Captive vs. Independent Agent
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UPDATED: Jul 9, 2019
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One of the most critical questions you should ask your agent is whether he/she is a captive or independent. A captive agent can offer you products from one insurer, while independent agents can provide you with 100 or more products from which to choose.
Ultimately, you will buy a policy from an agent. The question is who would better serve your needs. In this post, I will go over some of the questions you need to ask your agent to see if he/she is a suitable fit for you.
What Is a Captive Insurance Agent?
Captive insurance agents, also known as exclusive insurance agents, are limited to working for one insurer. They are required to sign an agreement which prohibits them from engaging in selling other product by another company except for the one they are working for. They serve the insurance company and not the insured.
Since a captive agent can market only one company, he may be an expert on the products and services of that particular carrier. However, this may have an adverse effect on the client because you will have one quote from one carrier. It comes at the consumer’s expense because no one policy fits every individual. Instead, each person has various needs and goals and should be treated accordingly.
So, even if your independent agent cares about you, he must use the “cookie cutter approach” and place you with the same plan he sold to 1000 people before you, whether it’s the right coverage or not.
Remember, the captive agent works for the insurer and has a quota to meet every month. Imagine going to the car dealer who offers one car for sale. The only way consumers know that they are getting the best product at the best prices is by comparing quotes against each other and choosing the one from a bunch.
Why Would an Agent Choose to Become Captive Then?
There are a few reasons, but the main ones are support and salary. Companies such as State Farm or Farmers recruit agents to sell their product while promising salary, office location, and support. There is ample training, and you wouldn’t need to invest in marketing, advertising, or building a website, for instance.
You’ll have a recognizable brand name and paid marketing costs—for a price. You will have to push one product to your clients whether it’s the right one or not. When these large companies set up an office for their agents, they also set a territory for him/her to work in, so when a potential client calls State Farm to request a quote, they will transfer the call to an agent who is in that territory.
Keep in mind that free leads and a brand name are a goldmine for any agent to capitalize on, especially when you are just starting as a new agent. The salary effect is a considerable incentive for captive agents because, as an individual agent, you will not earn a dime until you sell a policy. Nevertheless, as a captive agent, you are promised a salary plus future commissions which is easier to swallow than living on commissions alone.
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What Is an Independent Insurance Agent?
An independent life insurance agent is also called a broker. These independent agents get contracted with as many insurers as they want, except the one who only works with captive agents. Their loyalty is to their clients and not the insurer because they don’t have to push one product from one company. Instead, they can find the right company for each by understanding the client’s needs, goals, and overall health.
If a particular product isn’t suitable for the individual because of a health issue, driving history, or family history, for instance, they hunt for another company who sees the client in a better light, so they can get them coverage.
It takes greater skill and perseverance because the support is minimal from the carrier’s viewpoint, and as a broker, you need to scrutinize each company’s underwriting process and guidelines so that you can place an individual with the right carrier. You will also have to get your clients yourself through online advertising, leads, referrals, or building your website and generating prospects. This alone is why most agents prefer to work as a captive agent and not as independent.
Why Would an Agent Choose to Become Independent Then?
I can only speak for myself because I’m a broker who represents more than 50 companies. It never even crossed my mind to offer one company for my clients because I know they are not adequately served. I also have a few friends who sell New York Life, Farmers, and State Farm life insurance, and their prices are higher compared with what I can offer with other carriers.
I always knew that I could provide a better cost for clients if they chose to buy from me. I don’t get as much support my independent agent friends, but I can counterbalance that by offering a better product that is also priced better. A broker doesn’t need to be biased towards one company over another. He will get paid regardless of which company he sells.
For me, that equals full transparency and removes the stress that I must sell only one product even if it doesn’t fit my client. Lastly, as a broker, you own your book of business and can sell it in the future should you want or need to, as opposed to the captive agent whose business belongs to the carrier. If they quit, the carrier keeps their clients.
How to Choose the Best Agent for Me?
I’m biased here, for sure, and must say that everyone should use a broker and nothing else. However, truth be told, some people need to see their Farmers insurance agent in his office and buy a policy directly face-to-face. Their captive agent may have served their parents, the local community or church for many years, and they don’t want to go elsewhere even if they pay more for it by using their local agent who only offers one product.
Others prefer to compare rates and are contently doing so online or over the phone. They Google the keyword they are looking for and start researching until they find a broker to serve them. Many times, I get clients who wanted to buy from their State Farm agent but got denied because of pre-existing conditions and had no choice but to search for another company to issue them coverage because their agent had only one company he could offer.
Instead of applying to ten different companies hoping to get the best deal, they contacted me, and I recommended them a company based on their health issues and financial goals. Your case may vary, but I can promise you that if you want to pay less, you should consult a broker.
What Other Questions Should I Ask My Agent?
Let’s start with a few questions you should ask your broker:
- Are you licensed to sell insurance in my state? Don’t be embarrassed to ask this question. Most agents aren’t licensed in all states (each state charges us a fee), nor do we need to. Many brokers sell insurance in their resident state only. Nonetheless, you want to make sure they are licensed in your state. When in doubt, you can visit the department of insurance in your state and type the first and last name to see if the agent is licensed to conduct business in your state.
- How long have you been in business? This is another great question to ask. After all, you want someone who knows what they are doing.
- Can I read customer reviews? You should be searching this prior to calling anyone for that matter. Yelp and Google are good places to start.
- Which companies do you represent? You want to hear familiar companies such as Banner, AIG, Protective, and Mutual of Omaha, for example.
- Can I see the quotes from all the companies you mentioned, please? A legitimate broker will do so without a doubt, and you wouldn’t even need to ask. They take pride that they have many insurers to offer you, and their job is educating you on which would be best and let you choose the carrier yourself. You should see a screenshot like the one below.
Before you start calling brokers, visiting their website is a great way to start your research. Go to their blog and get a sense of what they write about, how often they publish posts, and see if you can find phone number and address on the footer. (This shows that they are not hiding somewhere in the world.)
Go to their Google business page and read customer reviews. Google is doing an outstanding job putting the best reliable results on the top of the search results. If you search a business name and can’t find it, it’s terrible, and you may want to avoid doing business with that particular broker. It’s impossible with today’s digital footprint to become a horrible business owner without having everyone and his sister complaining about you.
The chances are that if that broker has no website, no customer reviews, no phone to be reached at—you get the drift—look for a different one. Many brokers also have a live quote generator on their site which displays instant quotes. It is a primary trusted factor because you can examine live, accurate life insurance quotes without having to speak to anyone as opposed to many websites wanting your phone number first so they can call you with the quotes—don’t fall for that.