Annuity Guaranty Pools

Good to Know

We’ll address annuity protections in just a moment, but first let’s put a select few other financial protections into context.

  • The Federal Deposit Insurance Corporation (FDIC) extends the full guarantee of the United States of America behind CDs and traditional banking products purchased from a Federally chartered U.S. bank—up to $250,000 per account ownership category per Federal bank. Even though individual banks have failed, depositors have not lost a single dollar in insured accounts since FDIC was created over 90 years ago.
  • The Securities Investor Protection Corporation (SIPC) protects cash and security investments held by SIPC member brokerage firms against a firm’s insolvency—but not against market losses. The coverage limit is generally $500,000 per account type (“capacity”) of which no more than $250,000 in cash is protected. The coverage is not guaranteed by Federal or State governments. SIPC is funded by member brokerage firms. SIPC has a 99% protection success rate and has recovered almost $142 billion for clients since its inception 63 years ago.
  • The Pension Benefit Guarantee Corporation (PBGC)—a Federal agency— guarantees employer-sponsored defined benefit pension plan payments to retirees, within annually indexed limits. PBGC covers over 42 million working Americans.

Annuity Purposes and Guarantors

Let’s be candid, annuities often get a bad rap. Indeed, many would assert that they are not for every client or every financial need. However, couldn’t that be said about many financial products? Consider that the CFP Board recognizes that annuities may have at least a supplemental role in retirement planning in specific circumstances. Assuming an annuity is in the best interest of your client, be aware that annuities purchased directly from insurance companies by an investor using their private funds are not protected by a government agency.1 However, there may be limited protections available from state-sponsored guaranty pools. But first, a financial advisor recommending the purchase of such an annuity should exercise extreme due diligence in choosing the annuity provider. Why? Although rare, insurance company insolvencies happen. A key defense against the loss of annuity income because of insurance company insolvency is due diligence—selecting only highly rated insurance companies. But what if the unlikely happens and a highly rated insurance company goes into default? Is the party over and is it time for a dirge? Probably not. State-administered guaranty pools may offer a safety net of last resort. In some ways, guaranty pools resemble SIPC coverage. For example, how are guaranty pools funded and what exactly is protected?

  • The pools are generally funded by premium taxes assessed against annuity purchases and collected by insurance companies licensed to sell products in that state—the state government does not back the guaranties.
  • The investment performance of the annuity is not protected. If an annuity underperforms the market, the guaranty pool will not ride to the rescue and make good any market losses.

Coverage varies from basic to significant among state guaranty pools—generally $250,000 but ranges from $100,000 to $1,000,000.


The odds of being struck by lightning in the U.S. is about 1 in 15,000. But the author does not wander outside during a thunderstorm to count the nearby lightning strikes. Similarly, the odds of an insurance company insolvency are low, but due diligence on the front end and guaranty pools on the back end can help preserve a client’s retirement income stream should the unlikely happen.

The Not So Fine PrintWe neither caveat nor endorse annuity purchases—every client presents differing needs and financial resources. An experienced, credentialed financial advisor should be consulted before making financial decisions, including annuity purchases.


Financial advisors and planners need a sound understanding of the competitive edge of joining the ranks of highly-trusted financial professionals. Get that sound understanding through our CFP® Curriculum when you consider CFP® certification. You’ll discover a select few of the reasons our student pass rates are much higher than the national averages.

1 Refer to our PBGC discussion herein for pension payouts from employer-sponsored Defined Benefit Plans.