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 Power electronics plays an important role in a wide range of applications in order to achieve high efficiency and performance. Increasing efforts are being made to improve the reliability of power electronics systems to ensure compliance with more stringent constraints on cost, safety, and availability in different applications. This paper presents an overview of the major failure mechanisms of IGBT modules and their handling methods in power converter systems improving reliability. The major failure mechanisms of IGBT modules are presented first, and methods for predicting lifetime and estimating the junction temperature of IGBT modules are then discussed. Subsequently, different methods for detecting open- and short-circuit faults are presented. Finally, fault-tolerant strategies for improving the reliability of power electronic systems under field operation are explained and compared in terms of performance and cost.