Are Annuities FDIC Insured?

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Annuities aren’t traditional bank deposits like checking or savings accounts, so they are not insured by the FDIC. However, they come with another type of protection through state guaranty associations.

Even without FDIC insurance, annuities are safe investments, provided you buy them through a reputable insurance company or brokerage firm. 

State Guaranty Associations

Each state has a nonprofit guaranty association that protects policyholders when an insurance company fails and is unable to pay debts owed. For example, the Texas Department of Insurance has a guaranty association that explicitly covers annuities. 

How Do State Guaranty Associations Work?

Insurance companies that issue annuity contracts are overseen by government organizations and must comply with strict requirements regarding capital, surplus and finances.

This helps ensure that the insurance companies can meet their financial obligations to annuitants.

What Happens If an Insurance Company Fails?

While an insurance company failure is rare, it has happened. If an annuity provider goes out of business, another stable company may come and purchase its contracts. If that’s the case, annuity owners will simply continue receiving their annuity payments, albeit from a new company. There should be little change to the annuity owner.

If not, the applicable state guaranty association steps in. It levies assessments against other insurers selling the same type of annuity or insurance to cover claims.  

The money from these assessments, plus whatever assets the failed company has left, goes toward paying customers’ claims, but only up to the coverage limit set by state law. These limits vary depending on the state.

Coverage Limits

There are limits to states’ coverage, however. The amount you can recover varies by state but typically ranges from $100,000 – $500,000. Most states limit coverage to $250,000 per policy.

Here’s a look at the coverage limits for each state:

FDIC Insurance vs. State Guaranty Protections

Here’s a look at the protections the FDIC offers versus what state guaranties offer:

What Are the Risks of Annuities?

Each type of annuity comes with a different risk.

Fixed Annuities

Fixed annuities are safe in a recession, as they are contracts that come with guaranteed rates of return that are not tied to the stock market.

Variable Rate Annuities

However, variable-rate annuities can be invested in stocks and bonds. The performance of the market can affect the performance of your annuity.

Indexed Annuities

These annuities are tied to a market index. This means it will mirror a part of the larger market, like the S&P 500. Similar to variable rate annuities, a market downturn can also affect returns from your annuity.

Annuities tied to the stock market are considered securities, and as such, they are regulated by federal government regulatory organizations like the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

What Protections Should You Look For?

When considering an annuity, you should look for the following protections: 

Diversification

Avoid putting all assets into a single annuity or insurer. Instead, spread your assets across multiple annuities to reduce risk from a single annuity or insurer. 

Research and Ratings

The following agencies don’t recommend annuities, but they do rate the financial strength of insurance companies. However, each has its own system, so ratings between annuities can vary.

• Moody’s 
• S&P Global
• AM Best
• Fitch
• Kroll Bond Rating Agency

Since ratings can differ, it’s a good idea to check with more than one agency. They can also change at any time, so reviewing them yearly can help investors stay updated.

State-Specific Laws

Each state sets its own annuity benefit limits — typically $250,000. You can check your state’s guaranty association limits by visiting the National Organization of Life & Health Insurance Guaranty Associations.

Melissa Locker contributed to the reporting for this article.

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