What happens to insurance policies when an insurer becomes insolvent in Arizona?

When an insurer becomes insolvent in Arizona, the policies are not simply nullified or rendered void. Instead, the Arizona Insurance Guaranty Fund plays a critical role in ensuring that policyholders are protected. This fund exists to pay the claims of policyholders when an insurer cannot fulfill its obligations due to insolvency.

The Guaranty Fund is designed to provide a safety net, allowing policyholders to receive payment for covered claims, up to certain limits. This system helps maintain trust in the insurance market and offers a level of security to individuals and businesses who have purchased insurance policies. Thus, the correct answer reflects the protective measures in place for policyholders during such a distressing situation.