How to Start a Life Insurance Brokerage

Part 1 - How to start a Life Insurance Brokerage business - Background

A life insurance brokerage meets with current and prospective clients to determine their life insurance demands. They then work with various insurance companies to identify the policy type that best meets the customer’s coverage and financial needs.

Our guide is in 3 parts:

• Part 1 - How to start a Life Insurance business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a life insurance brokerage?

While it’s possible to open an agency with as little as $5,000, the business’ bottom line will benefit from a larger initial investment. Start-up costs include the following:

• Licenses and certifications – $400-$1,000 – Learn how to get your Life Insurance License here.
• Office space – Deposit and rent vary, depending upon building size and location. Many new agents opt to eliminate all costs associated with opening an office by working out of their home during the first few years.
• Agency management system (AMS) – Initial costs range anywhere from $5,000 to $20,000, depending upon the number of users and the capabilities you desire, with a monthly fee thereafter. While it might be tempting to manage your business without an AMS, it is not recommended. Most software packages are designed to ensure legal compliance and keep the agency on track with marketing, sales, and customer service. A list of AMS solutions, along with their ratings, can be found here.
• Insurance – Meet with an insurance professional to ensure your business needs are met. Business insurance, E&O, and a surety bond are all sound investments. Policy premiums for these policies vary from state to state, with industry experience significantly impacting the annual premium.
• Insurance company appointments – These fees vary, based on the insurance carriers’ guidelines. $50 – $300
• Website – In today’s environment, it’s critical that you build an online presence. Depending upon the capabilities you desire, budget $4,000 to $15,000 for your site build.

Many new agents choose to purchase another agent’s book of business – their list of clients. While this can prove to be a worthy investment, entrepreneurs are urged to conduct thorough research and seek counsel to ensure fair pricing.

While initial costs can be as low as $5,000, business owners who realize timely success report investing upwards of $50,000.

What are the ongoing expenses for a life insurance brokerage?

Your ongoing expenses will vary, depending upon office location and number of employees. In addition to standard overhead costs associated with running an office, owners should budget for the following:

• Agency management system (AMS) – Monthly fees range from $50 to $300, depending upon organizational needs.
• Payroll and incentive packages – This will represent your largest expense, but is also your greatest investment. Invest in your employees and you will build a team dedicated to both you and your book of business.
• Continuing education – Check with your state to determine continuing education requirements. Many of these courses can be taken online, in-person, or during attendance at an industry convention. Encourage your staff members to grow in their careers by funding their continued education.
• Insurance carrier appointment fees
• Marketing

Who is the target market?

There are a variety of reasons for purchasing life insurance that go beyond paying a death benefit when the insured dies. Get to know the products you sell on a deeper level. Once you’ve gained a clear understanding, identifying the target market will come naturally.

Life insurance products typically appeal to a diverse customer base.

How does a life insurance brokerage make money?

Your brokerage will generate revenue for each policy sold. Upon initial application acceptance, the writing agent receives a commission check for a percentage of the total policy premium. You can also expect to receive a smaller commission for every time a customer renews his or her insurance policy.

How much can you charge customers?

The insurance carrier sets both premiums and commission, which vary from policy to policy. Commission on policy sales averages between 30% and 70%, with some agents earning 100% of the premium for the first year. Renewal commission is significantly lower, averaging around 5%.

How much profit can a life insurance brokerage make?

Agency profits will vary from year to year, with the first few years being the most difficult. After 2-3 years, many life insurance agency owners report a strong book of business that delivers an average of $130,000 in annual profits.

How can you make your business more profitable?

While it is possible to make a living selling permanent and term insurance only, diversity is the key to success. Consider getting the proper licenses to offer financial products such as annuities and variable life policies. Health insurance, particularly policies such as Medicare supplements and Long-term care policies, would help diversify your business portfolio and boost the agency’s profit.

Consider buying into a cluster group, which can help lower new business requirements and ongoing expenses, such as carrier appointments.

Day-to-Day and Growth

What happens during a typical day at a life insurance brokerage?

In the insurance industry, no two days are alike and every day offers an opportunity to learn and grow. Your day-to-day tasks include:

• Meet with clients to determine their unique needs and educate them on life insurance.
• Assist clients in filling out paperwork.
• Guide customers through the death claim process.
• Service your current book of business.
• Market to your target audience and networking within the community.
• Research current trends and remain abreast of industry news. (Continuing education is critical in this field.)
• Work to gain appointments with insurance companies you wish to represent.
• Handle other administrative duties

The bulk of an agent’s day is spent building and maintaining relationships with both insurance representatives and clients.

What are some skills and experiences that will help you build a successful life insurance brokerage?

Regardless of how large of a role you plan to take within the agency, it is absolutely critical that you gain insurance experience before opening your own establishment. A well-rounded agency offers a variety of financial products. This first-hand experience will educate you on these products and help build your communication skills so you are able to establish a relationship of trust.

Successful agents possess a sound understanding of the intricacies of this dynamic industry. Their passion for this profession puts clients’ minds at ease, softening what many view as a painful, but necessary process. Strong marketing faculties, business acumen, and leadership skills are paramount to the agency’s success. Since this is a commission-based business, agency owners must perform well under pressure and possess the drive to charge forward.

Many agency owners choose to continue their insurance education well beyond the initial licenses. The National Alliance for Insurance Education and Research offers a variety of courses to fit every individual’s needs. The National Association of Insurance and Financial Advisors is also a great resource, offering an extensive curriculum to help every agent reach their fullest potential.

What is the growth potential for a life insurance brokerage?

The insurance industry is widely considered a recession proof profession. While life insurance is more vulnerable than other lines of business, today’s consumers are more financially savvy, recognizing the financial need/benefits behind owning life insurance. Your agency’s growth is only limited by your insurance knowledge, willingness to take risks, and drive for success.

What are some insider tips for jump starting a life insurance brokerage?

Leading life insurance business owners offer the following advice:

• Never be afraid to take risks, but always have a backup plan.
• To assist in your marketing strategy, contact your carrier representative. Most have pre-approved marketing materials available to you.
• If you decide to create your own marketing materials, seek prior approval from your insurance carriers’ compliance department. Unapproved marketing materials could result in hefty penalties and fines.
• “Speak less, listen more.” Take the time to truly understand your clients needs. Sell a product’s value, not the price.
• Make sure your clients have access to the information they need, regardless of day and time.
• Evaluate and quantify every sales activity, both successes and failures. Those who treat every situation as a learning experience realize the most significant successes.

How and when to build a team

While it is possible to manage the agency on your own, it might prove beneficial to start out with at least one other team member. Each employee must be trained and certified, based on the laws defined by your state.

When considering prospective employees,  remember that this person will represent your organization. They must possess leadership qualities that command trust from a variety of age groups and personality types.

Part 2 - Is a Life Insurance Brokerage business the right fit for you?

Part 3 - Action plan to launch your Life Insurance Brokerage business in 90 days