How to Start a Life Insurance Brokerage

Start a life insurance brokerage by following these 10 steps:

1. Plan your Life Insurance Brokerage
2. Form your Life Insurance Brokerage into a Legal Entity
3. Register your Life Insurance Brokerage for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Life Insurance Brokerage
6. Get the Necessary Permits & Licenses for your Life Insurance Brokerage
7. Get Life Insurance Brokerage Insurance
8. Define your Life Insurance Brokerage Brand
9. Create your Life Insurance Brokerage Website
10. Set up your Business Phone System

We have put together this simple guide to starting your life insurance brokerage. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Life Insurance Brokerage Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.

What are the costs involved in opening a life insurance brokerage?

While it’s possible to open an agency with as little as $5,000, the business’ bottom line will benefit from a larger initial investment. Start-up costs include the following:

• Licenses and certifications - $400-$1,000 - Learn how to get your Life Insurance License here.
• Office space - Deposit and rent vary, depending upon building size and location. Many new agents opt to eliminate all costs associated with opening an office by working out of their home during the first few years.
• Agency management system (AMS) - Initial costs range anywhere from $5,000 to $20,000, depending upon the number of users and the capabilities you desire, with a monthly fee thereafter. While it might be tempting to manage your business without an AMS, it is not recommended. Most software packages are designed to ensure legal compliance and keep the agency on track with marketing, sales, and customer service. A list of AMS solutions, along with their ratings, can be found here.
• Insurance - Meet with an insurance professional to ensure your business needs are met. Business insurance, E&O, and a surety bond are all sound investments. Policy premiums for these policies vary from state to state, with industry experience significantly impacting the annual premium.
• Insurance company appointments - These fees vary, based on the insurance carriers’ guidelines. $50 - $300
• Website - In today’s environment, it’s critical that you build an online presence. Depending upon the capabilities you desire, budget $4,000 to $15,000 for your site build.

Many new agents choose to purchase another agent’s book of business - their list of clients. While this can prove to be a worthy investment, entrepreneurs are urged to conduct thorough research and seek counsel to ensure fair pricing.

While initial costs can be as low as $5,000, business owners who realized timely success report investing upwards of $50,000.

What are the ongoing expenses for a life insurance brokerage?

Your ongoing expenses will vary, depending upon office location and number of employees. In addition to standard overhead costs associated with running an office, owners should budget for the following:

• Agency management system (AMS) - Monthly fees range from $50 to $300, depending upon organizational needs.
• Payroll and incentive packages - This will represent your largest expense, but is also your greatest investment. Invest in your employees and you will build a team dedicated to both you and your book of business.
• Continuing education - Check with your state to determine continuing education requirements. Many of these courses can be taken online, in-person, or during attendance at an industry convention. Encourage your staff members to grow in their careers by funding their continued education.
• Insurance carrier appointment fees
• Marketing

Who is the target market?

There are a variety of reasons for purchasing life insurance that go beyond paying a death benefit when the insured dies. Get to know the products you sell on a deeper level. Once you’ve gained a clear understanding, identifying the target market will come naturally.

Life insurance products typically appeal to a diverse customer base.

How does a life insurance brokerage make money?

Your brokerage will generate revenue for each policy sold. Upon initial application acceptance, the writing agent receives a commission check for a percentage of the total policy premium. You can also expect to receive a smaller commission for every time a customer renews his or her insurance policy.

How much can you charge customers?

The insurance carrier sets both premiums and commission, which vary from policy to policy. Commission on policy sales averages between 30% and 70%, with some agents earning 100% of the premium for the first year. Renewal commission is significantly lower, averaging around 5%.

How much profit can a life insurance brokerage make?

Agency profits will vary from year to year, with the first few years being the most difficult. After 2-3 years, many life insurance agency owners report a strong book of business that delivers an average of $130,000 in annual profits.

How can you make your business more profitable?

While it is possible to make a living selling permanent and term insurance only, diversity is the key to success. Consider getting the proper licenses to offer financial products such as annuities and variable life policies. Health insurance, particularly policies such as Medicare supplements and Long-term care policies, would help diversify your business portfolio and boost the agency’s profit.

Consider buying into a cluster group, which can help lower new business requirements and ongoing expenses, such as carrier appointments.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your life insurance brokerage is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a life insurance agency. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

In particular, insurance agencies generally should obtain a seller's 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.

Life insurance agents will also need to obtain a life insurance license, which is administered at the state level. In order to sell securities-backed insurance products, an agent will also need to get their FINRA securities licenses, generally the Series 6 and Series 63 licenses.

Learn more about becoming an insurance agent on StateRequirement.com.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

While owning a life insurance agency can prove to be quite profitable, those realizing the greatest success enter this field because they truly enjoy helping others. Industry leaders believe in the products they “sell” and are passionate about educating others on the subject.

What happens during a typical day at a life insurance brokerage?

In the insurance industry, no two days are alike and every day offers an opportunity to learn and grow. Your day-to-day tasks include:

• Meet with clients to determine their unique needs and educate them on life insurance.
• Assist clients in filling out paperwork.
• Guide customers through the death claim process.
• Service your current book of business.
• Market to your target audience and networking within the community.
• Research current trends and remain abreast of industry news. (Continuing education is critical in this field.)
• Work to gain appointments with insurance companies you wish to represent.
• Handle other administrative duties

The bulk of an agent’s day is spent building and maintaining relationships with both insurance representatives and clients.

What are some skills and experiences that will help you build a successful life insurance brokerage?

Regardless of how large of a role you plan to take within the agency, it is absolutely critical that you gain insurance experience before opening your own establishment. A well-rounded agency offers a variety of financial products. This first-hand experience will educate you on these products and help build your communication skills so you are able to establish a relationship of trust.

Successful agents possess a sound understanding of the intricacies of this dynamic industry. Their passion for this profession puts clients’ minds at ease, softening what many view as a painful, but necessary process. Strong marketing faculties, business acumen, and leadership skills are paramount to the agency’s success. Since this is a commission-based business, agency owners must perform well under pressure and possess the drive to charge forward.

Many agency owners choose to continue their insurance education well beyond the initial licenses. The National Alliance for Insurance Education and Research offers a variety of courses to fit every individual’s needs. The National Association of Insurance and Financial Advisors is also a great resource, offering an extensive curriculum to help every agent reach their fullest potential.

What is the growth potential for a life insurance brokerage?

The insurance industry is widely considered a recession proof profession. While life insurance is more vulnerable than other lines of business, today’s consumers are more financially savvy, recognizing the financial need/benefits behind owning life insurance. Your agency’s growth is only limited by your insurance knowledge, willingness to take risks, and drive for success.