Washington Life Producer Practice Exam

How does the Life and Disability Guaranty Association fund its operations?

1. By collecting premiums from individual policyholders

2. By assessing member insurers

3. Through government grants

4. By managing investment portfolios

The correct answer is: By assessing member insurers

The Life and Disability Guaranty Association primarily funds its operations by assessing member insurers. This assessment involves collecting funds from insurance companies that are members of the association. The purpose of these assessments is to create a financial pool that can be used to ensure that policyholders are protected if a member insurer faces financial difficulty and is unable to meet its obligations to policyholders. This method of funding is essential to maintaining the stability and viability of the guarantee system, as it allows the association to provide coverage and support to individuals affected by the insolvency of an insurance provider. Member insurers contribute to this fund based on specific formulas that consider their market share and the types of insurance they offer. This collective financial responsibility helps protect policyholders across the state. In contrast, the other options listed, such as collecting premiums from individual policyholders or relying on government grants, do not accurately represent how the association operates financially. The association is not directly funded by policy premiums or government support but instead relies on the contributions from the member insurers.