What Is SIPC Insurance?
SIPC stands for the Securities Investors Protection Corp. It is designed to protect investors' cash and securities held at brokerage firms that are SIPC members. Investors do not need to purchase this insurance; they are covered when dealing with SIPC member firms. SIPC Insurance operates as a not-for-profit organization.
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Significance
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Congress implemented SIPC Insurance in 1970 to insure customers' assets held in their accounts in the event of a brokerage firm bankruptcy. It does not cover losses from trading.
Considerations
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Investors, traders and all individuals should consider SIPC Insurance when dealing with any brokerage firm. Some firms also carry additional insurance such as Charles Schwab & Co., which uses Lloyd's of London.
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Features
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SIPC Insurance also protects a customer against unauthorized trading that may occur in his account. It covers stocks, bonds, mutual funds, money markets and registered securities, but does not guard or reimburse a customer from market risks and losses.
Limits
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The SIPC limit was set at $500,000 per customer, which includes $100,000 in cash. The cash amount limit was raised $250,000 on May 20, 2009, and will remain there until Dec. 31, 2013, unless again extended or changed.
Warning
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Certain investment vehicles are excluded from coverage. They include futures contracts, precious metals, foreign currencies, limited partnerships and fixed annuities not registered with the Securities Exchange Commission.
Expert Insight
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Some individuals are not covered by SIPC Insurance. Certain people associated with a brokerage firm such as partners, beneficial holders, officers and directors may be exempt from protection.
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