What is the purpose of guaranty plans in the insurance industry?

The primary purpose of guaranty plans, often referred to as guaranty associations, is to ensure that insured individuals receive their benefits even when an insurance company becomes insolvent. These plans are designed to protect policyholders by covering their claims related to policies from insurers that are unable to pay their obligations due to financial failure.

When an insurer goes bankrupt, the guaranty association steps in to pay claims up to specified limits, ensuring that policyholders are not left without coverage or financial protection. This helps maintain consumer confidence in the insurance market, as individuals can trust that there is a safety net available for their insurance products.

The other choices do reflect certain aspects of the broader insurance landscape but do not accurately capture the core function served by guaranty plans. They do not primarily aim to promote competition, provide subsidies, or regulate rates, but rather focus on safeguarding the interests of policyholders in the event of an insurer's insolvency.