The insurance industry offers a wealth of opportunity for professionals with entrepreneurial spirits to start meaningful careers. Agency owners often admit that while they may not have originally aspired to become insurance agents, they were attracted to the unique opportunity to own service-oriented businesses with profit sharing opportunities and unlimited earning potential. Here are the five preliminary steps involved in becoming the owner of an insurance agency.
Things to Consider Before Opening an Insurance Agency
It is important to understand that most insurance agents earn the bulk of their revenues from commissions related to renewals, and not those related to new policies. Most insurance policies are designed to renew after six months or one year, which means that during the first year of operation, new insurance agents won't have access to the compounding monthly income enjoyed by established insurance agents.
New insurance agents should plan to start slowly, and should have enough income to support themselves while they build their clientele over the course of a twelve to eighteen month period. This income should include enough money for operating costs, advertising, and other general expenses that may arise.
Most states require insurance professionals to obtain a state-recognized license before engaging in the business of insurance sales. Parties interested in careers as insurance agents should contact their local Department of Insurance for information on how these licenses are obtained in their states.After obtaining the insurance licenses, one will need to decide if he or she will represent one company or a broad assortment of companies. Agents representing only one company are exclusive or
"captive agents; those who represent numerous companies are "independent."
Independent agents are not typically permitted to sell insurance for companies offering only captive contracts, so it may be helpful to meet with representatives of insurers from both categories to learn about what they offer.
How to Open an Insurance Agency
Most states require insurance agencies to hold "agency licenses" with the Department of Insurance. In order to open the insurance agency, it will be necessary to obtain an agency license, and to register the agency as a business with the Secretary of State. The business will also need a federally-issued tax identification number. These steps must be taken by the agent before he or she is eligible to sign a contract with an insurer.
After the agency is registered, the agent will be eligible to pursue a contract with an insurer. (If the "independent agency" track is chosen, it will be necessary to pursue several agency contracts.) Most insurance companies require new agents to undergo credit, employment history, and background checks. Independent agents who have had trouble obtaining individual contracts for their new agencies have reported success with companies such as Smartchoice, which are known for offering a cluster of contracts.
It can take one to three months to register with regulatory authorities and to finalize contracts with insurers. It may be worthwhile to wait until all regulatory matters are finalized before leasing office space. A large number of new agents choose to work from home until their earnings are high enough to cover the monthly cost of office space.