Paul Sanchez
Community banks are insured by the Federal Deposit Insurance Corporation (FDIC), an independent federal agency that safeguards customers' money by insuring it up to $250,000 per depositor, per ownership category. FDIC-insured community banks offer customers the same level of protection as larger national banks, with the added benefit of a personalized, customer-centric approach rooted in local communities. Additionally, community banks may also have bank-owned life insurance (BOLI) assets, which can provide further financial security. These BOLI assets have been increasing in recent years, with a positive correlation between the size of the community bank and the percentage of banks reporting BOLI assets. Overall, FDIC insurance and other financial products ensure that community banks are a secure choice for individuals and small businesses.
| Characteristics | Values |
|---|---|
| Insured Deposits | Safe and backed by the full faith and credit of the federal government through the FDIC |
| FDIC Coverage | Up to $250,000 per depositor, per ownership category |
| Bank Types Without FDIC Insurance | Private banks, banks primarily operating outside the US, and banks that have not sought FDIC approval |
| Bank-Owned Life Insurance | Key-Person Life Insurance, Split-Dollar Life Insurance |
| BOLI Assets | General account assets, separate accounts, or hybrid accounts |
| BOLI Risks | Agencies have issued guidance on BOLI risk management and accounting |
| ABA Insurance Services | Professional liability insurance, financial institution bonds, surety bonds, and property & casualty lines |
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What You'll Learn
- Insured deposits are safe and backed by the US government
- FDIC-insured community banks protect your money up to $250,000
- Bank-owned life insurance (BOLI) assets and risks
- ABA Insurance Services: professional liability insurance, financial bonds, and more
- Key-person life insurance: protecting banks against potential income loss
Insured deposits are safe and backed by the US government
Deposits in community banks are insured and backed by the full faith and credit of the US government through the Federal Deposit Insurance Corporation (FDIC). The FDIC is a US federal agency that provides deposit insurance to banks and savings associations. It was established in 1933 during the Great Depression to ensure stability in the banking system by preventing bank runs. The FDIC covers deposits for thousands of banks in the United States, including community banks like Centier Bank. By insuring deposits made by individuals and businesses in FDIC-insured banks, the FDIC helps protect your money, safeguarding it in the communities they serve.
FDIC insurance coverage is up to $250,000 per depositor, per ownership category. This means that your money is protected, no matter what happens. Choosing an FDIC-insured community bank is a great option for individuals and small businesses looking for a safe place to put their money. The combination of community values and FDIC insurance makes community banks a trustworthy choice. Community banks have been around for generations and have weathered many storms. They are dedicated to serving their customers and communities for the long haul.
In addition to FDIC insurance, community banks may also offer other types of insurance products and services to their customers. For example, community banks may provide bank-owned life insurance (BOLI) as a product for their customers. BOLI can include key-person life insurance, which insures the bank on the life of a key individual, and split-dollar life insurance, which is a form of additional direct compensation. The number of community banks reporting life insurance assets has been increasing, with 3,467 community banks reporting $29 billion in BOLI assets at the end of 2013.
Community banks can also access insurance services through partnerships or ownership interests in insurance agencies. For example, First Community Bank, through its ownership interest in Bearing Insurance, offers insurance products and services to its customers. ABA Insurance Services, a member of the Great American Insurance Group, also provides professional liability insurance, financial institution bonds, surety bonds, and property and casualty lines to banks across the country. These additional insurance offerings provide community banks with comprehensive protection and risk management solutions.
The safety of insured deposits in community banks is a key priority, and the US government, through the FDIC, ensures that these deposits are fully protected. Community banks play an important role in local communities, offering personalized banking experiences, and with FDIC insurance, individuals and businesses can have peace of mind that their money is secure.
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FDIC-insured community banks protect your money up to $250,000
The Federal Deposit Insurance Corporation (FDIC) is a US federal agency that was established in 1933 during the Great Depression. It provides deposit insurance to banks and savings associations. FDIC-insured community banks protect your money up to $250,000 per depositor, per ownership category. This means that your money is safeguarded in the communities they serve.
FDIC insurance is a great option for those looking for a safe place to put their money. The FDIC covers deposits for thousands of banks in the United States, and community banks like Centier Bank are covered. You can enjoy the same level of protection as you would at a larger FDIC-insured national bank. Community banks are often deeply rooted in their local communities and offer a personalized, customer-centric approach to banking.
It is important to verify a bank's FDIC insurance status before opening an account. You can use the FDIC's BankFind Suite to confirm whether any bank or credit union is FDIC-insured. The FDIC's Electronic Deposit Insurance Estimator is another interactive application that can help you learn about deposit insurance and calculate the insurance coverage of your accounts.
In addition to FDIC insurance, community banks may also offer other types of insurance. Bank-Owned Life Insurance (BOLI) is a common product for community banks, with 3,467 community banks reporting BOLI assets at the end of 2013. BOLI assets are unsecured obligations of the insurance company, and the type of BOLI policy affects the risk of these assets. Key-Person Life Insurance is another type of insurance that community banks may hold, where the bank insures itself against the potential loss of net income that may result from the death of a key person.
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Bank-owned life insurance (BOLI) assets and risks
Bank-owned life insurance (BOLI) is a product where the bank is the policy beneficiary and owner. Banks use BOLI as a tax shelter, leveraging tax-free savings provisions to fund employee benefits. BOLI is considered a long-term illiquid asset, although it can be surrendered at any time without policy charges. However, if a BOLI contract is surrendered, the gains within the policy become taxable, and a 10% IRS penalty on the gain is incurred.
BOLI is a tax-efficient method that offsets employee benefit costs. The bank purchases and owns an insurance policy on an executive's life and receives tax-free death benefits upon the executive's death. The cash surrender values grow tax-deferred, providing the bank with monthly bookable income.
BOLI is typically purchased for high-earners or board members of a bank, and the bank pays for the policy and benefits after the insured individual's death. Banks do not take out BOLI for every employee but only those whose death could cause a financial loss for the bank.
The credit quality of the BOLI issuer is a significant concern for banks. Most carriers in the market are of high quality, but this can change over time. The competitiveness of the crediting rate compared to the market is another concern for banks.
BOLI products can be structured in different ways, such as the General Account, which is the oldest and most common type, where the bank's deposit becomes part of the insurance carrier's general account. Another type is the Separate Account, where the carrier segregates the holdings into bank-eligible investments managed by fund managers, who provide detailed reporting of the assets within the portfolio.
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ABA Insurance Services: professional liability insurance, financial bonds, and more
The American Bankers Association (ABA) has offered insurance services for over 35 years, supporting banks with a range of insurance products. ABA Insurance Services is a bank-owned, banker-directed insurance program that is tailored to meet the unique coverage needs of banks.
ABA Insurance Services provides professional liability insurance, which protects financial institutions from claims brought on by clients. This includes Employment Practices Liability (EPL) coverage, which offers loss control services such as an Employment Practices Helpline, where employment law attorneys can provide legal advice on a range of workplace issues.
ABA Insurance Services also provides financial institution bonds, which are a type of surety bond that protects banks against losses due to fraud, employee dishonesty, or other criminal acts. Additionally, they offer property and casualty insurance, which covers physical damage to a bank's property and protects against legal liability for injuries or property damage caused by the bank's operations.
The ABA Insurance Services program is endorsed by the ABA and has a strong market share, with one in three banks having been with the program for at least ten years. The program's primary reinsurer, American Bankers Mutual Insurance, Ltd., has consistently provided distributions to eligible banks, demonstrating its financial stability and commitment to the banking industry.
Community banks, such as Centier Bank, are also insured by the Federal Deposit Insurance Corporation (FDIC), which protects the deposits of individuals and businesses. The FDIC was established in 1933 to provide stability to the banking system and prevent bank runs. It insures deposits up to $250,000 per depositor, offering peace of mind and safeguarding the finances of its customers.
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Key-person life insurance: protecting banks against potential income loss
Community banks are insured by the Federal Deposit Insurance Corporation (FDIC), an independent federal agency that safeguards customers' money in banks and savings associations. The FDIC covers deposits for thousands of banks in the United States, protecting up to $250,000 per depositor, per ownership category.
While FDIC insurance is common among community banks, it is not universal. Certain types of banks, such as private banks and those operating primarily outside the United States, may not have this insurance.
Key-person life insurance is a type of business insurance that helps protect a company from financial loss in the event of the death or incapacitation of a critical employee. This type of insurance is particularly relevant to community banks, as it allows them to safeguard against the potential income loss stemming from the absence of a key person.
The death or incapacitation of a key person can have a devastating impact on a community bank. Key-person life insurance provides a financial cushion, enabling the bank to stabilize its operations and continue functioning during the transition period. The insurance proceeds, known as the death benefit, can be used to cover various costs, including those associated with finding and training a replacement for the key person.
The amount of key-person life insurance required depends on the specific community bank and the role played by the key person. It is often recommended to purchase coverage that is eight to ten times the key person's salary or the monetary value they bring to the bank.
Key-person life insurance is a valuable tool for community banks to protect themselves from financial instability and ensure they can continue serving their customers and communities effectively.
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Frequently asked questions
The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency that provides deposit insurance to banks and savings associations. The FDIC helps protect your money by insuring it up to $250,000 per depositor, per ownership category.
When a community bank is FDIC-insured, your deposits are protected. This means that your money is safeguarded in the communities they serve.
You can check online to ensure your bank is FDIC-insured. The FDIC's BankFind Suite can help you verify whether a bank or credit union is FDIC-insured.
Bank-owned life insurance (BOLI) is another type of insurance that community banks may hold. BOLI assets can be unsecured obligations of the insurance company, and the likelihood of a community bank holding BOLI assets increases with its size. Additionally, community banks may offer insurance products and services to their customers through partnerships with insurance agencies.
