When an Insurance Company Fails

With an insurance company, AIG(AIG Quote), now at the top of the list of major U.S. firms on the verge of financial ruin, it's important to understand what happens when such a company fails.

American International Group is a holding company that owns 71 domestic insurance companies that sell virtually every type of coverage, including life, health, annuities, property, auto, aircraft and product liability.

Insurance companies are regulated at the state level by the insurance department in which the individual subsidiary is based. When an insurance company gets into trouble, the state regulator steps in and takes control of it. ...