Why Annuities Aren’t FDIC Insured
The Federal Deposit Insurance Corporation (FDIC) only covers deposits at FDIC-insured banks—such as checking accounts, savings accounts, and CDs—up to $250,000 per depositor, per bank.
Annuities are not bank products. They’re insurance products issued by life insurance companies, not banks. Because of this, they fall outside FDIC protection.
Helpful Resource: Not sure exactly what is covered? Read our full guide on FDIC insurance limits and rules to see which specific bank accounts receive federal protection and which do not.
What Protects Annuities Instead?
Instead of FDIC coverage, annuities are backed by:
- The financial strength of the issuing insurance company: Your contract relies on the claims-paying ability of the insurer. This makes the company’s AM Best, Moody’s, S&P, and Comdex ratings crucial when evaluating any annuity.
- State guaranty associations: Each U.S. state has a state guaranty association that may offer limited protection if an insurer becomes insolvent. Coverage limits vary by state, but typically protect:
- Up to $250,000 in annuity benefits (some states offer more)Per contract owner, per life insurance company
This protection is not automatic like FDIC insurance—you must live in a state that offers it, and coverage is not federally guaranteed
Safety Check: Since there is no federal backstop, you must verify the carrier’s financial health yourself. Use our live annuity company ratings database to ensure you are buying from an A-rated insurer with a strong history of paying claims.
Pros and Cons of This Structure
- Pros:
- Higher potential yields than bank CDs
- Backed by highly rated insurers
- State guaranty protection can be significant
- Can provide lifetime income and tax deferral
- Cons:
- Not FDIC insured
- Protection varies by state
- No federal guarantee
- Must research insurer financial strength
Who Needs to Know This And Why
- Who needs to care:
- Retirees and pre-retirees putting significant assets into annuities for income or accumulation.
- Anyone choosing between a bank CD and a multi-year guaranteed annuity (MYGA) and mistakenly believes both are federally insured.
- Who doesn’t need to worry as much:
- Buyers who diversify across insurers and stay within their state’s guaranty limits.
- People using annuities primarily for income via a guaranteed lifetime withdrawal benefit (GLWB) and not expecting to walk away with all their principal.
Insurance That Can Support Annuity Buyers
- Life Insurance: Use permanent life insurance to protect your estate if you annuitize the contract or outlive your assets.
- Long-Term Care Insurance: Use a hybrid annuity with an LTC rider or buy a standalone policy to reduce the need to drain your annuity for future care costs.
- Annuities with Strong GLWBs: Provide income for life even if the account value goes to zero, offering more reliability than relying solely on cash value.
The Bottom Line
Annuities are not FDIC insured, but that doesn’t mean they’re unsafe. The key is to choose strong insurers, stay within your state’s guaranty limits, and use annuity riders to manage longevity risk.
Need help selecting an annuity backed by a financially strong insurer? Contact The Annuity Expert for free quotes and personalized guidance.
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