Life Insurance Agents: Independent vs Captive

A life insurance agent can help you navigate through one of the most important financial decisions you’ll ever make. Most will agree it is a pretty important decision.

One survey pegs the number at more than four-in-five people classify life insurance as a necessity. That said, less than two-thirds actually have it. Not having life insurance can cause your familygreat financial distress should something happen to you.

In the following article, we’ll be discussing the importance of life insurance as well as the main reasons you need an agent to help guide you.

Perhaps most importantly, we’ll be answering the age-old question of what type of insurance agent to use: captive or independent? Let’s begin!

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The Basics of Captive and Independent Insurance Agents

Buying life insurance can be a bit of an intimidating process. It can often come with a medical exam, lengthy questionnaires about personal information, and even the potential of rising costs based on personal health factors. Not to mention, there are several different coverage options to choose from as well.

Choosing the perfect coverage and getting the best deal on your life insurance takes time. To do it on your own, you will need a certain degree of industry knowledge, and that can be hard to come by.

For this reason, there is the occupation of a life insurance agent. A life insurance agent’s primary job is to help assist in the entire process of purchasing life insurance so that it is as simple as it can be for the client.

For this to happen, a life insurance agent will need to understand their client’s life insurance needs and overall financial goals.

With a simple conversation regarding coverage needs and goals, a life insurance agent can make a professional recommendation on a type of life insurance plan, as well as a coverage amount that should be able to meet the needs and goals of the client.

A life insurance agent can help get you the life insurance coverage you need. However, you will need to make a tough decision which will be deciding between using a captive life insurance agent or an independent life insurance agent.

The difference between the two is pretty significant.

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Two Types of Life Insurance Agents

When it comes to insurance there are two types of agents which are captive and independent. Both use very different approaches.

• How the captive agent works: Captive agents work for a single company which is the company they are employed with. The products that they offer will be from that one company alone. Captive agents are not allowed to offer coverage from other companies. Their goal is to provide insurance coverage within their company.
• How the independent agent works: Independent agents either work for themselves or an agency (not an actual life insurance company). They are contracted with multiple companies and can sell each companies life insurance products. Their goal is to find a balance between coverage, benefits, and rates.

When weighing which agent to use, you should focus on one basic question. That question is:

Who Are They Working For?

As mentioned, a captive insurance agent works for the actual life insurance company that they are employed by. A really good example would be a company such as Allstate, American Family, Farmers or State Farm just to name a few.

Captive agents can generally offer a variety of different insurance products such as homeowners insurance, car insurance, and renters insurance, etc. They often entice customers to buy life insurance in accordance with these other products.

(More on that in a moment.)

An independent insurance agent works with several insurance companies at once. They work directly for the customer and not any one particular company. We’ll explain this contrast further in the next section.

Let’s take a deeper look at the differences between a captive and independent life insurance agents.

Cost & Coverage Options

Both captive agents and independent agents can provide you with coverage options, there is no doubt about that. The biggest difference is that the captive agent can only offer you coverage options that are based on what they offer in-house only.

This is not necessarily a bad thing if they have the type of coverage that fits your needs, as well as budget. However, it can potentially become a problem when they don’t have the type of coverage you need.

If this happens, you may find yourself being offered something that you were not planning on just so that a sale can be made. This could lead to an increased cost or much worst, no coverage at all.

Since independent agents are not bound to any one particular company, it completely eliminates the concern of not having the type of life insurance coverage you are looking for.

You may be asking isn’t all life insurance coverage the same?

The answer, No!

Outside of the traditional types of life insurance such as term insurance, universal life insurance or whole life insurance, there are several different benefits and features that are currently being offered with life insurance coverage.

These benefits will vary from company to company, but they can include an option to apply without a medical exam as well as living benefit features, return of premium options, disability income benefits and even long term care coverage.

If we circle back to traditional types of life insurance coverage, there is a chance that the captive agent’s life insurance company may not even offer one or more of the coverage options, let alone some of the other benefits that are out there.

Working with an independent agent that is contracted with multiple insurance companies can really pinpoint the exact coverage that best fits your need. It also allows for this to be done without being limited to a single company’s list of coverage options.

Knowledge on Company Underwriting Niches

As important as purchasing a life insurance policy that fits your budget and overall insurance needs are, it’s just as important to make sure the company will be favorable to potential health risks.

A captive insurance agent should be very knowledgeable about the products and services they offer, but that knowledge ends at the walls of their company. This includes how their company views certain health risk such as height and weight, blood pressure, cholesterol, diabetes, etc.

Health risks can impact the cost of an insurance policy greatly.

If they do have knowledge of another company or competitor being more favorable to these health risks, there is probably a good chance that the knowledge will be held in a manner that benefits their employer. After all, if a captive agent can only sell their company’s coverage options, why would they want you to go elsewhere?

This can create a costly problem for the customer if the company you are applying with views certain health risks riskier than what other companies may view and who would be willing to offer a better rate. Not all companies underwrite risks the same.

Again we go back to the benefit of working with an independent agent who has multiple companies to work with. This is probably the best benefit that an independent life insurance agent can offer.

With a simple discussion regarding your past and current health issues, an independent agent can shop your health risk with all their companies to ensure that you will get the best price for coverage.

Unfortunately, a captive life insurance agent cannot do this. Again, they are limited to their company’s underwriting guidelines. If for some reason you do end up applying with a captive life insurance company and are a declined based on their underwriting guidelines, you will be left without coverage and without any alternatives.

A captive life insurance agent will not be able to shop your health risk with other companies as that is not an option they will have.

Independent agents have a more objective view of the various insurance companies and their underwriting niches. Just as an example, you’ll see a number of company reviews on this blog.

It’s an independent agent’s job to know what these companies offer, their products, their practices, and their underwriting guidelines.

These are the factors that will be the most important to you. It’s impossible to get this kind of objectivity from a captive agent.

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Stacking Coverage for Potential Discounts

An advantage to working with a captive life insurance agent is the potential to receive a discount on premiums.

Captive agents can offer customers the option to “stack” coverage for a potential discount on their premiums. This is often referred to as a “multi-policy discount” and can range in savings of 10 to 25 percent depending on the insurance company.

We will admit that this is an attractive selling point, but it does come with a couple of issues.

The first issue is where the discount is being applied to. We can’t speak for all insurance companies, but the majority that we are aware who do offer a multi-policy discount is referring to stacking both auto and homeowners insurance. The discount is generally applied to the cost of the homeowner’s insurance only.

We noticed that many people are confused by this and believe that they need to have all their insurance (including their life insurance) bundled with the same company in order to receive a discount. In most cases, this is not true.

It is very rare to find a company offering a discount on life insurance premiums even when combining other insurance coverage. However, that is not to say it doesn’t exist. If you find a company that is offering a multi-policy discount on life insurance rates for combining all your coverage with their company, make sure the discount is worth the savings.

Life insurance coverage that is offered through captive insurance companies tends to have much higher rates than life insurance being offered through independent companies. Even with a discount, there is a pretty good chance that it will not be good enough to beat the rates offered by an independent life insurance company.

One of the best ways to verify this is online. When shopping for insurance be sure to utilize the internet to your full advantage. Most insurance companies will have an option for you to view potential life insurance quotes through their website. This goes for both captive as well and independent organizations.

This will allow you to compare both rates to really see if the discount is really worth it or would you be better off purchasing life insurance coverage outside of your auto and homeowner provider.

Approaching a Captive or Independent Life Insurance Agent

Regardless of the agent, there are certain steps you need to take ahead of time before approaching any agent over life insurance. First, know why you’re getting coverage in the first place.

• To pay off major expenses in the event of a catastrophe
• To supplement additional coverage to an existing life policy
• To establish income replacement for your loved ones in the event of your death
• To have a conservative savings option (relevant in cash-value options)

Once you know the reason, it’ll be easier to put together some specific “worst-case scenarios.” What keeps you up at night? What are the expenses and situations you see life insurance helping your family?

Once you have this information ready you will be in a great position to start discussing life insurance options with a life insurance agent.

Which Life Insurance Agent Will You Choose?

Choosing a life insurance agent is an important step because it directly determines how much work you have ahead of you. It also determines the type of coverage or extra benefits you’re going to want to have.

Will it be a policy decided by a closed community with possibly its own self-interests taking center stage? Or will it be one born of competition, from an agent whose motivation is your satisfaction rather than her employer’s?

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