PSI Life Exam Practice Test

What does the insurance security fund protect insureds from?

1. Policy changes

2. Insurer liquidation

3. Premium increases

4. Coverage lapses

The correct answer is: Insurer liquidation

The insurance security fund is designed to provide a safety net for insured individuals in the event that their insurance company becomes insolvent or is unable to meet its financial obligations due to liquidation. This fund helps to ensure that policyholders can receive at least a portion of their benefits or claims, even if the insurer is no longer operational. This protection underscores the importance of consumer confidence in the insurance industry, as it mitigates losses that might arise from an insurer's failure. In contrast, the other options refer to aspects of insurance coverage and management that do not relate to the primary purpose of the security fund. Policy changes, premium increases, and coverage lapses are typically matters of the insurance contract and market conditions, which are not directly addressed by the security fund. Instead, these issues are managed through regulatory frameworks and the terms of individual policies rather than by a fund targeting financial insolvency.