Understanding Guarantees by Insurance Carriers | SafeMoney.c

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Explore the guarantees offered by insurance carriers for safe money alternatives. Learn how to protect your investments today! In previous blog posts, we’ve discussed financial products offered by insurance carriers, such as annuities. But what if an insurance company fails? What then happens to your money in the annuity or financial solution issued by that insurance carrier? In the context of “Safe Money” – or money you can’t afford to lose – it’s worthwhile to discuss bank failures as well as insurance company failures. After all, bank options and annuities are two ways of preserving your wealth from the effects of market downturns. They’re means of keeping your hard-earned money safe. Ultimately, it begins with two components: security and guarantees. It’s important to clarify exactly what anyone in the financial industry means when they use the term “guarantee.” In the case of insurance companies or banks, it refers to financial reserves they hold in cash or cash-equivalent securities. These reserve holdings are allocated toward ensuring a promise or guarantee. For banks, the guarantee means you’ll always be able to get your money back and not suffer a loss. The Federal Deposit Insurance Corporation (FDIC) is tasked with insuring savings accounts against future bank failures. But the FDIC and its involvement come with many misnomers, some of which the American public is largely unaware. And they amount to strong differences from the guarantee offered by an insurance company, too. Differences between FDIC and Insurance Companies Here are some things to keep in mind about the FDIC: The FDIC is an independent corporation and isn’t part of the government How the government is involved: Congress sets the required reserves for a bank to guarantee your money stays in place The FDIC only guarantees your principal, not your earnings Currently, $1.40 is set as a reserve requirement for every $100.00 in the bank Therefore, the FDIC offers a “guarantee ratio” of $1.40 for protecting every $100.00 Contrast this with the guarantees offered by insurance companies: State insurance commissions regulate insurance carriers Each state insurance commission requires an insurance company to guarantee $1.00 in reserve for every $1.00 on deposit As a result, insurance companies offer doll