain outside the covered portion.

  • Registered index-linked annuity (RILA)

    Contract-specific

    For a RILA, only covered insurer-guaranteed obligations may qualify; owner-borne market or index risk and uncredited or forfeitable index-linked amounts are excluded.

  • Unallocated annuity contract

    Limited situations

    An eligible governmental-plan participant may receive up to $250,000 in present-value annuity benefits under a covered unallocated annuity. Certain other qualifying owners or plan sponsors may receive up to $5 million in aggregate benefits, and government-lottery contracts use their own statutory category.

Who may qualify?

  • Utah generally fixes residence at the earlier date on which the member insurer becomes impaired or insolvent. Impairment may be established by a hazardous-condition determination or an order of rehabilitation or conservation; insolvency requires a liquidation order with a finding of insolvency.
  • The statute applies the ordinary covered-portion formula and aggregate with respect to one life. ULHIGA’s $250,000-per-owner FAQ example is a simplified consumer summary; the statutory per-life formula controls.
  • For an ordinary contract, a nonresident generally needs a Utah-domiciled insurer, a similar association in the person’s state of residence, and ineligibility there because the insurer lacked the required license. Structured settlements and unallocated annuities use separate residency and coordination rules.
  • The association in the person’s state of residence is considered first before Utah applies its limited insurer-domicile backstop.
  • The issuing insurer must be a Utah member insurer for the covered business, and the claimant, contract, and obligation must otherwise satisfy the statutory coverage rules.

What is not covered?

  • The $500,000 aggregate applies only after the covered-portion formula; it cannot replace the formula’s numerator or percentage calculation.
  • Owner-borne investment risk, interest or crediting above Utah’s statutory limits, and index-linked amounts that are uncredited or forfeitable by the earlier impairment or insolvency date are excluded.
  • Claims based on marketing materials, misrepresentations, or side letters, riders, and other documents that did not satisfy applicable filing or approval requirements are excluded.
  • Extra-contractual claims, including bad-faith claims, punitive damages, and attorney fees or costs, as well as penalties and consequential or incidental damages, are excluded.
  • Self-funded arrangements, unallocated annuities connected with PBGC-protected plans, and book-value accounting guarantees are excluded.
  • Structured-settlement payment rights acquired through a factoring transaction are excluded. An otherwise eligible payee or beneficiary remains subject to Utah’s covered-portion formula and applicable aggregate.

What happens after an insurer fails?

  1. Impairment or insolvency establishes the coverage date and residence

    A hazardous-condition determination or rehabilitation or conservation order may establish impairment; a liquidation order with a finding of insolvency establishes insolvency. Residence is generally fixed at the earlier applicable date.

  2. Eligibility and the covered portion are determined

    The association identifies covered contractual benefits and applies the cash-surrender-value or minimum-statutory-reserve fraction to determine the applicable covered portion.

  3. The association applies the authorized statutory remedy

    The association may act while a member insurer is impaired and must provide an authorized form of protection after insolvency.

  4. The aggregate and receivership coordination are applied

    Benefits produced by the covered-portion formula are tested against the applicable aggregate. Amounts outside association protection may remain claims against the insurer’s receivership estate.

How the guaranty system is financed

Utah’s covered obligations are funded through statutory assessments of member insurers together with assets and recoveries associated with covered policies and contracts.

Assessment allocation
Member insurers
For the life-insurance and annuity class, including the annuity subclass, a Class B assessment is allocated using each member insurer’s assessable Utah premiums for the three most recent calendar years for which information is available preceding the coverage-date year.
Annual assessment cap
Defined by state law
Annual assessment cap — 2%. For each applicable class or subclass, a member insurer’s Class B assessments in a calendar year generally cannot exceed 2% of its average annual assessable Utah premiums for the three most recent available calendar years preceding the coverage-date year.
Premium-tax treatment
State-specific rule
Tax offset — 20% per year for five years. A qualifying non-Class-A assessment may offset Utah premium, income, or franchise tax at 20% in each of the five calendar years following the payment year, and unused amounts may be carried forward.
Covered-portion formula details
For a policy with cash surrender value, Utah uses the lesser of $250,000 or the statutory cash surrender value as the numerator and the cash surrender value as the denominator. Cash surrender value is measured without reduction for an outstanding policy loan or surrender charge. If the policy has no cash surrender value, Utah instead uses the lesser of $250,000 or the minimum statutory reserve over that reserve. The percentage is applied to each contractual benefit before the separate $500,000 aggregate with respect to one life. The statute controls over the FAQ’s simplified owner-based summary, and qualifying government-lottery contracts use separate statutory rules.

What to know before buying

  • Do not treat $250,000 as a flat Utah annuity payout. It is the numerator ceiling in a covered-portion formula, and a separate $500,000 aggregate may also apply with respect to one life.
  • Utah prohibits using the existence of the Association to advertise, sell, solicit, or induce the purchase of covered insurance or annuity products. Member insurers must also deliver the approved guaranty-association notice, which warns that coverage may be limited or unavailable and should not be relied on when choosing an insurer.

How state protection differs from FDIC insurance

  • What it covers
    State protection: Utah law computes a covered percentage of qualifying contractual obligations of an impaired or insolvent member insurer.
    FDIC: Federal law insures eligible deposit balances at a failed insured bank.
  • What system stands behind it
    State protection: The Utah Life and Health Insurance Guaranty Association is a nonprofit legal entity funded primarily through assessments of member insurers; it is not a state agency.
    FDIC: FDIC deposit insurance is funded through assessments on insured depository institutions and is backed by the full faith and credit of the United States.
  • Coverage-limit basis
    State protection: Utah’s result reflects the covered-portion formula and the applicable aggregate with respect to one life.
    FDIC: Deposit coverage is calculated by depositor, insured bank, and ownership category.
  • Whether it applies to annuities
    State protection: A qualifying annuity may receive Utah guaranty-association protection, subject to statutory limits and exclusions.
    FDIC: Annuities are not FDIC-insured deposits.

Sources and last verified

Last verified: October 6, 2026