What is an Independent Agent?
And Why it Matters For Your Protection
Experts say that there are at least seven times in your life where you’re likely to consider your life insurance (or disability & long-term care insurance for that matter). If you’re reading this, there’s a good chance you’re already there. You’ve set about educating yourself on your options and at some point you’ll be ready to start the process of getting your protection in place. When you’re ready, you may search online or you might even ask around social media or among your friends & family for a recommendation of someone you can talk to for insurance. That person you’ll be talking with is an agent or someone appointed by an insurance company as a recognized representative of that company. The agent has a number of duties but it’s to primarily quote you prices, make recommendations, and walk you through that process of getting your protection in place. Knowing ahead of time that there are a number of different types of agents will make all the difference in the world when it comes to the underwriting (the process the insurance company goes through to determine your premium) and the eventual type of insurance and premium you will pay.
“Knowing ahead of time that there are a number of different types of agents will make all the difference in the world when it comes to the underwriting (the process the insurance company goes through to evaluate your risk and determine your premium) and the eventual type of insurance and premium you will pay.” — Independent agent, Sam Price
How Many Types of Agents Are There?
When you start your search for life insurance coverage, there are primarily three different types of agents you’re likely to work with in putting your plan in place. Selecting the right one can make all the difference in terms of underwriting and the premium you pay.
The First Type of Agent: The Captive Agent
The captive agent is the traditional insurance professional and represents the largest percentage of agents in the market. Most agents come into the business of writing life and disability insurance in this way — myself included. The term, captive, means that the agent is an employee of an insurance company and usually in a contractual agreement to write insurance solely for that insurance company. For example, if you walk into a State Farm office, you’re going to walk out with a State Farm policy. Which from their perspective, as an insurance company, their goal is to write State Farm insurance. That insurance company is interested in growing their bottom line and not another insurer’s.
The parent company or insurance company may require its captive agents to sell certain types of life insurance or may require their agents to meet sales quotas. Captive agents have knowledge of their particular company’s insurance products but cannot help a client who does not need or does not qualify for that company’s products. If you ask the captive agent, “is this the best policy or premium for my needs?” Their reply can only be “this is the best my respective company can provide” or perhaps something like, “this is good insurance,” as they can’t speak to what other insurance companies can offer. Remember their goal is to sell one insurance company’s products!
The primary reason agents prefer to work captive to an insurance company is usually a financial decision as the insurance company typically offers a desk, phone, and office along with administrative support and perhaps even marketing to draw potential clientele.
Most of the property and casualty insurance companies in the market today are captive agencies. There are also many mutual insurers that may or may not be captive agencies as well.
The captive agent can provide an adequate service for you. The captive agent’s insurance will be suitable in the sense that it will take care of your need for insurance. Most captive agents represent older insurance companies with strong financials — which is important as you want to do business with an insurance company that will be there twenty years from now.
The captive agent’s first allegiance is to their employer and not to you, the person in need of coverage. Their first priority is not to provide you with the absolute best solution or premium. It is to provide the absolute best that their respective insurance company can offer you even if it costs you a great deal more than what another insurance company can provide. Just as a side note, there is no such thing as bad insurance so long as your family or loved ones are protected. But, if your concern is having the most cost-effective premium or the best solution to your needs, then you need the services of an independent agent.
Another potential downside to working with a captive agent is they’re usually newer to the business. Just because they have “insurance adviser” on the business card doesn’t mean they’re a seasoned veteran in the insurance industry. More than likely, this time last year they were likely working in another industry. The truth is, the vast majority of agents do not make it past the first six to nine months selling insurance. So there’s a good chance that the person on the other side of the desk from you is relatively new to insurance. This isn’t a deal breaker as everyone has to start somewhere. But if your need is more complex or if your health history is spotty, it’ll be in your best interest to consider working with an independent agent.
The captive agent’s first allegiance is to their employer and not to you, the person in need of coverage. Their first priority is not to provide you with the absolute best solution or premium. It is to provide the absolute best that their respective insurance company can offer.” — Independent agent, Sam Price
The Second Type of Agent: The Captive Agent with Options
I coined this term to describe many of the mutual company agents in the market today. Years ago, when various insurance companies began to offer independent contracts to insurance agents, many of the mutual insurers such as Northwestern or Mass Mutual in an attempt to stay competitive in the market, either created their own independent brokerages or began working with independent brokerages in some capacity.
Many insurers realized that when consumers have options for their business, it makes sense to have a second option available or a back-up option in situations where underwriting doesn’t go so well or when your application is denied all together.
The captive agent with options will still have a primary carrier that may require a high percentage of business to be written through them each month. Still others will require an agent to write all of their business through them first and allow for other company options in the event you were declined for coverage.
Pros: The captive agent with options are usually more flexible than the captive agent as they maintain other options in the event that underwriting doesn’t go so well. They’re likely to be aware of other insurers and may even maintain a relationship with a handful of carriers for business. Captive agents with options tend to have more industry knowledge than their captive counterparts as these arrangements are generally a landing spot for more experienced agents. You’re likely to be sold “suitable” insurance to fit your needs.
Cons: More flexibility is great, but most captive agents with options still write a large percentage of their business through their corporate carrier. Even though they have more options, they typically have a financial reason to not write business with other insurers as they typically make more money off of a transaction with their captive insurance company. This type of agent will usually only write business with other insurers only when their client receives bad underwriting or is declined for coverage all together. After being declined, they’ll likely make the recommendation to “shop this around with another carrier.” The problem with that is that by that point, you’re typically already 30-60 days into the process having to start back at the beginning with another insurance company. If you’re working with an independent agent, there is a much greater likelihood of getting it right the first time. This saves you a great deal of time and hassle in getting something in place.
The Third Type: The Independent Agent
The independent agent is not an employee of an insurance company but typically can work with several different carriers for life insurance. At the writing of this, I have some forty separate options for life insurance I can turn to depending on the client I’m working with. In the past twenty to twenty-five years or so, insurance companies began to work around the traditional captive agency model and offer agents independent contracts. The upside here is that at any given moment, there is no person walking into my office from any insurance company requiring me to write any type of policy for my clients. My job and first priority as an independent agent is to take care of the needs of my client, regardless of the insurance company that we use. In short, I work directly for the client in finding the insurer that best fits my client’s needs — not an insurance company’s bottom line. By making this process client focused, this causes insurance companies to compete for your business in terms of better underwriting, better policies, and more competitive premiums.
All things being equal, you’re going to be more satisfied working with an independent agent for your life insurance needs. More options and less bias more often than not means a better outcome for my clients. Whether you’re looking for term insurance, dividend paying whole life insurance, or in need of complex policies for either estate or business needs, I have multiple options to turn to.
There are times where I may recommend different insurance companies for a husband and a wife or partners in a business. The downside there is that you might have multiple bills coming at you rather than having everything on the same bill. There is something to be said for simplicity. I always make it a point of explaining the money saved in having multiple insurance companies but there are some people who want everything on the same statement.
There are times where it may seem that I’m complicating the process as well. In 9 years of working independently, I’ve never started an application with a potential client without having met them first and gotten to know them and their needs. You will not call my office for the first time and get an application started without me digging into your financial needs and health history. The more I know about your needs and health history, the more I’m able to pinpoint the best carrier for you. So just be aware that this approach, although more comprehensive, can add on more time in the process.
Why It Matters:
From the moment you get your first life insurance policy in place you’re likely to have life insurance for the better part of your life. Being sold the wrong type of life insurance or even paying more for coverage doesn’t sound so bad when you’re in your twenties. By the time though you reach your mid 30s or 40s, even a 25% difference in premium can mean thousands of dollars per year. One of the favorite things I do is save clients money. There is seldom a time that I can not outcompete or outhustle captive agents or any many cases, other independent agents in finding a solution for your needs and getting the most cost-effective policy in place for you.
If you need life insurance whether it’s for the first time or you’re just curious as to what else is available for your needs — make it a point to reach out via email to firstname.lastname@example.org or by phone call or even by text to (205) 578-2097. You’ll be glad you did. ~Independent agent, Sam Price.