Insurance Company

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An insurance company sells insurance and is sometimes known as the insurer. You pay a premium to the insurance company and the company gives you an insurance policy that describes under what circumstances the insurance company will pay your claim. Insurance companies tend to be financially strong companies, although occasionally an insurance company will have to pay out so much money for losses that it will become insolvent and have to close down. If this happens, all the policyholders are in a difficult position because their policies may be worthless. Because insurance is regulated separately by each state, there may be a fund in place to provide some money to policyholders if the company becomes insolvent; it's called the state guaranty fund (but is only available if the company that became insolvent was licensed in that state). Policyholders can investigate the financial strength of insurance companies by consulting rating organizations such as A.M. Best. Insurance companies tend to specialize in different types of insurance, such as life insurance, business insurance, personal lines insurance, or automobile insurance. The biggest companies sell all these types of insurance. A company that goes directly to the public for business is known as a "direct writer," but many insurance companies get their business from insurance brokers.