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The term “general account” is used in the insurance and securities trade in two different ways. In the case of the insurance industry, general accounts are overall account holdings available to an insurance company for making payouts. In a securities trading context, a general account is another term for a margin account; the Federal Reserve Board uses the term “general account” to refer to such accounts, and activities in them are limited by Regulation T, a regulation drafted by the Federal Reserve Board.
In the insurance sense, the general account includes a variety of assets. Customers do not have a share or interest in the account and the insurance company can run the account in the way it sees fit with the goal of increasing the available funds on hand so it can afford payouts. Insurance companies may opt to invest some of the general account. When someone files a claim, the company provides the money, assuming its investigation of the claim determines that the customer is entitled to a payout.
Insurance companies do present a risk to their customers. People pay for policies with the understanding that funds will be available to cover liabilities. If an insurance company goes bankrupt, coverage for its customers is lost. Ratings agencies periodically inspect insurance companies to come up with credit risk ratings so people know how reliable a company is in the estimation of financial experts. This allows people to make decisions about how and where to buy insurance.
For securities traders, the general account is an account through which customers at a brokerage can access credit. Credit activities must take place in a general account, and activity in the account is carefully documented. Investors own the contents of their general accounts and can choose to close their account and withdraw the funds, if desired. Brokers have an interest, allowing them to seize some or all of the contents to cover unpaid bills. Brokers can also issue a margin call, asking people to deposit more assets into the account when their credit risks increase to cover their debt.
People are entitled to a detailed accounting of activities in their general accounts from the broker, who should provide regular statements. If irregularities are identified, it is advisable to address them as soon as possible. Getting to the bottom of suspicious transactions is much easier when they are recent, as it may be possible to trace them more quickly and easily.
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