Policyholders of a liquidated insurer usually have which option after liquidation?

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When an insurer is liquidated, the aim is to protect policyholders by keeping their coverage alive through a solvent successor. The usual path is that another carrier assumes the in-force policies, and policyholders can continue their coverage with that new carrier. To make the transition smoother and fair, policyholders are credited with a portion of their policy’s account value. This credit helps reflect the value already accumulated and reduces the amount the new carrier must fund from scratch, making it more likely the contract remains sustainable and benefits can continue.

This is generally preferable to cashing out immediately or cancelling coverage, and it’s not typical for a government agency to automatically take over individual policies. While guaranty associations provide some protections if a failure occurs, the standard mechanism described—continuing with a new carrier and receiving credit for the account value—captures the normal process in liquidation scenarios.