NATIONAL INSURANCE GUIDE

Excess SIPC and Private Insurance Programs

Excess SIPC and Private Insurance Programs — What They Are and When They Apply

When investing through a U.S. brokerage, your assets are generally protected by SIPC insurance – but only up to certain limits. What happens if your holdings exceed those limits?

That’s where Excess SIPC insurance and private supplemental insurance come into play.

🛡️ What Is SIPC Coverage?

The Securities Investor Protection Corporation (SIPC) is a non-profit membership corporation created by federal law. SIPC protects customers in the event their broker-dealer fails financially (e.g., bankruptcy or fraud), not due to market losses.

Standard SIPC limits:

$500,000 total coverage per customer
- Including up to $250,000 for cash

✅ Note: SIPC does not cover investment losses due to market downturns, fraud by issuers, or worthless securities.

📈 When Might SIPC Coverage Be Insufficient?

If you have more than $500,000 in combined cash and securities with a single brokerage, any excess is unprotected by SIPC alone. This is common for:

High-net-worth investors
Trusts, businesses, or retirement accounts
Investors with large equity or bond portfolios

🔄 What Is Excess SIPC Insurance?

Many major brokerages carry Excess SIPC insurance – a voluntary, private layer of protection above SIPC limits. These policies are typically underwritten by private insurers such as:

Lloyd’s of London
Underwriters at Berkshire Hathaway
AXA XL, etc.

🔍 Key Features of Excess SIPC:

Kicks in only after SIPC limits are exhausted
Covers both cash and securities held in street name
Coverage limits vary dramatically – from $1 million to $1 billion+

📌 Important: Excess SIPC also does not protect against market losses, just like regular SIPC.

🏢 Examples of Brokerages With Excess SIPC Coverage

Brokerage	Excess Insurance Provider	Total Coverage Per Client
Charles Schwab	Lloyd’s of London	$150 million per customer
Fidelity	Lloyd’s + Others	$1.9 million cash / unlimited securities (aggregate limit applies)
TD Ameritrade	Lloyd’s	$152 million per customer
Merrill Edge	Lloyd’s + Berkshire Hathaway	$1 billion aggregate limit
E*TRADE	Lloyd’s of London	$150 million per customer

⚠️ What’s Not Covered (Even With Excess Insurance)

Regardless of SIPC or Excess SIPC:

Market losses
Fraud by third-party investment advisors
Unregistered securities
Futures, commodities, crypto assets

are not covered.

🧾 How to Know If You’re Covered

To check if your brokerage offers excess SIPC or private insurance:

Visit your brokerage’s website
Look for the “Account Protection” or “Insurance” section
Confirm the underwriter name and coverage limits
Read the fine print — some coverage may be shared across all clients (aggregate limits)

💼 Do You Need Excess SIPC?

You might benefit if:

Your investments exceed $500,000 at one firm
You hold significant cash balances in your brokerage
You prefer consolidated holdings vs. spreading across firms
You run a trust, retirement plan, or business account

🧩 What Is the Difference Between Excess SIPC and Private Supplemental Insurance?

Many investors mistakenly believe that all coverage beyond SIPC limits is the same. In reality, Excess SIPC and private supplemental insurance are related but distinct concepts.

Let’s break it down:

Excess SIPC Insurance

This is an institutional group policy purchased by a brokerage firm on behalf of its clients. It acts in addition to standard SIPC coverage and only kicks in after SIPC limits are exhausted.

Provided by private insurers (e.g., Lloyd’s of London)
Brokerage-controlled: You do not choose or pay for this coverage directly
Passive protection: Automatically applies if your broker carries it
Applies to: Cash and securities shortfalls due to broker-dealer insolvency
Does not cover: Market loss, fraud by advisors, or unregistered investments

📌 Example: You hold $2 million in a brokerage account. SIPC covers $500K. The remaining $1.5M may be covered by Excess SIPC if your broker carries a large group policy.

Private Supplemental Insurance

This is a separate, individually purchased policy that you can obtain to enhance your asset protection – especially when:

You exceed SIPC + excess limits
You hold large cash balances or sensitive securities
You want control over your insurer and terms
You want broader protection (e.g., theft by outside advisors or cybercrime)

Key characteristics:

Customizable: You choose limits, scope, and provider
Paid out-of-pocket: Unlike broker-purchased excess SIPC
May include:
- Cyber liability
- Social engineering fraud
- Theft by third-party custodians or advisors
- Identity theft protection
- Broader crime coverage

📌 Example: A family office or HNW investor might purchase private supplemental coverage from a specialty insurer like Chubb, AIG, or Beazley to protect $10M+ in assets.

✅ Summary Table

Feature	Excess SIPC	Private Supplemental Insurance
Who buys it	Your brokerage	You (the investor)
Cost to you	$0 (included by broker)	Varies (paid directly by you)
Applies to	SIPC-eligible assets only	Broader protections possible
Customizable?	No	Yes
Covers fraud by 3rd party?	No	Sometimes (depending on policy)

🔍 Why It Matters

If your assets exceed basic protection levels — or you’re concerned about cyber threats, non-SIPC covered assets, or advisor fraud – a private supplemental insurance policy may provide the extra confidence and legal coverage needed.

Combined with SIPC and Excess SIPC, this layered approach creates a comprehensive asset protection strategy for today’s complex investing environment.

✅ Final Thoughts

Excess SIPC and private insurance offer a crucial safety net beyond standard SIPC protection – especially for high-net-worth individuals. While it won’t cover investment losses, it ensures that your assets are protected in case of broker failure, which, while rare, can be catastrophic without proper safeguards.

Always verify your brokerage’s total protection and consider diversifying across institutions if you’re concerned about limits or aggregate caps.

Insurance in the U.S. Securities Market – Insurance in the U.S. Securities Market

Clearing House Default Insurance – Clearing House Default Insurance
FDIC insurance – FDIC insurance
Hedge Funds and Securities Insurance – Hedge Funds and Securities Insurance
Insurance for Investment Advisors – Insurance for Investment Advisors
SIPC Insurance – SIPC Insurance