A growing number of U.S. life insurers—small, midsize and some of the industry’s biggest household names—have sold or announced they will sell their U.S. consumer life-insurance and annuity businesses.

Most are selling to a nontraditional type of owner: private-equity firms, asset managers, hedge funds and other investment entities. Some of the industry newcomers are buying entire insurers, or units of big ones, while others have taken stakes in insurance companies.

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A growing number of U.S. life insurers—small, midsize and some of the industry’s biggest household names—have sold or announced they will sell their U.S. consumer life-insurance and annuity businesses.

Most are selling to a nontraditional type of owner: private-equity firms, asset managers, hedge funds and other investment entities. Some of the industry newcomers are buying entire insurers, or units of big ones, while others have taken stakes in insurance companies.

More than two dozen investment firms now own or control 50 U.S. life-insurance companies out of just over 400, according to data from ratings firm A.M. Best.

Q: What does it mean for a policyholder when the insurance company, or a block of policies, is sold?

A: Nothing should change in terms of how your policies and annuities pay out. Those contracts remain in an insurance unit that is regulated by a state insurance department. The new owners must abide by terms and conditions of your policies and annuities. That said, owners vary widely in their resources and insurance expertise.

Q: Should existing policyholders be concerned that nontraditional owners are acquiring, or gaining control of, U.S. life insurers?

A: Sometimes consumers can be better off after a transaction. Some insurers put themselves, or units, up for sale after being weakened by bad acquisitions, poor management decisions or investment mistakes. New owners sometimes have deeper pockets than the ones they replace and can pump in fresh capital, and some have built up extensive insurance expertise.

However, policyholders may be exposed to “private equity buyers that have weaker credit characteristics and greater risk appetites” than the prior owners, according to a report this spring by Moody’s Investors Service. They also may have limited insurance expertise.

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Tracy Nguyen for The Wall Street Journal

Q: How are policyholders protected?

A: All deals are subject to approval by state insurance departments.

State laws typically call for an insurance commissioner to determine that the acquirer has “the competence, experience and integrity” to run the insurer in a way that won’t harm policyholders.

Regulators often mandate “heightened policyholder protections” in approving deals with newcomers, such as capital standards above what is typical. Capital serves as a cushion to help insurers’ absorb unexpected losses. In one instance, New York’s Department of Financial Services required establishment of a $200 million, seven-year “backstop trust account” to ensure money was available to bolster capital.

Q: Is a “run-off” business model in my best interests?

A: Not all the newcomers are selling products. Some are winding down older life-insurance policies and variable annuities with income guarantees, what is known as “running off” the business. This means they are providing customer service and paying claims.

One concern about the business model is that the newcomers will jack up fees and premium rates to the maximum permitted under the policies they have acquired, because they don’t have to worry about losing future sales by angering agents and policyholders.

Q: What is a worst-case scenario for consumers?

A: It is arguably playing out in North Carolina. There, four insurers have been in receivership since 2019, and tens of thousands of people nationwide are restricted in withdrawals from their contracts. Barring documentation of hardship, they have been allowed to withdraw just 10% of their annuities or a maximum of $15,000.

A state judge approved the receivership at the behest of state insurance Commissioner, Mike Causey. The move is tied to an unorthodox strategy in which the insurers invested large chunks of their money into other parts of the owner’s diversified conglomerate. State officials are in litigation in state court with the owner, Greg Lindberg, about unwinding the affiliated investments. Mr. Lindberg is in federal prison following conviction in 2020 on charges related to an attempted bribe of Mr. Causey. A spokesman for Mr. Lindberg said he wants “to find a productive resolution” so that withdrawal restrictions are lifted.

Q: Given how many traditional insurers are exiting sales to U.S. consumers, where will I be able to buy a policy?

A: Hundreds of options remain.

In general, mutual insurers haven’t been part of the trend, and there are many to shop from. Mutual insurers are owned by their policyholders and don’t face scrutiny on a quarterly basis from public shareholders and Wall Street analysts.

Write to Leslie Scism at leslie.scism@wsj.com