Final answer:
State guaranty associations protect life insurance policyowners from the possibility of insurance company insolvency by ensuring coverage continuity and compensating for lost benefits within the limits of state regulation.
Step-by-step explanation:
The entity that protects policyowners of life insurance policies against the possibility of insolvency is State guaranty associations. These associations are part of a safety net that provides protection to policyowners in the event that an insurance company becomes insolvent. While the National Association of Insurance Commissioners (NAIC) plays a significant role in setting up standards and providing regulatory support, it is the state guaranty associations that are directly responsible for the protection of policyholders by ensuring coverage continuity and compensating for lost benefits within certain limits.
Each state has its own guaranty association, and insurance companies are required by law to be members of the guaranty association in each state where they do business. In case of insurance company failures, the state guaranty associations assess the other member insurers to pay the claims of the insolvent company, up to the limits of the state association's coverage.
Answer: D. Insurance companies