Is surplus lines insurance generally covered by state guarantee funds?

Surplus lines insurance is typically not covered by state guarantee funds. State guarantee funds are designed to protect policyholders in the event that an admitted insurance company becomes insolvent. However, surplus lines insurers are not licensed in the state where the policyholder resides, and as a result, they do not participate in the state guaranty fund system. This distinction is crucial because policyholders with surplus lines insurance have to rely on the financial stability of the surplus lines insurer, as there is no state-backed safety net in place for claims if these insurers fail. Understanding this aspect of surplus lines is essential for both policyholders and agents, as it highlights the importance of selecting financially stable insurers and understanding the risks involved with non-admitted coverage.