Is a PayPal Transaction Insured?

FDIC
Funds that PayPal touches as they pass through a PayPal transaction are held in a bank. Therefore, PayPal funds are covered under Federal Deposit Insurance Corporation (FDIC) insurance that also applies to a traditional bank account, except for PayPal's interest-bearing, money market accounts.
Types
For transactions between users, PayPal offers protection for both the seller and buyer, according to PayPal's user agreement.
Protection for Sellers
PayPal offers to refund money to sellers when the buyer claims that he did not receive the item or the person who made payment had no authorization to use the PayPal account. In order to get this protection, the seller will need documentation to prove that he sent the item and verification of the buyer's info.
Protection for Buyers
Buyers who want refunds can only get one if they did not receive the item or received a damaged product. However, PayPal only offers this protection to eBay users as of 2010.
Tips
Buyers can tell if PayPal insures their transactions on eBay by looking for the buyer protection symbol. Also, any user who feels her transaction was fraudulent should contact PayPal as soon as possible.