Maryland Life and Health Insurance License Practice Exam

How does the Life and Health Guaranty Corporation generate funds for its operations?

1. By charging premiums

2. Through member insurer assessments

3. Government grants

4. Investments in stocks

The correct answer is: Through member insurer assessments

The Life and Health Guaranty Corporation typically generates funds for its operations through member insurer assessments. This mechanism allows the corporation to collect money from member insurance companies, which are required to contribute financially to cover claims and related expenses when a member insurer becomes insolvent. This collective pooling of resources ensures that policyholders can still receive their due benefits even when their insurance company fails. Other funding methods, such as charging premiums or government grants, are not how the corporation operates. Member insurer assessments are a systematic way to maintain the stability and solvency of the guaranty fund, directly tying insurer contributions to the protection provided to policyholders, making it the most relevant and effective means of generating operational funds.