FDIC or Guarantee Association?

[insurehound]

I recently had a client who decided to not go with an annuity and instead, buy a CD for the FDIC insurance. Now there could be a good laugh on this as I guess it all depends on which bank she selected.

But in reviewing the guidelines of protection from the FDIC versus the California Guarantee Association (mine happens to be California). One can see a big difference:

FDIC

Up to $250,000 for a CD...you have this protection available for each bank institution that is FDIC insured. Plus additional coverage may be available depending on ownership structure.

California Guarantee Association

80% of the present value up to a maximum of $100,000 for all annuities. Max total for both life insurance and annuities is $250,000 even if you have multiple policies with different companies.

Now granted on the insurance side, there may be more layers of protection for the consumer before the association would come into play but still...

One could also argue if the FDIC would have the funds to pay their obligations as well so who knows!

Thoughts?

 

[STIBROKER]

One could also argue if the FDIC would have the funds to pay their obligations as well so who knows!
Thoughts?

Yea ....Met had us using that line 14 years ago.....

 

[padthaiforlunch]

If the FDIC starts to run short of funds you can be sure Congress will pass an emergency bill.

Things may be bad, but they aren't chicken little bad. To stick with CD's because of FDIC is to claim the sky is falling.

Insurance companies, unlike banks, didn't go under during the 30's. While some banks have failed (19 so far this year), the only insurance carrier to stumble so far is AIG. And even there the government stepped in - Guarantee fund untouched.

But if your client is ok without the benefit of tax-deferral, doesn't mind putting his family through probate, and is unconcerned with inflation, then a CD may be the place for him.

 

[moonlightandmargaritas]

If the FDIC starts to run short of funds you can be sure Congress will pass an emergency bill.

Insurance companies, unlike banks, didn't go under during the 30's. While some banks have failed (19 so far this year), the only insurance carrier to stumble so far is AIG. And even there the government stepped in - Guarantee fund untouched.

But if your client is ok without the benefit of tax-deferral, doesn't mind putting his family through probate, and is unconcerned with inflation, then a CD may be the place for him.

This stuff is all true, and very logical...

But once again, logic doesn't sell.

Here's what people, especially older people, like about the bank; there's a branch down on the corner, and there's a guy with a gun in front. It feels safe.

Now if you can transfer that feeling to an annuity....

 

[padthaiforlunch]

.... So you're concerned about losing your money? How about outliving it?

Let's take a look at the real interest rate on the CD after factoring in taxes and inflation.

$100,000 paying 3% is $3000/yr. less 28% for taxes leaves $102,160. Now if inflation is only 2% then the real dollar value of your account after one year is $100,117. At that rate, it'll take 615 years to double your money.

The chance of an insurance company going under and you not getting your money is minimal. Inflation eating away at your life savings is guaranteed if you put your money in a CD. What would be worse, the government stepping in to return your money, or outliving your nest egg?

By using an annuity, we can protect your hard-earned savings, grow it faster, reduce your taxes and make sure you never outlive your money. Wouldn't you like to eliminate that risk?