Pros and Cons of Independent vs Captive Insurance Agents
Choosing a life insurance agent can be as simple as going with the same company that insures your car and home. If you’ve worked with them for years and have had good experiences, and they sell life insurance, it can be an easy transition.
Captive insurance agents — who sell for large companies such as Allstate, State Farm, and Farmers, for example — know their companies inside and out but only sell for one company. Independent companies and brokerages work with multiple insurance companies. Here are some pros and cons of each:
Price may be the biggest advantage of choosing an independent agent, experts say.
“An independent agent can shop rates between different insurance carriers,” says Scott Stratton, a certified financial planner and president of Good Life Wealth Management in Dallas, Texas. “Even though life insurance is a relatively commoditized product today, there can be a surprising difference in price from one company to another — it’s often several hundred dollars a year or more, even on a basic 20-year term policy.”
Captive companies rarely offer the lowest life insurance prices, Stratton says, perhaps because they spend so much on advertising, or because life insurance is an “add-on” when people come to them for home and auto policies.
“There can be a sense of loyalty to an insurance company, in which case a client is less likely to shop elsewhere based on price,” he says.
Provided you’re sticking with investment grade, and the fact that most companies are rated A or A+, price is a compelling reason to shop for life insurance and a consumer shouldn’t be hesitant to use a company they haven’t heard of, Stratton says.
If you’re young and healthy, you’ll likely find similar prices at any agent you go to. But if you have health issues, an independent insurance broker may be better able to find you a deal because they have more options by working with many insurers, says Brent Steiner, a certified financial planner at Ramsier Financial Services in Smithville, Ohio.
Nicotine use requires smoker rates, but certain insurance companies will allow the use of snuff or an occasional cigar to apply at standard rates, Steiner says. “A broker should have the knowledge and flexibility to offer better rates by adapting the clients situation to the carrier that can best provide the needed coverage,” he says.
The same can go for being borderline on a height/weight table, with some companies being more forgiving on build, Steiner says. “If your agent has only one company to offer — that’s what you will get,” he says.
Independent agents “can shop the market based on the applicant’s individual circumstances. As underwriting guidelines continue to change over time, this is a big advantage for the agent and the client,” says Jason R. Tate, who has worked as an independent and captive life insurance agent but now owns a registered investment advisory firm in Tennessee.
By working with many carriers for many types of insurance, an independent agent can help a client fill future needs such as disability, health or long-term care, Tate says.
Constraints of captive agents
Insurance agents who work for one company have some constraints that independent agents don’t, says Amy Rose Herrick, a Chartered Financial Consultant in the Virgin Islands.
These include, Herrick says, sales quotas to remain “employed,” having an exclusive sales territory to work, having only one underwriting team to provide a rating, having a preset menu of product choices that can’t be deviated from, and larger overhead.
However, having an exclusive sales territory can be seen as a positive. Captive agents are building a more centralized book of business and clients usually receive a closer level of attention, Tate says. That can lead to a slightly higher level of personal customer service with an agent who has stronger name recognition than an independent agent, he says.
Captive agents know their products
Captive agents receive a great deal of training on their company products and are generally up to date with all of the details and nuances of those products, Stratton says.
And don’t think that all captive agents are the same and can only work with one company. New York Life, Met Life, and Northwestern Mutual do have access to a variety of products from a variety of vendors, says Keith Klein, a certified financial planner who owns Turning Pointe Wealth Management in Arizona.
Captive agents are also familiar with the claims process, which is vitally important for home and auto claims, but easier in life insurance, Stratton says.
“In those policies, you want to have a company which has a high level of service and
can help you facilitate the process when you have a home or auto claim,” Stratton says. “On
the other hand, a life insurance claim is very straightforward. If you have a death certificate, your heirs are going to get paid, and there’s not much to worry about.”
Captive agents may be able to provide a multi-policy discount, if you have home, auto, umbrella, or other policies with the company, Stratton says.
“In my experience, you can get the bundle discount without including a life policy, but it may be worth checking if they will discount a life policy if you already have other policies with the company,” he says.
The convenience of having all of your insurance with one company, however, can cost more than shopping for the best deal for each policy you need, Stratton says.
Aaron Crowe is a freelance writer who specializes in personal finance topics including insurance, real estate and kids and money. Follow him on Twitter @AaronCrowe or find him on his website, AaronCrowe.net.
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