Are surplus lines policies protected by state-guarantee funds?

Surplus lines policies are typically not protected by state-guarantee funds, which means that policyholders will not have the same safety net that standard admitted insurers provide through state insurance guaranty funds. These funds are designed to protect consumers when an admitted insurance company becomes insolvent. Surplus lines insurance operates differently because it involves insurers that are not licensed in the state and are therefore not subject to the same regulatory oversight.

While some might think that such coverage could have partial protection depending on the insurer or particular claims, the general rule remains that surplus lines policies do not enjoy the guarantees that come with traditional policies in the event of an insurer's bankruptcy or insolvency. Understanding this distinction is crucial for consumers seeking coverage through surplus lines as it informs them about the potential risks involved compared to conventional insurance options.