What Deposit Insurance Covers, and What It Does Not

Almost everybody has heard that savings are insured. Almost nobody can say by whom, up to what, or against what. The word insured does a great deal of quiet work in a branch: it makes a balance feel like a fact rather than a promise, and it lets a conversation about where money sits end before it has started. There are two schemes in Canada, they protect different things, they protect them in different shapes, and the boundary between them runs exactly where a household least expects it. One covers deposits. The other covers insurance contracts. Neither covers the other, and the sentence that causes the most trouble is the one that treats an insurance contract as though it were a savings account with better manners. This article sets out what each body actually does, taken from the bodies themselves rather than from anybody who sells a product.

Two promises that sound alike and are not

When money sits in a deposit account, the institution owes it back. That is the whole of the relationship, and it is a simple one: the balance is an asset of the household and the identical figure is a liability of the institution. A depositor is a creditor. Nothing about the arrangement is a contract to do something in the future; it is a debt, repayable, and the only real question is whether the debtor can pay.

When money is paid as a premium under an insurance contract, none of that is true. There is no balance owed back on demand. There is a contract, with terms, that says what the insurer will do and when, and in a permanent contract it also says what values accumulate inside it and on what conditions they can be reached. The policyowner is a party to an agreement rather than a creditor holding a claim for a sum certain.

Because the two relationships differ in law, the protection built around them had to differ too. Deposit insurance answers one question: what happens if the institution cannot repay a debt. The life insurance compensation scheme answers a harder one: what happens to a contract meant to run for another forty years if the company that wrote it stops existing.

What CDIC actually is

The Canada Deposit Insurance Corporation is a federal Crown corporation that insures eligible deposits held at its member institutions. Membership is not something an institution advertises its way into: it is a status, and CDIC publishes the list. An institution that is not a member has no CDIC coverage at all, whatever the sign on the door suggests, and there are deposit taking businesses in Canada that sit outside it.

What is eligible is narrower than most people assume and broader in one respect than they expect. CDIC lists deposits in Canadian or foreign currency, guaranteed investment certificates and other term deposits among the products it covers. Foreign currency surprises people who remember an older rule.

The coverage applies per member institution. Two accounts at the same institution in the same category are one pool, not two, and a household that opened a second account in the same place believing it had doubled its protection has done nothing of the kind. Two accounts at two separate member institutions are a different matter, and that distinction is worth more to most households than any product feature they will be shown this year.

CDIC publishes the amount of the coverage, and it is deliberately not printed here. A number on a page like this one is right on the day it is written and silently wrong afterwards, which is worse than no number at all. The authority publishes the current figure and that is where it should be read.

The categories, and why a household counts them instead of institutions

The part of the CDIC design that does the most work, and that almost nobody has been told, is that coverage is not granted once per person. It is granted separately in each of several named categories, and CDIC lists them: deposits held in one name, deposits held in more than one name, deposits held in a registered retirement savings plan, in a registered retirement income fund, in a tax free savings account, in a registered disability savings plan, in a registered education savings plan, in a first home savings account, and deposits held in trust.

Read that list slowly, because it changes the arithmetic. A household with a joint chequing balance, a registered retirement savings plan holding a term deposit, an education plan for a child and a tax free savings account is not sitting in one pool. It is sitting in four, and each is insured separately up to the published limit at that member institution.

This is a structural fact rather than a tactic, and it is the reason a conversation about protection should start with a list of where money sits rather than with a total. Most households have never written that list down. Writing it down takes an afternoon and it is the single most useful piece of homework anybody can do before a meeting about anything else.

Deposits held in trust sit in their own category and carry their own rules about how the trust and its beneficiaries must be recorded on the institution’s books. Those rules are administrative and they are exacting, and CDIC sets them out. A trust arrangement that has not been recorded the way CDIC requires is not the arrangement the household believes it has.

What CDIC does not cover

CDIC is equally plain about the other side, and the list is short enough to memorise. Mutual funds are not eligible deposits. Stocks and bonds are not eligible deposits. Exchange traded funds are not eligible deposits. Digital currencies, including the ones designed to hold a fixed value, are not eligible deposits. None of that is a judgement about whether those things are good or bad. It is a statement about what deposit insurance is for.

The confusion arises because several of those products are sold in the same building, often on the same statement. A statement that shows a deposit balance and a fund balance on consecutive lines invites a reader to believe that whatever protects the first line protects the second. It does not, and nothing on the statement says so.

An insurance contract is not on the ineligible list either, and that is not an oversight. It is not there because it was never in scope. A contract issued by a life insurance company is not a deposit at a member institution, so the question of whether it is an eligible deposit does not arise. A different scheme applies, and it is the subject of the next three sections.

What Assuris actually is

Assuris is the compensation association for life and health insurance in Canada. It is not a government guarantee and it does not pretend to be one. It is an independent, industry funded, not for profit body, and its standing comes from two places: it was designated by the federal Minister of Finance under the Insurance Companies Act, and it is recognised by the Autorité des marchés financiers in Quebec.

Membership is not optional. Every life and health insurance company authorised to sell insurance in Canada is required by the federal, provincial and territorial regulators to become a member of Assuris, and a member company cannot terminate its membership while it still has active business in Canada. That last clause matters more than it looks: it means the protection cannot be quietly withdrawn from contracts already in force.

So a household that holds a contract with any authorised Canadian life insurer holds a contract with an Assuris member, whether or not anybody mentioned it at the kitchen table. This is not a feature one company has and another lacks, and any sentence that presents it as a selling point for a particular insurer is a sentence to be suspicious of.

What Assuris is not is a promise that nothing will change. It is a floor, and a floor is a useful thing to have under a sixty year arrangement precisely because nobody can see sixty years ahead.

The shape of Assuris protection

Assuris protection has a characteristic shape, and understanding the shape is worth more than memorising any single figure. For each kind of benefit, the protection is expressed as the higher of two things: a floor amount, and a stated proportion of the benefit itself. A holder retains the greater of the two. That design means small contracts are protected in full by the floor, while large ones are protected proportionally rather than being cut back to the floor.

The proportion and the floor are not the same for every benefit. Assuris publishes separate levels for a death benefit, for the cash value of a permanent contract, for an investment account inside a contract, for health expense benefits, for disability income, for monthly income under a payout annuity, and for the guarantees attached to a segregated fund contract. The levels are on the Assuris site, product by product, and they are the ones to read.

The segregated fund case is the one most often misread, so it is worth stating carefully. What Assuris protects on a segregated fund contract is the GUARANTEE, not the market value of the fund. A segregated fund contract accumulates value by investing, and the investment result belongs to the market. The guarantee is the insurer’s contractual promise, and it is the promise that Assuris stands behind if the insurer fails.

Why an insurance contract is not a deposit

This is the sentence that has to be said plainly, because it is the one a household is most often invited to blur. A premium is not a deposit. A permanent life insurance contract is not a savings account. Cash value inside a contract is not a balance a policyowner is owed on demand; it is a value defined by the contract, reachable in the ways the contract allows, on the conditions the contract sets.

The legal difference has consequences a reader can feel. A deposit is repayable, which is why deposit insurance had to be invented: the whole risk is that the debtor cannot repay. A contract is performable, and the risk is that the company obliged to perform it stops existing. Those two risks are handled by different institutions because they are different risks.

It also cuts the other way, which is the part usually left out. A deposit can be withdrawn tomorrow morning without asking anybody. A contractual value cannot, and a household that treats a permanent contract as an emergency reserve has misunderstood what it bought. Liquidity and protection are separate questions, and conflating them is how people end up disappointed in a product that was doing exactly what it said.

Anybody who describes an insurance contract as a personal savings institution, or a policy as an account, has crossed a line that Canadian law draws deliberately. Section 983 of the Bank Act restricts the words bank, banker and banking, in any language, when they are used to indicate or describe a business in Canada or its products, services or the means of obtaining them. There is a reason for that restriction and this is it.

What happens on the day a company fails

The mechanics differ, and the difference tells a household which promise it holds.

When a CDIC member institution fails, the insured deposits are reimbursed or otherwise made available to depositors under the resolution framework CDIC administers. The relationship ends. The debt is settled, within the insured amount, and the depositor takes their money elsewhere.

When a life insurer fails, the relationship does not end, because the point of the contract was never a balance. A court appoints a liquidator, and the liquidator normally transfers the policies to a stable insurance company. Assuris works with the liquidator so that the company selected continues to honour the policyholder benefits, up to the published protection levels. A contract that survives is worth more to a family than a cheque, because the person insured under it has aged and may have become uninsurable since the day it was written.

On a participating contract, Assuris notes that dividends continue to be paid, though the amounts may be adjusted. That is an honest sentence and it deserves to be repeated rather than softened. Dividends are declared, never guaranteed, and a transfer does not change that.

The honest limits of both

Neither scheme is a reason to buy anything, and a conversation that arrives at protection first has usually arrived somewhere else by accident. Protection is the floor under a decision, not the decision. What a contract does, what it costs, whether the household can sustain it and what happens if circumstances change are the questions that decide whether it belongs in a family at all.

Both schemes have limits, and both publish them. Above the limit the protection stops, which is the entire point of a limit. A household whose holdings sit above one or both is not doing anything wrong; it simply has a fact to take into account, and taking it into account usually means spreading across categories or institutions rather than buying something new.

Neither scheme protects against a poor outcome in a market. CDIC does not cover a fund. Assuris covers the contractual guarantee on a segregated fund contract and not the investment result.

And both change. The statutes behind them are amended, the levels are reviewed, the categories have been revised before and will be again. A page that printed the figures would be quietly out of date within the year, which is why this one names the authorities instead. They publish. That is their job.

Frequently Asked Questions

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For the contract side of the segregated fund question, read how segregated fund guarantees work and segregated funds and mutual funds compared. If the registered plan categories were the part that mattered, the registered accounts explains what each wrapper is for. Transparency and compensation sets out what this firm is paid and by whom, which belongs beside anything it publishes.