Each state has a guaranty fund. Here is the national website: http://www.nolhga.com/ It describes the entire insolvency process. Basically, the guaranty association cooperates with the commissioner and the receiver in determining whether the company can be rehabilitated or if the failed company should be liquidated and its policies transferred to financially sound insurance companies. Once the liquidation is ordered, the guaranty association provides coverage to the company’s policyholders who are state residents up to each state’s limit. There is a great FAQ section on the national site.
This is an extremely rare situation with LTCI. Conseco Senior Health Insurance Company and Penn Treaty are the only ones not taken over by another carrier to my knowledge. Conseco is in an independent trust managed by the state of Pennsylvania. Penn Treaty’s home page addresses the issue in case they are ordered into receivership. http://www.penntreaty.com/