NATIONAL INSURANCE GUIDE

SIPC Insurance

SIPC Insurance: What It Is and How It Protects Investors

Investing in the U.S. securities market comes with inherent risks – but the loss of your brokerage account assets due to a firm’s bankruptcy shouldn’t be one of them. That’s where SIPC Insurance comes in.

🛡 What Is SIPC?

The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation created by Congress under the Securities Investor Protection Act of 1970. It is not a government agency, but it plays a vital role in safeguarding investors if their brokerage firm fails.

SIPC protects against the loss of securities and cash in customer brokerage accounts held by SIPC-member firms that go bankrupt or face financial trouble.

✅ What Does SIPC Cover?

SIPC does not protect against market losses. Instead, it covers:

Cash and securities (stocks, bonds, mutual funds, etc.) held in a brokerage account
Up to $500,000 per customer, including a maximum of $250,000 for cash

It helps restore customers’ assets held in “street name” by the brokerage – not investments that lose value due to volatility or bad trades.

🚫 What SIPC Does Not Cover

It’s important to know what’s not protected:

Losses from market declines
Promises of investment performance
Fraudulent investments not held by SIPC members
Commodities or futures contracts (unless part of a protected security)

🔍 Who Is Eligible?

You’re eligible for SIPC coverage if:

Your brokerage firm is a SIPC member (check at sipc.org)
Your funds and securities are held in “street name” at the firm
You are a customer – not an affiliate or officer of the brokerage

Coverage is applied per separate capacity, meaning if you have different types of accounts (individual, joint, IRA), each is separately insured up to the $500,000 limit.

📊 How SIPC Works When a Brokerage Fails

Here’s what happens in the event of a failure:

SIPC initiates legal action and appoints a trustee
The trustee reviews and validates customer claims
SIPC funds are used to replace missing securities or cash
If assets can’t be located, SIPC compensates up to coverage limits
Assets above the SIPC limit may be partially recovered through liquidation

Most SIPC liquidations result in customers recovering all of their assets.

🔒 Additional Protection: “Excess SIPC”

Many large brokerages purchase additional private insurance, known as “Excess SIPC,” through carriers like Lloyd’s of London. This can increase protection limits into the millions of dollars.

However, this coverage only kicks in after SIPC limits are exhausted and is subject to specific terms and limits.

🏢 SIPC-Member Brokers to Know

Here are a few reputable SIPC-member brokerages that also carry excess coverage:

Brokerage	SIPC Member	Excess Insurance	Notes
Charles Schwab	✅	Up to $150M	Lloyd’s of London
Fidelity	✅	Up to $1.9M cash	Lloyd’s + other carriers
TD Ameritrade	✅	Up to $152M	Excess SIPC
E*TRADE	✅	Yes	Contact for details

📌 Final Thoughts

SIPC Insurance is a critical layer of protection for U.S. investors, ensuring that if a brokerage fails, your cash and securities are safe up to $500,000. While it doesn’t cover market losses, it gives peace of mind in the financial system’s structural integrity.

To ensure your investments are protected:

Always use a SIPC-member broker
Understand the limits of SIPC and any excess coverage
Diversify your account types if needed for higher effective protection

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

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