Many people wonder if insurance companies are safe. In short, the answer is yes, insurance companies are safe, and your money is generally protected.
Banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, for most account types, in the event of a bank failure. This means that if your bank goes bankrupt, the FDIC will reimburse you for your lost funds, up to the insured limit.
Insurance companies, on the other hand, are guaranteed by states’ insurance guaranty associations that provide similar protection to policyholders in the event of an insurance company insolvency. These associations typically offer coverage limits that vary depending on the state and the type of insurance.
| Feature | Bank | Insurance Company |
|---|---|---|
| Regulation | Federal Deposit Insurance Corporation (FDIC) | State and federal government |
| Guaranty Associations | FDIC | State insurance guaranty associations, such as: California Insurance Guarantee Association: CIGA |
| Financial Stability | Generally very stable | Generally very stable |
| Protection level | Up to $250,000 per depositor | Varies by state and policy type. In general: up to $300,000 in life insurance death benefits $300,000 in long-term care insurance policy benefits |
Visit National Organization of Life & Health Insurance Guaranty Associations: what happens when an insurance company fails? for more details.