Are life insurance companies FDIC insured?
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- FDIC limits insurance to banking institutions for checking accounts, savings accounts, NOW’s, cashier’s checks and money orders
- FDIC will not insure companies that deal with financial transactions of risk and speculation
- State GA’s insures investment monies up to a maximum amount, which varies by state
- Insurance companies are made to keep in savings dollar per dollar of all annuities written, plus future worth
- Insurance companies are not as prone to becoming bankrupt
- Purchase insurance investment products from well-known companies
It has become so common to see FDIC signs in every banking institution that it is often assumed anyone dealing with your money is insured. The fact is FDIC does not insure all types of monetary transactions.
They deal with funding that is deposited and guaranteed through banking and lending institutions. Investments are not guaranteed by banks. They are risky in nature and do not promise any sort of return.
Learn more about Federal Insurance below and make sure to use our free insurance comparison tool above!
FDIC and Limitations of Federal Insurance
The Federal deposit Insurance Corporation exists as an answer to the run on banks that happened during the Great Depression of the 1920’s. When the stock market fell and people began to pull their money from banks and savings institutions the financial backbone of the country crumbled.
The FDIC was put in place as a safeguard to depositors that should a crisis happen again there would be at least some security left and monies to be had by everyone. There are limits to what the FDIC is able to insure.
It consists of:
- Savings and checking accounts
- Certificates of deposit
- Money market accounts
- Cashier’s checks
- Money orders
- Negotiable order of withdrawal
The FDIC does not insure any financial item that is considered a risk-investment, such as:
- Securities (state or municipal)
- Mutual funds
- US Treasury securities
State Insurance Guarantee Associations
Insurance companies are given a lot of scrutiny and oversight by the state’s rather than the federal governmental agencies. Each state has an insurance Guarantee Association that collects fees from the insurers to back investors if one should go bankrupt.
This means that your money is secure to an extent. The amounts vary by state and you should check to see before investing. You can view the specific amounts by state here.
This does not mean that your money is totally safe, but it affords some protection and assurance that you can at least recoup some of your money.
Stringent Dollar for Dollar Guidelines
Even though there is no federal insurance to keep investments safe, this does not mean that an insurance company can stick your money into investments and let them fail with no repercussion.
They are held to a higher standard than banks when it comes to proving solvency. They must have dollar for dollar in savings of every annuity they have signed and the future worth.
Most companies try to keep five cents over each dollar extra. Banks are only made to retain 10 cents on every dollar for outstanding debt. That is quite an eye opener and should make you feel more comfortable about getting an annuity.
Differences Between Bank and Insurance Company Insolvency
You are not likely to see large amounts of insurance companies filing bankruptcy anytime soon. Life insurance claims are only paid out upon the death of the owner of the policy. This means there is more spatial diversity between taking in and giving out funds.
Banks can get a run on them in one day, which is what caused the formation of the FDIC.
There would be plenty of warning if an insurance company began to have financial struggles.
The state systems in place help ensure that each client is guaranteed at least some of their initial investment back in the case of a company bankruptcy.
How to Keep Your Investments Safe
A life insurance annuity that offers immediate payout is one of the best retirement income tools there is available. Do not let fear of company failures keep you from getting the income generated you will need through the years.
There are steps you can take to protect your investments if this is a fear that holds you back from getting an annuity. You can:
- Find out what the GA security limits are for your state.
- Stick with products from well-known and quality insurance companies.
- Diversify between companies and keep each annuity below the levels that are secured by the state.
Consult an expert in insurance investment products and find out what the best and most secure options for getting the retirement income you need.
Every investment carries some risk, but the rewards could mean the difference between struggling and living a comfortable retirement life.
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