A Bank vs an Insurance Company for Safeguarding your Money

Are annuities still secure places to put your money?

With the recent bank failures in the mainstream headlines, it’s natural to wonder about the safety of other financial products out there…

So we’d like to address why we believe annuities are made for times like these.

And we’re not the only ones saying this…

In fact, some economists believe that insurance companies are much safer than banks.

There are two primary reasons why:

1) Banks are legally allowed to lend more money than they have in deposits

When you put money into a bank, that bank can lend out that money in hopes of getting a return. If the borrowers pay back their loans, the bank can do very well. However, unlike insurance companies, banks can lend out the majority of what they receive as deposits. As long as depositors don’t request their money all at once, the bank can make returns on the loans they make. Insurance companies are not legally allowed to do the same.

By law, insurance companies must keep 100% of their deposits as cash reserves. This means that insurance companies must have 100% of their deposits at all times. Banks, on the other hand, are allowed to keep cash reserves of only 10%. This means they can have a much larger percentage of their deposits tied up in loans. That's great if the loans pay off, but it also exposes your bank to risks if the borrowers default.

2) Insurance companies are more tightly regulated than banks

Insurance companies (unlike banks) are legally required to regularly report their finances to state regulators and can even be penalized if they don’t have adequate cash reserves. This means that banks may face more risk than insurance companies by not maintaining adequate cash reserves at any given time.

For these reasons, insurance companies simply do not have the same risk profile as most banking institutions.

However, that doesn’t mean you shouldn’t do your due diligence if you’re considering an annuity.

If you’re thinking about purchasing an annuity…

Remember to:

1. Research the financial strength and stability of the company.
2. Understand the specific coverage and limits as regulated by your insurance commissioner.

By doing this, you’ll be able to ensure your money is backed by the top insurance companies in your state…

And get peace of mind with your money, even in environments like this one.

If you’d like to have some help researching the financial strength of an insurance company or understanding how to find the most secure annuities for your situation…

Send an email to: moneywithtess@gmail.com