When Insurance Companies go Bankrupt Worried that your policy evaporated when the housing bubble burst? Don't be.

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This is not a question anyone was asking until several of the largest, most steadfast American corporations started looking so utterly vulnerable. Several years ago, few people predicted that American International Group (AIG) would be teetering on the brink of bankruptcy, gingerly propped up by a Federal bailout.

Even with the assistance, former CEO Maurice Greenberg believes the federal loan will force a "fire-sale of profitable assets" and lead to the eventual liquidation of the company. AIG is far from the only one—Washington Mutual was acquired by JP Morgan, Freddy Mac and Fannie May had to be nearly nationalized, and shares of Lehman Brothers were rendered worthless as the company, unaided by federal funds, folded.

Just like the FDIC insures the money in your bank account—up to $250,000—there are provisions in place to protect consumers if their insurance company files for bankruptcy. Here's how it works: if an insurance company wants to do business in your state, they have to pay into its insurance guarantee association. The Department of Insurance in your state oversees this fund. If your insurance company becomes insolvent—a fancy way to say "runs out of cash"—the Department of Insurance uses money from the guarantee association to deal with outstanding claims, then transfers all of the policies over to a financially stable institution.

Still, this is a worst-case scenario. Often the Department of Insurance—or, more recently, the federal government—will assist floundering companies before they completely topple by loaning them the money the need to stay in business. So while QuoteWizard is a great service for shopping around for insurance, don't feel like you need to switch from a company like AIG if you're happy with the policy you already have. Just like the money in your banks accounts is safe even if your bank collapses, your insurance policy is guaranteed to be there when you need it.