Question

Why does the FDIC place a limit on the amount of money it will insure?

Answer 1

The FDIC has only limited reserves. 

Answer 2

Answer:

FDIC is an independent agency that protects the depositors if the FDIC insured bank fails. FDIC insurance is backed by the United States Government. It protects the employees by ensuring their bank account.  It covers up to at least 250,000 dollars. If an FDIC insured bank fails then FDIC pays the insurance to the depositors up to the insurance limit. It pays the amount within few days of the closing of the bank either by providing a new bank account at another insured bank(The amount is equal to the insured balance of their bank account) or by issuing a check to each depositor.

Regardless of how much money one has in the bank account FDIC  covers up to 250,000 dollars only.