Do you want to start a life insurance company? If YES, here is a complete guide to starting a life insurance business with NO money and no experience.
Okay, so we have provided you an in-depth sample life insurance business plan template. We also took it further by analyzing and drafting a sample life insurance company marketing plan backed up by actionable guerrilla marketing ideas for life insurance companies. In this article, we will be considering all the requirements for starting a life insurance business. So put on your entrepreneurial hat and let’s proceed.
Table of Content
- 1 Why Start a Life Insurance Business?
- 2 Starting a Life Insurance Business – Market Feasibility and Research
- 3 Starting a Life Insurance Business – The Legal Aspect
- 4 Is Professional Certification Needed to Run a Life Insurance Business?
- 5 Starting a Life Insurance Business – Technical and Manpower Requirements
- 6 Starting a Life Insurance Business – The Marketing Plan
Why Start a Life Insurance Business?
Without a shadow of doubt, life is full of uncertainties and that is why there are a whole lot of measures that must be put in place in order to cushion the effect of these uncertainties. This is one of the reasons why there are life insurance companies springing up here and there. If you are looking to start a life insurance business, it becomes really important that you know a lot about the business first.
First and foremost, life insurance (or life assurance, especially in the Commonwealth of Nations), is an agreement or a contract between an insurance policy holder and an insurer or assurer, where the insurer pledges to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder).
But it all depends on the contract, other events such as terminal illness or critical illness can also trigger payment. But note that the policy holder literally pays a premium, either regularly or as one lump sum. Other expenses (such as funeral expenses) can also be included in this contract. So of you are interested in starting a life insurance business, there are a few steps that you need to take.
Despite your level of expertise or prior knowledge in the general insurance business, it would be helpful to consider researching this industry and gaining more knowledge and experience. But if you have never worked as an agent for a broker or as a captive agent for a single insurer, then you should carefully consider if you have the personality for the insurance business.
Aside from licensing and product knowledge, being a successful insurance entrepreneur requires having the right personality for the job. Indeed all business ventures need that you be a good manager. But the life insurance business is about more than management — it is about selling. Note that it is one thing to be a people person who enjoys talking to anyone and has a deep desire to aid people understand new things, it is quite another to be a commission-only salesperson.
This article has been carefully prepared to make you understand some crucial things about the life insurance industry in general.
Starting a Life Insurance Business – A Complete Guide
- Industry Overview
Modern life insurance was introduced in the 17th century England to seafaring traders who wished a measure of financial protection for their families should an accident happen to them. Also the sale of life insurance in the United States began in the late 1760s.
As you would expect of a sector with a history about as long as that of this nation, the Life Insurance Industry is mature. The growth opportunities are critically limited to increasing the geographic footprint and developing new offerings and there are two major categories of life insurance contracts: protection policies and investment policies.
Protection policies are established to give a good benefit, typically a lump sum payment; that is why it is termed life insurance, because it provides death protection for a stated period of time. It is believed that all life insurance were originally termed in nature, but with time, surviving policyholders became dismayed that they could pay premiums for as many as 30 years and receive no benefit. This was why investment policies were designed.
The major objective of an investment policy is to facilitate the growth of capital. In this type, premium may be paid on a regular or one-time basis. While premiums of investment policies are usually higher than those of protection plans, investment contracts offer a cash value. Note that this cash value builds over time, and is paid to the policyholder (or beneficiary) upon maturity (or death). Common forms of investment policies are whole life, universal life, and variable life.
We noted that over the years, many life insurers expanded their offerings to include retirement products e.g., variable and fixed annuities. Note that in this business, the life insurer receives premium payments from policyholders and generate a pool of money from which it can pay claims and finance operations. These premiums are the primary source of cash flow.
By law, insurers are required to maintain a minimum level of cash and cash equivalents, called the reserve, which may not be used for investing. According to experts, these reserve requirements serve as a safeguard for policyholders, helping to make sure that insurers have enough cash at hand to pay claims as they happen.
But note that any other cash generated above the reserve may be invested to supplement income. Indeed, many investment policies are structured so that the policyholder and the life insurance company share in the proceeds from invested premiums.
It is very important to state that even though investment income is an important earning driver, it typically is not enough to cover claims, even under favourable market conditions. Writing new policies helps to diminish this risk. Under poor market conditions, an insurer may need to raise capital to maintain adequate reserves and shore up the balance sheet.
This fact is especially true of companies that generate premium income largely through hybrid (insurance and investment) products. Note that key line items in the data array on the Value Line page of Life Insurance companies are Premium Income, Investment Income, Benefits & Reserves, Insurance in Force, and Total Assets (i.e. the size of the overall investment portfolio).
Starting a Life Insurance Business – Market Feasibility and Research
- Demographics and Psychographics
If you plan to start an insurance business, you need to know that your job is to guide customers through the buying process and assist them in determining what policy most closely fits their needs. Also coupled to the initial sale of an insurance policy, you will also need to regularly meet with clients to make sure the policy is still the best fit. A lot of agents also act as the first point of contact should a claim arise. But because of the nature of the business, many insurance agents are their clients’ most trusted advisors.
Two of the biggest misunderstandings about life insurance are who really needs it and what it can be used for. Yes, there are certain groups that need it more than others. But life insurance has evolved just like other financial tools, and you might be surprised how many different kinds of people and life situations are a good fit for life insurance. Note that your prospective clients in this business may include;
- Single parents without children
- Business owners
- Empty nesters
- Stay at home parents
- Single mothers
- Someone with co-signed student loans or credit cards
- High net worth individuals
List of Niche ideas in the Life Insurance Business
Even though this business is often a profitable career choice, a lot of insurance agency owners don’t enter it solely for the money. Some do it because they love to help people. Note that in this business, a captive agency is wonderful for someone who is genuinely in it to help their clients long-term.
Even though the price is important to the client, the level of service they receive from their agent is what keeps them there, even when premiums rise. Note that if a customer forgets to pay their premium and the policy is about to cancel, your staff will pick up the phone and remind them.
Also if there is a death in the family, you will be one of the first to know. And it is not just about filling out the paperwork for the life insurance policy; it is about being there for the client and taking a weight off their shoulders during a dark time. Know that managing a captive agency is often more about service writing policies. The financial and marketing support you receive from your carrier allows you to focus on what matters most – the client.
An independent agency path in this business is perfect for the individual who loves helping people and also has strong marketing instincts. Without the support of one company, the burden rests on your shoulders to show people why your agency is a step above the rest.
It is a more fast-paced environment and no two days are alike. But irrespective of which path you decide to take, you should have several years of insurance experience under your belt. We believe that you must possess a firm understanding of the intricacies of this ever-changing profession and enjoy passing your knowledge on to your customers.
Indeed we can comfortably state that a lot of independent agents build a successful agency by focusing on one target niche. Few are more knowledgeable in commercial lines and enjoy the high commissions that come with higher premiums, while others focus their attention more on personal line products such as teen drivers, art collectors, or RV’s.
The Level of competition in the Life Insurance Business
The barriers to enter this industry are quite high because of the strict reserve requirements for life insurance and related financial products, but yet there is ample competition among those within the sector. Have it in mind that the term life segment is the most competitive.
Also note that such policies are essentially generic, with price and convenience of purchase being the main differentiators. Even yet customers might be inclined to pay a modest premium for a simple term policy if they have already done business with a particular company. The breadth of product offerings and degree of innovation can determine the market share and degree of success of an insurer.
The ability to give guarantee on investment contracts is a strong selling point for insurers. But know that there are limits to what can be offered, since the more a company guarantees, the more risk it assumes. So note that while these products tend to have high margins, and are huge profit generators during boom times, they often can be loss leaders when the market turns sour. To optimize profitability, it is important that insurers strike a proper balance between new policy growth and the maintenance of underwriting discipline.
List of Well Known Life Insurance Agencies
There isn’t a brand on the face of the earth that does not have major players in it. This is because there are some brands that have gone far ahead of others. In the life insurance agency industry, here are the major players;
- North-western Mutual
- New York Life Insurance Group
- MetLife Inc.
- Lincoln National Corp.
- Prudential Financial Inc.
- MassMutual Life Insurance Co.
- ManuLife Financial Corp.
- State Farm Mutual Automobile Insurance
- Banner Life
- Mutual of Omaha
- Protective Life
You should know that life insurers typically generate stable streams of income, thanks to the long-term contractual nature of life policies. But investors must pay special attention to the composition of an insurer’s book of business before making a commitment. This is why the types of policies offered go a long way in determining an insurer’s earnings performance. Also while high-risk policies may suggest richer returns, they could result in a rather volatile earnings record or, if managed poorly, losses.
You should also know that investors may find favour in the stocks of well-capitalized, big, brand name insurers, which usually have no problem gaining customers, especially during times of economic turmoil. Also when there is little product differentiation among competitors, the larger companies typically prevail. Life Insurance stocks are generally considered moderate-risk growth issues; some provide dividends to attract the interest of growth-and-income investors.
Starting your Life Insurance Business from Scratch or Buying a Franchise
The potential growth of your life insurance company is directly tied to the lines of business you choose to write. A lot of captive and independent agencies sell personal and business insurance, as well as life, health, and annuities. This makes sure that you are able to care for all of your customer’s needs, further strengthening that relationship.
As a captive agent, you will have guidelines regarding what you can write and when. Independent agencies are allowed a little more flexibility and franchising is a viable option once you have made a name for yourself in the insurance community.
Also note that one of the primary motivators of owning a franchise is it allows you to go into business for yourself, but not by yourself. But franchising is not for everyone. Even though you are an owner, you must give up some independence.
And it requires a significant capital investment to get started. It is also important to state that instead of having to reinvent the wheel, a franchisee gets a lot of support from the franchisor right out of the gate, offering a better chance for success. A franchise owner often receives help with:
- Site selection for optimal traffic with consideration of locations of competitive businesses
- Design and construction of physical facilities
- Financing to cover initial franchise fees plus start-up costs
- Training to learn the business and proven operational methods
- Grand opening programs to jump start the business
- National and regional advertising to grow sales
- Routine business operations to maintain best practices for optimal efficiency
- Access to bulk purchasing agreements from approved vendors to hold down operating expenses
- Ongoing supervision and management support if you run into problems or have questions
Possible Threats and Challenges of Starting a Life Insurance Agency
Certainly it can’t be denied that life insurance is an important but challenging work. In a competitive industry that is changing rapidly, the obstacles are many. The obstacles of starting your life insurance agency may include;
- Industry legislation
- The economy
- Healthcare Reform
- Getting licensed
- Startup costs
- Adapting To Digital Marketing Strategies
- Gaining expertise
Starting a Life Insurance Business – The Legal Aspect
- Best legal entity for a Life Insurance Agency
It is very significant to note that the legal structure of most businesses is based on the size and scale of the business. But since insurance business generally is all about the income and property of your clients, the LLC is the best legal entity for your business be it small, medium or large. Note that the advantage of creating an LLC typically outweighs any perceived disadvantages and are typically unavailable to sole proprietorships and general partnerships. They may include;
- Untouched assets
- Simple management structure
- Little or no restrictions
- Increased credibility
- Limited compliance requirements
Catchy Business Name ideas for a Life Insurance Business
It isn’t good enough to just want to start a business without first figuring out the name. This is why this list of attractive business names was formulated. Make a choice from these;
- Clean life insurance
- Capitol insurance
- Magnet insurance
- Slate insurance
- A+ insurance
- Concord insurance
- Metro insurance Inc.
- Fancy Insurance
- Cross Town Insurance
- River Boat Insurance ltd
- Seashore Insurance
- Sun Insurance
- First American Insurance
- One Life Insurance
- Quilon Insurance
- Set Insurance
- One Trust Insurance
- For your Life Insurance
- Window life6 Insurance
For you to be able to sell insurance, you need insurance. At the very least you will need a business owner policy (BOP) and E&O insurance. A Business Owner Policy can be customized with a variety of different protections for everything from your equipment to the car you use for business.
Note that E&O stands for errors and omissions and is sometimes called professional liability insurance. This insurance works in much the same way as medical malpractice insurance in that it protects you from mistakes you might make. Omissions are also mistakes you make, such as forgetting to advise a client that their policy is due for renewal.
Also note that if you hire an office or support staff, you may also have to carry worker’s compensation insurance depending on your state and the number of employees you hire. Then you will have to secure a surety bond. Note that a surety bond guarantees to pay one party, such as an insurance company, if you fail to meet your obligation. States require you to have a bond in the event that you collect a client’s premium and run off to Brazil with your receptionist instead of remitting the payment to the insurance company. Its purpose is to protect your clients from you.
- Intellectual Property Protection
It is very important to state that professional service agencies— big and small—are often privy to highly confidential client information. From mergers and acquisitions to new product or brand launches, agencies are almost entirely in-the-know.
Have it in mind that with such knowledge of sensitive information that is not only kept from the public, but also sometimes unknown to company employees, agencies receive equal responsibility of risks associated with letting confidential information leak.
Also the financial and reputational ramifications of intellectual property loss can be very big, especially if it pertains to a product patent, financial transaction or secured trade secret. So to protect your agency from costly mishandling of confidential client information, risk management and mitigation is essential, you need to do the following;
- Legal contracts and non-disclosure agreements.
- Ensure digital content, including trade secrets, via internet or internal server, are protected adequately. Ensure confidential content is given to agency employees on a need-to-know basis.
- Always consult a legal professional to ensure your bases are properly covered.
Is Professional Certification Needed to Run a Life Insurance Business?
Whether you like it or not, professional certification can be another way to improve your skill set and be recognized for your accomplishments. In a world of personal branding and marketing, any advantage that helps in landing a client is worth the effort.
- Certified Professional Insurance Agent – CPIA
- Professional Certificate In Insurance
- Chartered Insurance Professional – CIP
- Certified Insurance Service Representative – CISR
- Certified Insurance Counsellor (CIC)
- Errors and Omissions (E&O) seminars
- Special Topic Seminars
- Online, Self-Study and Webinars
- Licensing Exam preparation
Legal Documents Needed for a Life Insurance Business
In this business, certain state permits and licenses may be needed to operate an insurance agency. As such, you have to learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits. But generally, you need to obtain a sellers license as most states require insurance agencies to remit sales tax for certain types of insurance products. A seller’s permit allows states to record and collect taxes from goods (and sometimes service) sales. Also note that some local licensing or regulatory requirements may apply.
- Insurance Agent/Broker Licensing
Indeed you have to pass an examination and be licensed to sell one or multiple line insurance in the state.
- State by State Laws and Regulations-: Laws pertaining to an insurance agency or brokerage vary from state to state.
Certificate of Occupancy
Since insurance is generally run out of an office, businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
Financing your Life Insurance Business
Not just the life insurance industry, but all insurance businesses need specialized financing to support growth. Note that finance is the elixir that aids in the formation of new businesses, and allows businesses to take advantage of opportunities to grow, employ local workers and in turn support other businesses and local, state and federal government through the remittance of income taxes. The strategic use of financial instruments such as loans and investments is the key to success of every business. You can obtain business finance from the following sources;
- Personal savings
- Angel investor
- Venture Capital
- Loans and grants
- Alternative funding source like Crowdfunding
Choosing a Suitable Location for your Life Insurance Business
When starting your life insurance business, you are sure to have with many issues: funding, staffing, developing a marketing strategy and ensuring that you have a viable product or service. But note that before you begin the process of starting a business, there is one important decision that must be made: where to start the business. A suitable location for your life insurance agency must have the following;
- Access to clients and demographics
- Tax and legal incentives
- Office costs
- Staffing needs
- Quality of life
- Access to marketing programs
Starting a Life Insurance Business – Technical and Manpower Requirements
Note that proper use of technology will be beneficial to the future success of your agency. It is extremely important for you to stay current with the latest releases for your agency management system. Have it in mind that your operating system, software and hardware should be up to date to ensure efficient operation of current applications. Supply your agency to new company interfaces promptly and use electronic download from the company wherever possible to eliminate paper and improve efficiency.
We strongly advice that you install internet access on each agency employee’s desktop with an always on, high-speed connection and an e-mail account for each person. We believe that these steps taken together will position the agency to use many emerging real-time technology applications. Also once it is operational, we advise that you focus on the security of your systems because the new functionality creates new risks that must be managed.
In this industry, we believe that clients are impressed with agencies that use the latest technologies. Not only is the agency’s image enhanced, the agency is positioned to meet the consumer’s increased expectations.
Also your business technological savvy attitude will be a deciding factor for many consumers in choosing an agent. We believe that clients will want to deal with agents that have the same technological capabilities that they have in their and businesses.
It is also important that you understand that technology allows an agency to broaden its geographic reach as a means of growing its business and serving the customer. It also permits agencies to streamline work flows, get work done more quickly, get answers from companies more quickly, and free up agency employees to engage in productive work.
The Service Process Involved in a Life Insurance Business
The earlier you understand that well tested processes are the key to succeed in your life insurance agency, the better for your business. Look around the industry, to be able to boost their profitability, agencies make investments all the time in people and technology, as well as in other businesses through acquisitions. We believe there are a number of process improvements agencies might consider.
They include improving the workflow, eliminating errors from poor quality, and standardizing processes so that when different people do the task they aren’t reinventing the wheel each time. Note that successful agencies segment their accounts to identify their most valuable clients so that they can then provide them a higher level of service than they give smaller revenue or less profitable accounts. Service processes for your prospective life insurance agency may include the under listed and a lot more.
- Sales Process
- New Business Process
- Referral Process
- Policy Review Process
- Social Media Process
- Search Engine Optimization Process
- Re-quote Follow-up Process
- Cross-selling Process
- Renewal Process
- Employee Hiring Process
- Employee Training Process
- Employee Termination Process
- Telemarketing Process
- Claim Handling Process
- Policy Endorsement Process
- Billing Inquiry Process
- Customer Complaint Process
- Content Creation Process
Starting a Life Insurance Business – The Marketing Plan
- Marketing strategies for a Life insurance business
You should know that a well thought-out marketing strategy is a vital tool for success in any business venture. Note that your prospective clients have a number of options to choose from, which is why it is very essential that your strategy represents your brand and helps you stand out from the competition. Also we believe that a proper understanding of your target audience is key, so that you will know how to make them come to you and how your agency can best fulfill their needs.
We believe that captive agents have the advantage of working with a carrier that has already made a name for itself in the industry. A lot have found success through personalized mailers, ads in neighbourhood newsletters and school yearbooks, and radio advertisements.
But an independent life agency will sometimes represent carriers that aren’t as well-known. But have it in mind that your ability to educate them will define your success. In addition to the marketing tactics of a captive agency, independents should have a website that is informative and offers answers to the customer’s most burning questions.
We advise that you share your knowledge on social media accounts and on strategically-timed television and radio advertisements. Irrespective of which path you take, participation in local and national business profiles such as Yelp and LinkedIn are always critical. Start making a name for yourself now and it will serve you for years to come.
Strategies for Increasing Client Retention in your Life Insurance Business
In this business, customer attraction and retention is often defined by the policy premium. A lot of clients react emotionally when they receive their renewal policy and realize the premium has gone up. Also they fail to understand that increases are standard and are typically the same amongst all carriers.
This is why you should make sure your marketing strategy appeals to these clients at just the right moment (it really is all about timing when it comes to emotions) and they will come to you with a quote request. Immediately you have prospects in the door, you have an opportunity to start building that relationship.
Even though the captive agent can’t shop rates with other companies, they can inquire with underwriting to determine exactly why the premium went up. We believe this is a great opportunity to examine the client’s policies to determine if there is any coverage that could be amended or any discounts the client might be eligible for. Have it in mind that the relationship you have built with your client, coupled with your ongoing efforts to maintain a high level of service are often enough.
Few will choose a little higher premium for the peace of mind of knowing they are with an agent who has their best interests at heart. But the independent has a slight disadvantage here. This is because until you have built a strong book of business and proven your loyalty to the customer, they feel no real loyalty to you. Clients will be basing their decisions on price alone, but note that customer retention in this business is earned through strong customer service and anticipating the needs of your clients.
Strategies to Boost your Life Insurance Business Brand Awareness and Creating a Corporate identity
Brand awareness and cooperate identity are what boosts your business and maximizes your income. This is why you need to consider every strategy available to you to mould your company name into something valuable and indestructible. Ways to do that for your life insurance business may include;
- Outsource departments that aren’t mission critical to the company’s core business. This includes accounting, marketing, and IT.
- Consider buying another agent’s book of business.
- Focus on cross-selling multiple lines to your current book of business
- Sell lines of insurance that have higher premiums or offer a larger commission.
- Spend time keeping up with the latest in insurance trends and carriers. Only represent the carriers whose products you stand behind and would be willing to write for your own family.
- Allow your employees to work from home from time to time. This helps cut down on overhead expenses and sends a message to your staff that you trust them.
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