Regulator files plan for seized Ambac policies

* Plan sets terms of insurance policy payouts

* Policy holders to receive 25 cents on the dollar cash

* Holders receive balance in interest-paying notes

NEW YORK, Oct 8 (Reuters) - The Wisconsin regulator for Ambac Financial Group ABK.N on Friday filed a plan to wind down the more than $50 billion remaining of insurance policies related to securities that it seized in March.

Under the plan, holders of allowed claims will receive 25 percent of their claims in cash and another 75 percent in notes that pay interest of 5.1 percent and mature June 7, 2020, U.S. bond insurer Ambac said in a statement.

The Wisconsin Office of the Commissioner of Insurance, which regulates the insurer, in March placed $67 billion of what it said were Ambac's worst assets into a separate account, saying the seizure would help protect investors.

Ambac's main insurance unit is legally based in Wisconsin. Its assets included credit derivatives and residential mortgage-backed securities.

Bond insurers like Ambac charge bond issuers a fee and in exchange guarantee debt against default. When issuers default on guaranteed bonds, Ambac must step in to make interest payments and ultimately repay principal.

The regulator said in a statement that the 75 percent payout in notes reflects the need to preserve cash to pay current and future claims, but the cash could be increased in the future based on an annual liability assessment.

Since the seizure, Ambac has settled directly with policy holders, such as the Weinstein Company, decreasing the amount of insurance policies in the account.

A copy of the plan was filed with the Wisconsin Circuit Court for Dane County in Madison, which must approve it before it goes into effect. (Reporting by Caroline Humer. Editing by Robert MacMillan)