How To Start an Insurance Agency

Fran Majidi July 7, 2023
how to start an insurance agency

While selling insurance may not make you a millionaire, it is true that the insurance industry is  a stable one because it doesn’t get much affected by highs and lows of the economy. For one thing, insurance is a staple of life for many. It’s illegal to drive a car without some form of auto insurance in every state. Most homeowners with mortgages are required to buy a homeowners insurance policy. And while the state of health insurance is, once again, up in the air, with the Affordable Care Act requirement getting scrapped as of 2019, most people still opt to stay insured to avoid medical bankruptcy in the event of an unforeseen medical emergency. Businesses are employing more and more people each month, and most of these businesses are buying commercial insurance packages that include general liability, workers compensation and more. Life insurance still tends to have fewer takers, despite the impact of lost salaries on surviving family members. But renters insurance is on the rise, with more apartment communities requiring tenants to be covered in case of unforeseen catastrophes.

If you’re thinking about starting an insurance agency, it’s a pretty good time to dig in your heels and get started. We’re here to tell you how.

What Do I Need to Get Started?

First thing you need to do is get licensed so you’re legally allowed to sell insurance. If you’re just batting around the idea of doing this professionally, first make sure that it’s the right job for your personality. You’ve got to be able to sell! It’s also very different from most types of sales in that the consumer can’t see, touch, or feel what they are buying. In fact, they are often buying insurance begrudgingly in case something bad happens. They are betting against themselves, and you’re there to protect them on that off chance that something goes awry. Acquiring leads calls for a certain personality type.

How to Be a Successful Insurance Agent

As time goes by, you will learn strategies and you will hone your innate abilities. However, your personality should fit the job. These are some traits that will work to your advantage:

  • Are you a talker?
  • Do you possess a desire to help people?
  • Do you have an ability to explain complicated concepts easily?
  • Do you enjoy working under pressure?
  • Are you disciplined?
  • Can you take constant rejection?
  • Can you hustle and build a business out of nothing?
  • Can you approach/call strangers easily?
  • Are you persistent?

If you’ve answered yes to more than a couple of these questions, keep reading!

Licensing Requirements

  • 20 to 40 hours of Insurance Education courses in your state
  • Up to 12 hours of ethics courses in your state
  • $300 to $500 for required courses
  • Decide if you want to sell life, accident, health or property and casualty insurance. Make sure to take tests in the products you want to sell.
  • Series 6 license if you plan to sell variable annuities or variable life insurance, preferably a good understanding of Series 7.

Not that if you fail any of the tests for licensing you may retake them at least once. If you fail several times you may need to pay an additional application fee.

Do I Need a License to Run an Insurance Agency?

You may only need your insurance license and nothing more, depending on how big you want to go. Of course, anyone selling insurance must have a license, but if you hire an assistant or a telemarketer but you are the only one closing deals, your employees do not need an insurance license. However, as a sole proprietorship, you may need a business license in your city/town. The rules vary from state to state and city to city, so make sure to speak with someone in the business division of your local chamber of commerce regarding a business permit or license. If you will be operating out of a brick-and-mortar shop, you’ll most likely need to be registered. If you are operating virtually or from home, you may still need a license. Again, laws vary from state to state so it’s best to check with your local government. You may also want to register your agency name using a Doing Business As (DBA).

How Much Does it Cost to Start an Insurance Agency?

We’ve already covered your licensing fee, the DBA fee and other local business operation fees and taxes (which vary greatly). If you’re planning to operate out of your home and will have no overhead (rent), you may be able to start your shop with just a couple of thousand dollars and a lot of drive. However, if you’re planning to rent out an office, it can get expensive fast, depending on how big it is, how many people you plan to hire and where your office is located. You’ll also have to pay for signage and other miscellaneous expenses.

It’s always suggested that you start out as small as possible with the lowest amount of overhead so you can use your money for marketing purposes. Direct mail marketing, shooting professional-grade videos and paying for advertising all cost money. It may make sense to stall an office and new hires until you’re making a profit and have honed your own skills before managing others.

Another cost is buying insurance leads. If you're wondering how to get leads, know that buying them is standard in the industry. If used properly, you can grow your return on investment (ROI) easily if you jump on leads ASAP and pursue them as you would any leads you organically generate. Always use a trustworthy source, like SmartFinancial, which offers guidance and actionable advice to new and veteran agents.

Should I Buy Another Agent’s Book of Agent?

One great way to invest in your business is to buy a book of business from a shop that’s closing or from another agent who simply has too much to handle (that may be you one day!). While you missed out on the initial commissions on these sales, you are eligible for the renewal commissions. Also, these are a great source for multiplying business because the book is referral-rich, so come up with some enticements to encourage your new clientele to share your info with their friends, family and acquaintances. If you sell life insurance, it won’t make much sense for you to buy a book of business because there aren’t very many renewals but if you’re selling annuities, you can investigate to see if the existing book is ripe for you to dig in if finance is your specialty. For people starting out, buying another agent’s book of business is a great way to start your business. It’s also a good way to expand without much effort if you hire a telemarketer to go through the book thoroughly while you look for new business.

Do You Need Insurance as an Insurance Agent?

Ironically, yes, you do need insurance if you’re selling insurance. You will, at the very least, need a business owner policy (BOP) and errors and omission (E&O) insurance. A BOP policy can protect everything from your xerox machines at phone at work to the car you use to meet with clients (remember to also buy commercial insurance for your car if that’s the main use for it). An E&O policy will protect you against malpractice, if you fail to advise a client the right way and cause them financial anguish. You’ll probably need workers compensation insurance too, if you have assistants, telemarketers and producers on staff. Check your state requirements based on the number of employees you have.

Should I Be an Independent or Captive Agent?

An independent agent sells insurance from more than one insurance company. A captive agent only sells policies by one insurance company. There are pros and cons to becoming both types of agents. As an independent agent, you have more freedom to set your own rates. However, you won’t have as much assistance from any insurance company in selling as you would as a captive agent.

Another bonus of starting an independent insurance agency is that you have more options to present to a client. Also, if the client is dissatisfied for any reason, you can earn a new commission by switching carriers.