The Investment Scientist

What if your life insurance company (bank, brokerage) fails?

Posted on: September 17, 2008

Life insurance and annuity

Insurance companies who issue life insurance and annuity contracts are regulated by state insurance commissioners. The holders of life insurance and annuity contracts are protected by the state insurance guarantee fund up to some limits. While laws governing maximum limits and types of policies covered vary from state to state, most states set basic limits of:

  • $300,000 in life insurance death benefits
  • $100,000 in cash surrender or withdrawal value for life insurance
  • $100,000 in withdrawal and cash values for annuities
  • $100,000 in health insurance policy benefits

The National Organization of Life and Health Insurance Associations has more information.

Bank accounts

Bank accounts are insured by the Federal Deposit Insurance Corporation on a per depositor per type of account basis. Four types of accounts are eligible for FDIC insurance, the maximum dollar limit for each type being:

  • Single ownership accounts – $100,000 per depositor. This is sum of all checking accounts, savings accounts, CDs, etc., owned by the depositor.
  • Joint ownership accounts – $100,000 per depositor. Same as above.
  • Certain retirement accounts – $250,000 per depositor. This is sum of all eligible retirement accounts, such as IRA and self-directed Keogh plans.
  • Testamentary (revocable trust) account – $100,000 per beneficiary named for each account, with the amount held in the account being paid out to the beneficiary upon the depositor’s death, usually to one of the depositor’s children.

This site has a detailed explanation.

Brokerage accounts

In the event of brokerage failure, securities investors are protected by the Securities Investor Protection Corporation (SIPC) up to $500,000 per account type, of which $100,000 can be cash. SIPC insurance does not insure investors against the loss of value of securities in the account. SIPC just had a press release about the safety of brokerage accounts.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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