Personal Finance

What Market Tumult Means For Average Stakeholders

Global stocks have experienced wild fluctuations this week in the wake of the U.S. government's seizure of insurance giant American International Group, the failure of Lehman Brothers, the disappearance of Merrill Lynch as an independent company and reports the U.S. government will set up a government entity to take on bad debts from financial institutions.
By Nancy Trejos
Washington Post Staff Writer
Tuesday, September 16, 2008

The stunning events rattling the financial markets are raising a lot of questions about the average person's finances. We talked to several experts to find some answers.

Q What if I have a life insurance policy or annuity with AIG, which is struggling financially?

ALife insurance policies are covered by each state's guaranty association. The amount of coverage you get if the company fails varies from state to state, but typically, you will be able to recoup up to $300,000 in life insurance death benefits, $100,000 in cash surrender or withdrawal value for life insurance, and $100,000 in withdrawal and cash values for annuities. Check with your state's guaranty association or the National Organization of Life and Health Insurance Guaranty Associations, which oversees the state associations. Its web site,, has a list of state rules.

One caveat: State guaranty associations do not extend coverage to any policy or annuity in which the policyholder bears investment risk. This would include an annuity that is invested in stocks.

What if I own Lehman Brothers stock or have a mutual fund that has shares of Lehman? How would Lehman's collapse affect my investments?

You will probably have to write off the stock, but don't make any drastic market moves, said Kelly Campbell, president of Campbell Wealth Management in Fairfax. "Right now, I would sit back and wait until the dust settles," he said.

If you have shares of Lehman in a mutual fund, all you can do is hope that it is a very small piece of the portfolio. A mutual fund should be diversified enough to withstand one bad investment.

What if I have a brokerage account with Lehman or its subsidiaries?

The Securities Investor Protection Corp. covers investors in the event of a brokerage failure, guaranteeing up to $500,000 of assets. However, yesterday SIPC President Stephen Harbeck said no liquidation proceeding against Lehman was in progress and all customer cash, stocks and other securities were accounted for.

"Should the situation at Lehman Brothers Inc. change in some material way not now anticipated by SIPC and regulators, we will, of course, intervene as necessary to protect the cash and securities of customers," he said. "However, I want to underscore that such an action is considered unlikely at this time."

What if I have a brokerage account with Merrill Lynch? How will it be protected from any of the massive changes that might come to that company?

Bank of America's takeover of Merrill Lynch should not affect brokerage accounts. In fact, in a press conference yesterday, Bank of America chief executive Kenneth D. Lewis said his bank intends to keep Merrill's name and organization intact. So, it's business as usual.

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