The insurance business is regulated at the state level. For each insurance company, in order to operate in your state, it has to contribute fund to a State Guarantee Fund which has similar mission like FDIC - if the insurance goes bankrupt, it will step in to cover your loss. Unfortunately, like FDIC or SIPC, there is a limit on such coverage and it varies by state. You can Google your state's limit by yourself.
In real life, if an insurer is bankrupt, the state agency would help it find a buyer first. If not successful, the insurer's assets will be liquidated to pay off any debt, its customers' policies will be transferred to other stable insurers.
In our next blog post, we will discuss how to utilize third party credit agencies' services to evaluate the different financial service companies' safeties.