For a monthly fee, we offer an add-on checking account product that includes three types of insurance (as well as ID protection and travel perks) — cell phone protection, accidental death and dismemberment coverage, and debit card purchase protection for items that are damaged or stolen within ninety days of purchase. Our marketing materials indicate that these insurance products are not insured by the FDIC. Do these insurance products qualify as “nondeposit investment products,” and are we prohibited from marketing this add-on product at account opening?

If the three insurance coverages your bank is offering do not incorporate an investment component, we do not believe they would be treated as nondeposit investment products, and you would be allowed to market these products at account opening — provided the required disclosures are made.

The Interagency Statement on Retail Sales of Nondeposit Investment Products applies to products with an investment component that are not insured deposits. Nondeposit investment products include “life insurance policies (whole and variable),” which are types of insurance products that contain investment components. Assuming the cell phone protection, accidental death and dismemberment coverage, and debit card purchase protection included in your add-on product do not contain investment components, they would not be considered nondeposit investment products.

Consequently, these insurance products would not be subject to the requirements for sales of nondeposit investment products from the Interagency Statement, such as conducting sales in a distinct physical location and the prohibition on sales or recommendations by employees who open new accounts.

Note that for sales of insurance products that do not pose an investment risk, the FDIC’s insurance sales regulations and the Illinois Insurance Code require financial institutions to disclose that an insurance product is not a deposit, is not guaranteed by the institution or its affiliate, and is not FDIC-insured (or insured by any other U.S. agency, the institution, or its affiliates). Additionally, federal and state regulations also may require certain disclosures to be made when selling insurance products — regardless of whether they qualify as nondeposit investment products.

For resources related to our guidance, please see:

FDIC, Uninsured Investment Products: A Pocket Guide for Financial Institutions (March 6, 2014) (“Q. What is a nondeposit investment product? A. Any product with an investment component that is not an insured deposit is subject to the Interagency Statement. Stocks, bonds, government and municipal securities, mutual funds, annuities (fixed and variable), life insurance policies (whole and variable), and savings bonds are nondeposit investment products.”)

IICLE, Estate Planning for Illinois Attorneys: The Basics and Beyond 2012 Edition, Chapter 13 — What Every Estate Planner Needs to Know About Life Insurance (“Whole life insurance, sometimes called ‘permanent insurance’ or ‘ordinary life,’ is designed to stay in force throughout the insured’s lifetime. Cash value increases based on the insurance company’s general asset account portfolio performance.”)

Interagency Statement on the Purchase and Risk Management of Life Insurance, Glossary (December 7, 2004) (“Variable life insurance policies are investment-oriented life insurance policies that provide a return linked to an underlying portfolio of securities.”)

Comptroller’s Handbook, Retail Nondeposit Investment Products, Page 5 (January 2015) (“Many banks offer retail clients insurance-related investment products as part of their comprehensive product offerings. Such products may include variable and fixed rate annuities, and life insurance contracts with investment components (e.g., whole life, variable life, and universal life products).”)

Interagency Statement on Retail Sales of Nondeposit Investment Products (February 15, 1994) (“Selling or recommending nondeposit investment products on the premises of a depository institution may give the impression that the products are FDIC-insured or are obligations of the depository institution. To minimize customer confusion with deposit products, sales or recommendations of nondeposit investment products on the premises of a depository institution should be conducted in a physical location distinct from the area where retail deposits are taken. . . . In no case, however, should tellers and other employees, while located in the routine deposit-taking area, such as the teller window, make general or specific investment recommendations regarding nondeposit investment products, qualify a customer as eligible to purchase such products, or accept orders for such products, even if unsolicited.”)

FDIC, Uninsured Investment Products: A Pocket Guide for Financial Institutions (March 6, 2014) (“Q. Are there restrictions on which employees can be used to sell nondeposit investment products directly? A. Any employee who receives appropriate training is eligible to recommend or sell nondeposit investment products. The Interagency Statement attempts to eliminate customer confusion regarding the uninsured status of nondeposit investment products by restricting where nondeposit investment products can be recommended and sold. Employees who receive deposits, cash checks or open new accounts–such as tellers located behind the deposit counter (kiosk arrangements excepted) or officers at new account desks–are not permitted to recommend or sell nondeposit investment products from these types of locations. However, these same employees would be permitted to recommend or sell such products if they are positioned at a location ‘physically distinct’ from the deposit counter or the new accounts desk.”)

FDIC Insurance Sales Regulations, 12 CFR 343.40(a) (“Insurance disclosures. In connection with the initial purchase of an insurance product or annuity by a consumer from you, you must disclose to the consumer, except to the extent the disclosure would not be accurate, that:

(1) The insurance product or annuity is not a deposit or other obligation of, or guaranteed by, the institution or an affiliate of the institution;

(2) The insurance product or annuity is not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the institution, or (if applicable) an affiliate of the institution; and

(3) In the case of an insurance product or annuity that involves an investment risk, there is investment risk associated with the product, including the possible loss of value.”)

Illinois Insurance Code, 215 ILCS 5/1409 (“A financial institution shall clearly and conspicuously disclose in any written advertisement or promotional or informational material regarding an insurance product that the insurance offered, recommended, sponsored, or sold:

(1) is not a deposit;

(2) is not insured by the Federal Deposit Insurance Corporation, or in the case of a credit union, by the National Credit Union Share Insurance Fund;

(3) is not guaranteed by the financial institution or an affiliated insured depository institution; and

(4) where appropriate, involves investment risk, including potential loss of principal.”)