Financial Q&A: Does Your Brokerage Account Have Enough Insurance?

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Q: Brokerage houses insure street accounts to a $500,000 limit. I have three accounts with the same firm - one in my name, one jointly with my wife, and one in an IRA in my name. Is the limit $500,000 on all three accounts, or $1.5 million?

B.H., via e-mail

A: The insurance you refer to comes from the Securities Investor Protection Corp. and is commonly known as SIPC insurance. The corporation was created in 1970 primarily to protect investors from the insolvency or bankruptcy of a member broker-dealer (or clearing firm) that holds assets for investors and to provide coverage for "unauthorized trading" in a client account.

Michael Borato, a financial planner with Dawson Wealth Management in Cleveland, says that the insurance covers registered securities (most stocks, bonds, and mutual funds) and up to $100,000 in cash. It does not cover unregistered investments such as fixed-annuity contracts, hard commodities, commodity options, or futures contracts. Nor, he points out, does it extend to market risk or the volatility of any investment.

SIPC provides coverage of up to $500,000 per customer, per registration. One customer can act in several capacities: as owner of a single account, joint owner, Roth IRA owner, traditional IRA owner, or trustee, among others. Each of those accounts would be separately and fully covered up to $500,000. So if your accounts included all registered securities and no more than $100,000 in cash per account, Mr. …