Join An Insurance Carrier: Application Steps

Starting an insurance business is no small feat, and there are several key steps to follow to ensure success. First, you'll need to become a licensed insurance agent, which can be done in a few weeks or months, depending on your state's requirements. Next, write a comprehensive business plan, choose a business structure, and register and license your business. It's also crucial to obtain business insurance to protect your assets and form relationships with insurance companies. Finally, focus on growing your client base through networking, marketing, and building an online presence. With careful planning and hard work, you'll be well on your way to establishing a thriving insurance business.

Get licensed

The first and most important step to becoming an insurance agent is obtaining the proper license. All industry professionals who plan on selling policies are legally required to get one. The requirements to become an insurance agent vary by state, but they can often be completed much faster than other professions that require a license.

Eligibility Criteria

First, you must meet the basic eligibility criteria. Each state imposes varying minimum requirements, but most states require you to be at least 18 years old, have no fraud or felony charges, not owe any federal or state income taxes, and be able to pass a background check. Some states also require insurance agents to not have any past-due child support.

Pre-Licensing Coursework

Next, you must complete a pre-licensing course to prepare for the state licensure examinations. This often involves picking an insurance line, also called a line of authority, to specialize in. Depending on your preference, you can take the course online or in a classroom, and each course comes with minimum mandatory hours. The pre-licensing coursework covers a range of topics, including different types of insurance policies, insurance industry regulations, and insurance principles. You can also take courses in multiple lines of authority to branch out and sell policies in other insurance lines.

State Licensure Exam

Once you've completed the pre-licensing coursework, you'll need to pass your state's insurance licensure exam. The tests are divided into two categories: Life, Accident, and Health (LA&H); and Property & Casualty (P&C). Each test has between 50 and 200 items and must be completed within two to three hours. The tests are proctored, meaning you will take them in a classroom setting under supervision. The passing scores differ depending on the state, but in most states, you will need a score of at least 70% to pass.

Apply for Your License

After passing the licensure exam, you can apply for your insurance agent license at your state insurance regulation department. You'll need to pay a licensing fee, which varies between states, and if you're applying for a license in multiple lines, you'll need to get a license for each and pay the corresponding fees. The insurance regulation department will review your application, and there may be a week or two of waiting for the license to be issued once your exam and background checks are complete.

Write a business plan

A business plan is a crucial document that outlines your approach to starting and running your insurance agency. It serves as a roadmap to follow at each stage of business growth, from initial planning to achieving long-term goals. Here are the key components to include when writing a comprehensive business plan for an insurance agency:

Executive Summary

Provide a concise overview of your insurance agency business plan, touching on various aspects that will be elaborated in subsequent sections. Include your mission statement, a high-level description of the products and services offered, background information about the leadership team, employee details, the target market and location, a summary of your marketing plan, and a brief financial overview with projected costs.

Company Description/Business Summary

This section delves into the specifics of your insurance agency. Discuss the legal structure, such as whether it's a sole proprietorship, limited liability company, partnership, or S-Corp. Present an organizational chart that identifies key management team members, highlighting their qualifications and expertise. Describe your target market, specifying whether you cater to individuals, businesses, or both. If your agency is already established, outline its achievements and milestones. Explain what sets your agency apart from competitors, such as a wider target market, unique products, or qualified agents. Conduct a SWOT analysis to identify strengths, weaknesses, opportunities, and threats to make informed decisions.

Products and Services

Create a comprehensive list of the insurance products and services your agency offers or plans to offer. Mention the lines of insurance, such as personal or commercial lines, and specify the insurance policies, like workers' compensation, life insurance, or professional liability insurance. Detail the benefits of these products, along with pricing and sales projections. Also, include information about the insurance carriers your agency will represent and the policies they will underwrite.

Market Analysis

Demonstrate the viability of your business idea by presenting a detailed analysis of your target clients. Assess the competition and identify underserved niches that your agency can fill. Look into market demographics to ensure your insurance offerings align with the demands of potential customers. Identify key competitors, their market share, target customers, and the products and services they offer. Explain how your marketing strategy will set you apart, including any partnerships or technological innovations you plan to leverage.

Financial Plan

Provide a clear understanding of your agency's financial aspects, including projected costs, estimated cash flow, and break-even analysis. Detail the initial costs of setting up the agency, such as office expenses and agent training. Outline ongoing expenses like rent, advertising, employee salaries, and commissions. Estimate the sales forecast for reaching profitability. Generally, your financial plan should cover at least three to five years, supported by financial statements like balance sheets, cash flow statements, and income statements.

Funding Requirements

If your business plan aims to secure funding, specify the amount of funding required and the purpose. Outline the type of funding sought (e.g., a bank loan or investment), the preferred structure, and any repayment terms. Create a detailed budget that outlines how the funds will be allocated and tie it back to your overall financial plan.

Remember, your business plan should be adaptable and updated as your insurance agency evolves. It is a living document that guides your agency's growth and helps secure funding by demonstrating the viability and potential for success.

Choose a business structure

Choosing a business structure is a crucial decision that will impact your insurance carrier's day-to-day operations, taxes, and personal liability. It is important to select a structure that offers a good balance of legal protections and benefits. Here are the key considerations for choosing the right business structure:

Sole Proprietorship

A sole proprietorship is the simplest structure, where you are automatically considered the sole owner of the business if you are performing business activities without registering as another type of entity. This structure gives you complete control, but it also means your personal assets and liabilities are not separate from those of your business. You can be held personally liable for business debts and obligations, and it may be challenging to raise funds as you cannot sell stock, and banks are often hesitant to lend to sole proprietorships. Sole proprietorships are ideal for low-risk businesses or owners who want to test their business idea before moving to a more formal structure.

Partnerships

Partnerships are the simplest structure for two or more people to own a business together. There are two common types: limited partnerships (LP) and limited liability partnerships (LLP). Limited partnerships have one general partner with unlimited liability, while all other partners have limited liability and control. Limited liability partnerships offer limited liability to every owner, protecting them from debts against the partnership. Partnerships are a good choice for businesses with multiple owners, professional groups, or those wanting to test their business idea.

Limited Liability Company (LLC)

An LLC offers a blend of benefits from both corporation and partnership structures. It protects you from personal liability in most cases, shielding your personal assets from bankruptcy or lawsuits. Profits and losses are passed through to your personal income without facing corporate taxes. However, LLC members are considered self-employed and must pay self-employment taxes. LLCs may have a limited lifespan in some states, requiring dissolution and reformation when membership changes unless a prior agreement is in place. This structure is suitable for medium- or higher-risk businesses, owners with significant assets to protect, and those seeking a lower tax rate than a corporation.

Corporation (C-Corp)

A corporation, or C-corp, is a separate legal entity from its owners. It offers the strongest protection against personal liability, but forming one is more costly and requires extensive record-keeping, operational processes, and reporting. Corporations pay income tax on their profits, and this income may be taxed twice—first at the corporate level and again when dividends are paid to shareholders. Corporations have an advantage in raising capital as they can sell stock and offer tax-deductible benefits to employees. This structure is ideal for medium- or higher-risk businesses, those needing to raise funds, and businesses planning to "go public" or be sold.

S Corporation (S-Corp)

An S-corp is a special type of corporation designed to avoid the double taxation of C-corps. Profits and some losses are passed through directly to owners' personal income without corporate tax rates. S-corps must file with the IRS for this status and adhere to strict filing and operational processes. They have an independent life, allowing them to continue operating if a shareholder leaves or sells their shares. S-corps are a good choice for businesses that would otherwise be C-corps but meet the criteria for S-corp status.

Other Structures

There are also other structures to consider, such as benefit corporations, close corporations, nonprofit corporations, and cooperatives. These structures offer unique benefits and are governed by specific rules and requirements. It is important to research and understand the specifics of each structure before making a decision.

Register and license your business

Registering and licensing your insurance business is a detailed and time-consuming process. Here is a step-by-step guide to help you get started:

Choose a Name for Your Business:

First, choose a name for your insurance agency. This is an important step as it will shape your brand and how customers perceive your business. Most states have restrictions on the use of certain words to prevent deception or misleading of the public. For example, "bank" or "banking" are commonly restricted words. Check with your Secretary of State's office to learn about your state's specific naming restrictions.

Register Your Business Name:

Once you have chosen a compliant name, register it with your state government. There is typically a minimal registration fee for this process.

Obtain a Tax ID Number:

The IRS requires all corporations and partnerships to use a Federal Employer Identification Number (FEIN) when filing taxes. If you are a sole proprietor or a single-member LLC, you may use your Social Security number instead. You will need this number not only for tax purposes but also to open a business bank account or credit card.

Register with Your State:

Contact your state insurance commissioner's office to register as a "resident business entity" for state and local tax purposes. Your state will likely charge a registration fee and provide a checklist to ensure you are complying with all state requirements.

Obtain Necessary Licenses and Permits:

As an insurance business, you will need to obtain the proper licenses to legally operate. The specific licenses you need will depend on the jurisdiction and the lines of authority you choose to specialize in. At a minimum, you will need a general business license to operate within your state. If you plan to serve clients in different states, you will need a non-resident insurance agency license, which comes with corresponding fees and requirements.

In addition to these general business licenses, you may also need industry-specific licenses, such as a resident insurance agency license, policy-specific insurance agency licenses, or a surplus lines insurance agency license if you plan to offer policies for complex risks.

Comply with State and Local Regulations:

Check with state and local agencies to ensure you are complying with all relevant regulations. The requirements can vary depending on the state and your specific business activities.

By following these steps, you will be well on your way to registering and licensing your insurance business. Remember that the process can be detailed and time-consuming, so it is important to thoroughly research and understand the specific requirements for your jurisdiction.

Get business insurance

Getting business insurance is an important step in protecting your company and limiting risks. Here are the steps to get business insurance:

Evaluate your business risks:

First, identify the risks your business may face. This includes lawsuits over customer injuries, dissatisfied clients, natural disasters, or accidents. Make a list of issues that you are concerned about as a business owner to determine which insurance policies your business needs.

Research business insurance coverage types:

Common types of business insurance include:

• General liability insurance protects against common third-party lawsuits, such as customer injuries.
• Business owner's policy combines general liability insurance and commercial property insurance, offering a more affordable bundle.
• Professional liability insurance is for experts who provide professional services or advice and protects against lawsuits over late, incomplete, or unsatisfactory work.
• Workers' compensation insurance covers medical expenses for work-related injuries and is required in most states as soon as a business hires its first employee.
• Cyber insurance covers costs related to data breaches and is especially important for businesses handling sensitive information.
• Commercial auto insurance is required in most states if you own a business vehicle.

Apply for free quotes:

Contact licensed insurance agents or use online applications to apply for free small business insurance quotes. You will need to provide information such as your business location and estimated annual revenue.

Compare quotes and purchase a policy:

When comparing quotes, don't just choose the cheapest policy. Consider the coverage, the insurance provider's rating, and other options such as limits and deductibles. Choose a policy that provides adequate coverage for your risks and fits within your budget.

Re-assess annually:

As your business grows, so do your liabilities. Remember to review your insurance policy periodically, especially after significant changes to your business, such as purchasing new equipment or expanding operations. Contact your insurance agent to discuss any changes and how they may affect your coverage.

Frequently asked questions