Thursday, March 01, 2018

Nonforfeiture Options: Don't Just Let Your Policy Lapse

A lot of people get into a situation where they can't pay their life insurance premiums. Often, the solution is to ignore the premium notice. When you do that, your life insurance will lapse and it ends.

After that, you won't receive any more notices from the insurance company.

Problem solved.

Before you let that happen, it's a good idea to see if there are any other ways you can handle it.

One way, is by using a nonforfeiture option.

But what are nonforfeiture options anyway? I'm going to go over what they are below. After that, I'll go over a couple of other options to look at before the non-forfeiture options.

What are Nonforfeiture Options?

Nonforfeiture options are a feature of whole life insurance policies. These options allow you to stop paying premiums. You can then cash your policy in, buy a reduced paid up policy or buy extended term insurance.

Let's go into more details about these three options.

The Three Nonforfeiture Options

There are three nonforfeiture options available. Keep in mind that each option depends on the value of your policy. If you haven't had your policy very long, you won't have any cash value and no nonforfeiture options are available.

If you do have cash value, remember that it may be subject to a surrender charge. A surrender charge is a penalty for cancelling early. Any surrender charge comes out of the cash value in your policy. It's not something you have to pay out of your own pocket. If you have borrowed from the policy in the past, that would also reduce your cash value.

With that said, here are the three nonforfeiture options.

  1. Cash surrender This is cashing your policy in. The insurance company will send you a check for the net cash value and then you can do whatever you want with the money. You'll use the cash surrender option if you need the cash.
  2. Reduced paid up insurance You can use the cash value to purchase a whole life policy that is paid for. It will be less than the original face amount and since it is paid up, it won't require premiums. You'll just own that amount of life insurance from that point forward until you die.
  3. Extended term insurance You can use the cash value to keep the original life insurance face amount but only for a specific term, or time period. How long the term is depends on the cash value of the policy. Once it's changed to extended term, you won't have to pay premiums anymore but you also won't build any more cash value. 
Nonforfeiture options are final with the exception of extended term insurance. If you elect extended term insurance, I believe it might be possible to reinstate the policy back to the original policy. Honestly, I am not sure if you can reinstate during the extended term insurance period. I have never had anyone ask.

Surprisingly, during my more than 25 years in life insurance, I have never seen anyone request paid up insurance or extended term insurance.

Everybody usually chooses just to cash surrender their policy if they don't decide to hang on to it.

Before you cash your policy in, keep reading for some other options to consider before you do.

Can't Pay Because You Are You Disabled? On Strike?

If you can't pay your premium because you are disabled, you might qualify for a waiver of premium benefit if you added that rider when you bought the policy.

I've also heard of waivers for if you go on strike. They are rare but do exist.

Either rider, if you qualify, would help you pay your premiums.

Check Your Policy Dividends

If you have had your policy for awhile, you might have accumulated some dividends you could use to pay your premium. Also check to see if your dividend is more than your annual premium. If so, you could change your policy's dividend option to reduce premium.

Not all whole life policies are participating so this may or may not be an option but it's worth checking into.

Take a Policy Loan to Pay Your Premium and Use Automatic Premium Loan

The next option is take out a policy loan to pay the premiums until you can start up again. Once you can start paying the premium again, you can pay off the loan.

Standard procedure for me on every whole life application I submit is to choose automatic premium loan. By doing this, it builds a layer of protection against the policy lapsing because a premium is overlooked. 

If a premium payment is missed, and the policy has a cash value, it will automatically trigger a policy loan and pay the premium. It will continue to do this for every premium missed as long as their is cash value. If there is no cash value, the policy will lapse.

I set it up this way because of unforseen circumstances. If you get sick and can't take care of your bills for whatever reason, it will keep your policy inforce as long as there is cash value. This will keep your policy inforce until you or a family member have a chance to take care of your bills.

While you don't necessarily have to pay the loan back, it's a good idea to do that if you can. It's certainly important to pay the interest. Otherwise, that interest could capitalize and that mean you'll pay interest not just on what you borrowed but also on the interest that you didn't pay.

This could erode the value of your policy.

Reduce the Face Amount of the Policy

Another option to explore is to reduce the face amount of the policy. If you reduced the face amount of the policy, the premium will also go down.

It's possible that you could make the policy more affordable and keep it inforce at a lower amount.

Don't Just Stop Paying Your Premium to Let Your Policy Lapse

If your intention is to cancel the policy, make sure you formally cancel it. This is especially true if you have cash value. Doing nothing means the cash value could just be eaten up by premiums.

Whether you have cash value or not, I always recommend filling out a cash surrender form if your intention to cancel it. This accomplishes to things. First it makes sure you don't waste your money. Second it lets the insurance company know what you want to do and then you don't waste their money sending you all these notices.

Believe it or not an astounding number of people just let their policies lapse.

Are Nonforfeiture Options the Same for Other Types of Life Insurance?

The above nonforfeiture options are for whole life policies. Since term life insurance has no cash value, there are no nonforfeiture options.

As far as universal life insurance policies, you can cash surrender the policy and switch it to extended term. The reduced paid up option is not available.


If you can't pay your life insurance premium, there are potentially three nonforfeiture options you can use. There are also a few other options you can potential use to hang on to your life insurance.

Have you ever used the nonforfeiture options? If so or if you have any questions, please let me know in the comments.

5 Dividend Options for Whole Life Insurance

If you have a whole life policy with a mutual insurance company, you are in luck because those policies may pay dividends. That's great news but what are you going to do with all that newfound cash? Well, the insurance company may give you up to five different dividend options to choose from.

Below, I'll talk about the dividend options you can choose from along with some other things about dividends you might want to know.

What are Whole Life Insurance Dividends?

Mutual insurance companies are owned by their policyholders. When a mutual company earns a profit, it may share some of that profit with you the policyholder.

Your share of that profit is called a dividend.

Since you pay a premium to the insurance company, any dividend you receive back is considered a return of premium.

Dividends are declared annually by the board of directors of mutual companies. Then it's paid to you. Dividends are not guaranteed. The board of directors is under no obligation to pay you a dividend nor give you a set amount.

There are up to five dividend options you can choose from.

Let's talk about those options.

The Five Dividend Options

At the time you apply for your life insurance, you tell the insurance company how you want to be paid your dividend. Don't worry, your choice isn't locked in forever. You can change the option down the road if you want.

  1. Paid in cash The insurance company will send you a check in the amount of your dividend. You can cash that check and do whatever you want with it.
  2. Purchase paid up additions Instead of receiving a dividend check, you can ask the insurance company to keep your dividend in your policy and use it to buy what are called paid up additions. Paid up additions are like little tiny life insurance policies above and beyond your base policy. Each dollar of paid up additions, buys more than a dollar of paid up additions. Not a whole lot but slightly more than your dollar. That means, paid up additions increase the face amount of your policy.
  3. Accumulate at interest The next option is to let the insurance company keep the dividend you received in an account that earns interest. 
  4. Reduce premiums You can choose to have the insurance company reduce your premium by the amount of the dividend.
  5. Purchase one year term insurance In some cases, insurance companies will let your dividends by an additional amount of one year term insurance. This will also increase the face amount of your policy.

Those are the dividend options you can choose. But which one makes sense?

Which Dividend Option Should You Choose?

On whole life insurance, I personally would set up my dividend option to buy paid up additions. I'd keep it that way until I was confident that the dividend was declared each year was more than my premium. Then I might consider switching it to the reduce premium option.

I'd set up my term policies dividend option to reduce premium although I wouldn't expect a dividend on a term policy.

Do All Life Insurance Policies Pay Dividends?

Only policies issued by mutual companies pay dividends to their policyholders and not all mutual life insurance polices pay dividends. Not even at a mutual company. The policy has to be a participating policy. Only participating policies pay dividends.

Also, a policy can be a participating policy but not expect to receive dividends. A good example of this might be a term policy. It's more likely, the whole life policy will pay dividends but not always. In order to know for sure, you have to read your policy to find out.

If you have a policy with a stock company, you won't receive dividends. Only the shareholders would.

Are Dividends Taxable?

Generally, dividends are considered a return of premium up to the amount of your premiums paid. 

Dividends Are NOT Guaranteed

It's really important to understand that dividends are not guaranteed. The performance of the insurance company, the economic conditions and the board of directors of the insurance company all are a factor here.

It's possible, you might not receive a dividend at all.


So those are your five potential dividend options. It's a good idea to review how your dividend options are set up.

Let me know how you've set up your dividends or if you have any questions in the comments below.

Wednesday, February 28, 2018

My Choice Between a Stock vs Mutual Insurance Company

There are two type of insurance companies you can choose from when you buy insurance. One is called a stock insurance company and the other is called a mutual insurance company. In this article, I'm going to break down what each type of company is. I'll also talk about which type of company I like best.

What is a Stock Insurance Company?

A stock insurance company is owned by shareholders. Any profits or losses are shared with the shareholders. Stock of the insurance company is publicly traded on the stock exchange.

A stock company puts the focus on providing a good return for their stockholders.

What is a Mutual Insurance Company?

A mutual insurance company is owned by it's policyholders. All profits and losses are shared with the policyholders.

When mutual companies share profits with their policyholders, it's in the form of dividends. Dividends represent a return of premium to the policyholder. And while dividends are not guaranteed, this structure puts the focus on the value to the policyholders.


One concern if you choose a mutual company over a stock company is that a mutual company can demutualize. Demutualization is when a mutual company converts to a stock company. This could happen if a mutual company decides it needs to raise capital.

A good example of demutualization was when Prudential converted from a mutual company to a stock company in 2001. Prior to demutualization, Prudential had struggled with some large claims from hurricanes and a legal settlement and they needed capital. As a result, Prudential is a much different company than they were before they converted.

Before that, if you'd asked me if Prudential would ever convert to a stock company, I would have thought you were crazy. The moral of the story is that there is no guarantee a mutual company will always stay that way.

Stock vs Mutual - My Choice

For most insurance, I don't really have a preference between a stock company and a mutual company. However, when it comes to permanent life insurance, I would definitely choose a mutual company for a couple of reasons.

The first reason is because I'm fan of guarantees. Whole life insurance from a mutual company provides more guarantees than the universal life products that stock companies offer.

And because of the guarantees in their whole life policies, mutual companies get the edge from me for that particular product.

The second reason I'm not a fan of stock companies is because they are publicly traded. A publicly traded company has a lot of pressure to increase it's stock price. If the financials of the company go south, their going to try and find that money somewhere. There's a good chance it could come from the expenses hidden in their universal life contracts.

In fact, the New York Times reported a lawsuit accusing Transamerica of doing exactly that.

Market pressures can not only lead to bad management decisions, there's also the chance the company a target for a takeover.

This could lead to the same problems.

While bad management can happen in either a stock or mutual company, I'd still opt for a mutual company because I believe a stock company is more vulnerable to problems than a mutual one.

That's not to say a mutual company can't experience problems so you still have to be careful which mutual company you choose.


While most people probably couldn't tell you whether they have insurance at a stock company or a mutual company, it's good to know the type of company you are buying from.

And when it comes to permanent life insurance, my preference is for a mutual company over a stock company.

Tuesday, February 27, 2018

Direct Recognition vs Non-Direct Recognition (Does It Matter?)

Does it matter if your life insurance policy is a direct versus a non-direct recognition policy? Here, I'm going to break down what the difference is between these two types of policies. Then, I'm going to answer the question, does it matter?

The Difference Between Direct Recognition vs Non-Direct Recognition

A whole life policy allows the option to ask for loan against the value of your policy. A policy loan, may reduce the dividend you receive when it's paid. If your policy is a direct recognition policy, you'll receive a lower dividend than if you didn't have a loan. If it's a non-direct recognition policy, your loan has no impact on the dividend you'll receive.

On the surface, you'd guess that a non-direct recognition policy would be a better deal. The insurance company will ignore your loan and pay you the normal dividend.

But, that might not be the case.

Let's walk through why not.

Dividend Rates Don't Matter, Actual Values Do

Let's say one insurance company pays a dividend of 6% and another  pays a dividend of 5%. Which insurance company is a better deal for you?

If you said the company that pays a 6% dividend, that would seem like a good answer but may not be the right one.

The reason is that the company paying the 6% dividend may be more expensive than the one paying 5%. Their administrative cost, cost of insurance and other expenses may be higher.

The net effect?

You could actually see less money in your policy from the company with the higher rate.


The internal costs of the policy eat up the difference.

Here's a report on dividend rates from some insurance companies.

Use an Illustration to Compare Policies

Insurance companies don't make it easy to figure out which company is the better deal. But you can get a good idea of which company might give you better values.

You can request an illustration for each policy and look at the projected values in the future. While it will be hard to make an apples to apples comparison, you can get close.

With an illustration, you can compare what the projected future values might be. The one with higher values could be the better performing company.

I say could be for a couple of reasons.

First, dividends aren't guaranteed. You don't know what dividends will actually be.

Second, the internal costs of the policy could always change inside the policy down the road. Since the contract allows the insurance company to change costs inside the policy, you may never know until years later the impact that will have on your values.

So, I limit my comparison to the guaranteed values in the contract to see which company is better.

If on a guaranteed basis, one company performs better, I'll likely go with the company that guarantees me a better deal.

Avoid Direct Recognition with High Fixed Interest Loan Rates

I'd avoid policies that have a high fixed interest rate and are direct recognition. That's because you'll not only get a reduced dividend, you'll also pay more interest on top of that.

Look at Dividend History and Company Performance

Since dividends are a return of premium, you want to focus on the strength of the insurance company. Is the company a solid performer? Does it have a strong history of paying dividends?

Focus more on the strength of the company rather than whether it's a direct or non-direct recognition policy.


If you plan on taking out loans, the interest rate you pay may be a bigger factor than whether a policy is direct or non-direct recognition.

What matters most is which company performs better and returns that performance to you the policyholder.

Let me know if you have any questions in the comments below.

Tuesday, August 15, 2017

Is Pregnancy a Pre-Existing Condition for Short Term Disability?

A common question I get from women at open enrollment time is if pregnancy is a pre-existing condition for short term disability. Usually, this question comes from women who are already pregnant and who aren't currently enrolled in the STD plan. So in this article, I'm going to talk about how pregnancy is treated under most plans.

Pregnancy and the Pre-Existing Condition Limitation

Most group disability plans are guaranteed issue at every enrollment. This means you can enroll without any medical questions and will be approved regardless of health. However, in exchange for the guaranteed approval, any claims may be subject to what's called a pre-ex, or a pre-existing condition clause.

The most common pre-ex clauses are 3/12, 6/12 and 12/12.

Here's is what the numbers 3/12, 6/12 and 12/12 mean:

(Number of Months Look Back Period)  /  (Number of Months Look Back Applies)

A 3/12 pre-ex means that if you file a claim within the first 12 months the policy is in effect, the insurance company will look back 3 months before the policy took effect to see if it was caused by a pre-existing condition. If it's a 6/12, then the insurance company will look back 6 months for a pre-existing condition for any claim filed in the first 12 months.

If the condition was pre-existing during the look back period, then the insurance company can deny the claim.

Keep in mind that if you are enrolling in the disability plan in November but the plan takes effect on January 1 that the 12 months begins on January 1 and the look back period would be the three, six or 12 months before the effective date and not the date you enrolled.

If you are pregnant when you enroll, your claim for short term disability will most certainly come in the first 12 months the plan is in effect and therefore, your claim would be denied.

However, if you enrolled in October and got pregnant on January 10th after the effective date, then your pregnancy would not be considered pre-existing since it occurred after the effective date.

The Difference Between Group and Voluntary Disability Plans

One factor that may come into play is whether the disability plan you are being offered is a group disability plan or a voluntary one.

The difference between a group plan and a voluntary plan is underwriting. While group disability might be guaranteed issue at every enrollment, a voluntary disability plan might only be guaranteed issue when you are first eligible.

If it's a voluntary plan, if you don't enroll the first time you are eligible and want to enroll later, you might have to answer the medical questions to get in. If you are pregnant, this could possibly prevent you from being approved for the short term disability.

In addition, if you have to answer medical questions to qualify for your disability plan, if you have any other medical conditions outside of being pregnant, those conditions might prevent you from getting disability insurance as well.

The best time to enroll is when you are first eligible under those plans.

Options If You Are Already Pregnant

If you are already pregnant, you'll want to check out how much vacation and sick time you have available that you could use doing your maternity leave.

Alternatively, there are some companies that allow you to allow you to buy, sell and donate vacation time. If your company does that, a possible solution to not having short term disability insurance is to buy it or get some one to donate it to you.

As far as donations go, most donations are made for people with serious illnesses and so I wouldn't really count on that as an option.

The other option is to take your maternity leave unpaid.

Sign Up the Year Before You Get Pregnant if Possible

If you are trying to get pregnant, you might consider signing up at the enrollment period prior to the year you want to get pregnant.

If your employer's plan looks back for any claim filed in the first 12 months after the effective date and you satisfy that 12 month time period in the year prior, then your pregnancy won't be considered pre-existing.

If this is a planned pregnancy, that might help you out to remember to do that.


Pregnancy is considered a pre-existing condition if you are a newly enrolled in your disability plan and most likely will be excluded. Try and plan ahead and make sure you enroll when first eligible or the year before to get around the pre-ex clause found in most group disability plans.

As always, in group insurance, every plan may vary in what it covers depending on what your employer negotiated with the insurance company.

Let me know how you handled your short term disability in the comments below to help my readers further understand their options.

Wednesday, August 09, 2017

Don't Throw Away Your Benefits Confirmation Statement

Each enrollment period, you should receive a benefits confirmation statement. This statement confirms what benefits you selected for the upcoming enrollment year. In this article, I'll talk about why you want to make sure you get one each year. Plus, you'll want to keep each and every confirmation you receive for as long as you work for your employer.

Why is the Benefits Confirmation Statement Important?

Your benefits confirmation is your receipt that proves what you signed up for at enrollment time. Without it, if there is any question about what you enrolled in, your stuck. That's because you have no record of what you signed up for if you didn't remember it that way.

Because time passes and people forget things easily, what matters most is what's on paper - or PDF in this day and age. Remember, having written proof of enrollment selections matters a whole more than verbal conversations do.

A Simple Example of Why the Confirmation Statement is Important

Let's say that at your initial enrollment you were offered supplemental group term life insurance on a guaranteed issue basis. The amount you could get at the time without any medical questions was $200,000. You decide you need the additional group term life and ask if you could get more than $200,000.

You learn that you if you want, you could go as high as $500,000 with what's called evidence of insurability. That means you have to qualify for it by answering medical questions.

At the time you don't have any health problems and decide you want to do that. Later you learn you were approved for the higher amount and tuck that fact back in the memory banks for later.

Eight years later, unbeknownst to you, your employer decides they are going to make some changes to the benefit plans and the group term life insurance program changes to another insurance carrier.

Now behind the scenes this is what's called a takeover. This means that the insurance company will again make a guarantee issue offer to new employees and "take over" the group life insurance amounts everyone else has already.

Enrollment time comes, only this time, you are in a hurry. You don't have much time to take care of your enrollment this go around. Since your company has face to face enrollments, you meet with the enroller and let them know I'm in a hurry, I just want to keep everything the way it is. So the enroller, zips through your enrollment and gets you on your way.

However, when the take over of the group life occurred, for some reason your benefits didn't carry over the $500,000. The enroller had no idea what you had last year and assumes the system is correct because they can only go by what they are given and aren't involved in the takeover process.

In fact, it's not unusual for enrollers to have no clue what you had the year before and it's not really their fault. They can only work with the information they have been given.

This particular year, you also attained a new five year age band and so the premium was more for the $200,000 than before and you don't notice much difference in your paycheck so nothing seemed out of the ordinary.

That is until a few enrollments later, you finally notice that your benefit confirmation shows you only have $200,000 and so you question it. You are told that's what it shows you have. If you want more than that amount, you'd have to provide evidence of insurability again. But unfortunately, you found out last year, you had type 2 diabetes and can't qualify for the higher amount.

In this situation, you'd probably be upset and rightly so. But this is where the benefit confirmation statements from each year can help. It's your proof that when the takeover occurred, someone goofed.

Now technically, it might not be possible to fix this problem. That's because, it's really up to you to make sure everything is done the way you want. It'll depend on the agent the company has. But without the confirmation, you could definitely be out of luck.

Check your confirmation at each enrollment carefully and compare it to last years

At every enrollment, you want to get a confirmation. And it's a good idea to compare it to last year's statement. This will help you confirm that you have what you wanted and also see how it differs from last year.

Check you payroll deductions to make sure they are correct

Once the year begins, take a look at your payroll deductions and make sure they match your confirmation statement as well. These days with all of us on direct deposit, it's easy to never look at your pay stub and just look at the net amount in your bank account and move on.

Paying attention to your payroll deductions can help you spot a problem when it happens.


So, my advice is that each enrollment, get a confirmation statement. Compare it to last years once you receive it. When the new deductions start, confirm your deductions are correct.

It's much easier to correct a problem when it occurs than several years later with no record of what you had before.

Let me know in the comments, if your employer provides you with a benefit confirmation statement at enrollment time. And also let me know if you have had anything similar happen to you.

Tuesday, August 08, 2017

Best Way to Prospect for Life Insurance Clients

The most important skill you'll need to build your life insurance agency from scratch is to find the best way to prospect for life insurance clients. Unfortunately, in the life insurance business, it's not what you know that matters. It's marketing that knowledge to the people who need it that does. That marketing is called prospecting.

In this article, I'm going to walk you through how I approach prospecting. Are there other approaches that will work? The answer to that is yes, of course. This is just the way I do it.

So with that, let's get into my philosophy and approach.

Find prospects who want to work with you

The goal of my prospecting method is to find people who want to work with me. Life is too short to waste my time trying to twist someone's arm to become a client. So the very first thing I want to stress to you is that my prospecting system isn't designed to fight with people in order to get them to work with me.

I've always thought that the life insurance industry's bad reputation was well earned with all of the objection handling and high pressure sales tricks to get people to buy policies.

Because of that, I've tried to be the exact opposite and you should too.

Find prospects who love people

As silly as this sounds, life insurance is really about love. Let's face it. Love is hard to find and a lot of people in this world just might not have anyone in their life that they care about enough to buy life insurance.

Bottom line is that people buy life insurance because they don't want the people they love to struggle if they died.

You are in search of those people.

Build a large database of prospects that look like people who buy your product

The first step is to build a database of individuals and businesses that look like your target clients. For your life insurance agency, you'll be targeting individuals and businesses. Let's talk about what type of prospects you'll be looking for in both cases.

  • Individual life insurance policies (3,000 prospects) For individual policies, you will be looking for families with children. You'll also target executives and individuals with good incomes. That doesn't mean that prospects who might be single or have other types of jobs won't buy life insurance. They will. Just when we are building our pool of prospects, we want to fill them with the people most likely to buy the policies we are selling.
  • Group life insurance prospects (1,000+ employers) Small, medium and larger employers of all kinds almost all have group life insurance. I'd suggest targeting employers with at least 50 employees for group life insurance. To make things easier, you might want to make your pool of employer groups all over 100 employees as needed for the next target.
  • Worksite permanent life insurance prospects (1,000+ employers) For our worksite program, you'll be targeting employers of more than 100 employees. Specifically, we also be looking for employer groups that have employees who aren't targeted by our individual sales efforts. The ideal worksite clients are manufacturing groups, government groups and hospital groups.
  • Insurance brokers who work with employers (as identified) You'll also want to target brokers who work with employer groups that you want to work with.

The reason you want to build a large database is because you want to have plenty of people to call so that you don't feel so "married" to specific prospects that you put pressure on them. More prospects in the pipeline relieves sales pressure.

The Prospecting Strategy

Your goal is to get out of the sales mentality and instead get into the offer making business. To do that, you'll first figure out what those offers are, then you'll do the best you can to get that offer in front of as many people as you can and then work with those interested in the offer you make.

As you do this, you want to focus on getting people to at least hear your offers and then make a yes or no decision. You don't want to get wrapped up in what the decision is. Whether it's yes or no, accept it and move on. For the yes's, we'll start working with them. For the no's we'll recontact them at later dates.

Let's break down these steps:

  • Craft an offer that solves a problem your prospects are likely to have The first step is to craft an offer. This will be the hard part. In future articles, I talk more about how to craft your offers that get interest and discussion started. These offers will be different for individuals and employer groups since they are different targets.
  • Contact your prospects and make the offer Once your offer is crafted, you want to impress upon your prospects that all you want to do is make sure they hear your offer - whatever it is. Further, you want to stress that whether they become a client or not isn't what's important at this stage. You are indifferent to whether they buy or don't buy. But it is important to you that they at least hear the offer out.
  • Work with those prospects who are interested in your offer For those that "raise their hand" so to speak, these are your real prospects and you'll take them through a predetermined set of steps to facilitate a yes or no decision.
  • Do an awesome job and ask for their help identifying future prospects Deliver more than your clients expect and ask them to help you find more clients.
  • Keep making offers and refilling your database Over time, your database or prospects will need to be cleaned and refilled to keep enough prospects. 

Now the hard part of the prospecting strategy that I've laid out is that there are still a lot of holes we need to fill out in the process I've outlined.

There's what you say on the phone. There's what you put on your website and direct mail. And when you have prospects interested in your offer, there's a specific set of steps you'll still need to know. These are all things I'll expand on either here or in future articles that I have planned.

For now, the main thing I want you to focus on is that you need a large database of prospects, you want to start contacting those prospects to make your offers and work with those that say yeah I'll hear you out. Those that don't want to hear you out, move on and recontact them at a future time.


Prospecting is the key element to your success as a life insurance agent. If you don't do it, you won't succeed. Prospecting takes a certain mindset and isn't pressure. It's about identifying people who will work with you and moving them forward.

This is the prospecting roadmap I use to build a life insurance agency from scratch. As always, I love to hear from you about your prospecting philosophy and strategy.

Let me know in the comments your thoughts and suggestions.

Monday, August 07, 2017

Is It Better to Be a Captive or Independent Insurance Agent?

As you start your insurance career, one of the questions you will eventually ask is whether it's better to be captive or independent insurance agent. In this article, I'm going to talk about the differences between these two types of agents. I've been both a captive and independent agent and so I'll give you my take from both sides and maybe that will help you decide what you want to do.

What is a Captive Insurance Agent?

A captive agent is an agent that has a contract to work specifically through one and only one agency. They can only write insurance policies that agency allows them to write and those policies have to be written through them.

What is an Independent Agent?

If you are an independent agent on the other hand, you are in control of what companies you want to work with it. You can work direct with an insurance company, partner up with other agents and general agents or write business through independent marketing organizations (IMO's).

Captive vs Independent Agent

Captive agencies are more like traditional employers. An independent agent is like owning your own business. So let's talk about some of the other differences between captives and independent agents.

  • Salary and commission With a captive agency, you might be paid a salary or have an incentive plan that helps you financially while you are getting started. As an independent, you'll be straight commission only. Most likely, that commission will be paid as earned. This means you don't get paid until your client pays the insurance company. However, as an independent, you'll receive the total commission you earn. Captives share their commission with the agency they work with.
  • Formal training and assistance Agencies that hire captive agents may have a good training program or other agents that can mentor you. If you are and independent, you'll have to learn how to do everything on your own. 
  • Expenses Being an independent agent means you'll be responsible for paying everything. As a captive, you might have help paying for your everyday business expenses. They may even pay for the cost of your life insurance license and e&o insurance.
  • Benefits At a captive agency, you might be able to participate in benefits like retirement plans or health insurance that your agency contributes to. Independent agents on the other hand have to pay for all of that.
  • Existing clients If you are lucky, you might be handed a book of business to service if you start at a captive agency. But as an independent, you'll need to build everything from scratch.
  • Ownership Independents own their book of business whereas captive agencies own their clients not the agent. This means if you ever think you might want to go from being a captive to an independent, you most likely will have to start the new agency from scratch.
  • Control If you are an independent, you have complete control over how you want to run your business. As a captive, you surrender that control to a large degree to the agency you work for.
  • Competitive advantage I think you could argue that an independent has a competitive advantage in some cases because they can make decisions faster sometimes. They also don't have the overhead a captive agency might have. In addition, you could argue that a captive agency might have a competitive advantage if for example, they have name recognition on their side.
  • Freedom Probably the best thing about an independent agent is the freedoms it brings. As a captive, you can still have a lot of freedom, but will still have to always answer to the agency for somethings. Things like quotas, expenses and other things like who you can and cannot write business through.
Those are some of the differences I see in between captive and independent agents.

Which is Better - Captive or Independent?

Whether you choose to go as a captive or independent will be tied somewhat to your tolerance for risk. A captive might provide you with a better starting financial safety net or might teach you the business quicker than going out on your own. And if you are more risk averse that will appeal to you.

Many agents choose a captive because that's how they were introduced to the idea of being an insurance agent. Agents also might be drawn to the training programs captives have in place. Again, this would also appeal to you if you prefer an agency to help get you going. This is especially true if you need help getting appointed to insurance companies that they work with like in the property and casualty business. In the P&C business, you might not be able to get appointed to certain insurance companies without their help.

An independent agency on the other hand is appealing to those who want complete ownership and control of their operation. People with strong independent personalities and higher risk tolerance would also be better suited to going the independent route.

Which is better will also be determined a lot by your financial situation at the time you begin. It's a lot harder start as an independent with no resources although it can be done.

How I Got Started and My Experience with Captives and Being Independent

I first started with one of the big mutual insurance companies as a captive. I answered a help wanted ad and didn't really know that being independent was an option. I worked at that insurance agency for five years before going out on my own.

Once I became an independent, I still worked with another general agent. But the difference was that I was more in control of what I was doing than before. To me, having more control over how I worked with my clients made a huge difference to me personally as far as mindset.

Since I think the training programs at the big mutuals and some other captives are overrated, I'd say the hardest part of being independent is just like any other business you might start. At first it's hard because you aren't making anything and you have to build every aspect of it.

If I had to choose to start my career over again, I'd definitely be an independent agent. That's because it suits my personality better. But my advice would be, be prepared to struggle financially to begin with.

The reality of the insurance business, it's not so much how much you know about insurance as it is how many people you meet with. If you don't become an expert on how to find clients, then either is a bad idea.

Conclusion - People Buy You

In the end, your clients are really buying you. If you trust the insurance agency or companies you are working with, they will too.

Insurance is a people business. What it comes down to is that people say yes to people they want to work with. So while name recognition and training are important and might get you in the door to talking with prospects, in the end they buy you.

For that reason, I always suggest people be independent agents over captive agents all day long.

Let me know in the comments how you started and what your feelings are about which you think is better, captives or independent agents.

Saturday, August 05, 2017

Errors and Omissions Insurance for Life Insurance Agents

Once you get your insurance license, the next step is to purchase errors and omissions insurance for life insurance agents. It's also sometimes called E&O insurance. In this article, I'm going to talk about why you need to have E&O, how much you need to get as well as where you can get it and how much it cost. For the purposes of this article, I'm going to assume you are a one person shop.

What is E&O Insurance?

E&O insurance is a policy that covers the cost of legal protection in the event you make a mistake and one of your clients sues you for it. These days E&O even offers coverage for reasonable expenses in the case of a data breach of personal identifiable information. As I wrote in my article about employer sponsored identity theft protection, data breaches costs millions every single year.

Why Do I Need It?

A data breach alone is serious business and reason enough to have some E&O protection in the unlikely event it will occur. But as you probably already know, we live in a pretty litigious society and while the risk is low it is a possibility.

In addition to the risk of liability, you are going to need an E&O policy to get appointments with any insurance companies you might want to work with. Most require it these days anyway.

How Much E&O Insurance Do I Need?

Most appointments are going to require a minimum amount of E&O insurance. As I write this, it seems the minimum coverage per act most require is $1 million. You might want to consider getting at least $2 million.

How Much Does E&O Insurance Cost?

The premium for your E&O policy will depend on whether you or not you also sell variable products. If you don't sell variable products and stick to just fixed products like life and health, the annual premium at this time will probably be $600 or $700 dollars for $1 million policy. My friend who also writes variable products and has $5 million in coverage pays about $2500 per year for his at this time.

Where Do I Get E&O Coverage?

For most of my new life and health agents, one option that I give them is that's offered through Arthur J. Gallagher Risk Management Services as part of NAILBA. You can get $1 million or $2 million of coverage from them and can include variable products if you need that to be included.

They can also get your E&O policy in place pretty quickly which will help you get appointed sooner.

Some insurance companies will have E&O insurance arrangements with certain carriers if you do get appointed to them. Also, if you have a captive insurance agent contract, the contract may have an E&O policy for those that work for them which you might be added to as part of your employment.

But for independent agents, you'll want to get your own policy suited to the risks you face. There are other carriers out there besides the one I mentioned and you should check around. As a side note, I don't receive anything for suggesting the NAILBA sponsored program to you.


In today's world, you need to have errors and omissions insurance to protect yourself as you start to build your agencies book of life insurance business from scratch or if you are already established.

If you have any questions about E&O let me know in the comments. I, and my readers, would be interested in where you got your coverage and how much it costs. Plus, if you've ever had to file a claim and can share what the claim process is like, that might be interesting to hear about.

Friday, August 04, 2017

How to Get Your Life and Health Insurance License

To begin your career as a insurance agent, you have to get an insurance license. This license allows you to sell insurance and receive commission from the insurance companies you represent. In this article, I'm going to walk you through the steps you need to take to get your life and health insurance license as well as property and casualty if you want. I will also answer some of the most frequently asked questions people ask about getting licensed.

What Kind of an Insurance License Do I Need?

Different kinds of insurance require require different kinds of licenses to sell them. There are three primary types of insurance licenses that are the most common. They are:

  1. Life Insurance A life insurance license allows you to sell life insurance policies.
  2. Accident and Health An accident and health license allows you to sell other types of insurance like accident and health insurance policies.
  3. Property and Casualty (P&C) A property and casualty license allows you to sell home and auto insurance.
To get start your life insurance agency from scratch, I recommend that you go ahead and get your life, accident and health license right from the start. If you are interested in selling home and auto insurance, then you'll want to get your property and casualty license. 

I personally have all three but never use my property and casualty license.

What's the Difference Between a Resident and Nonresident Insurance License?

Before we begin going through the steps you need to take to get your license, you need to know that insurance licenses are handled at the state level in the United States. If you want to sell life insurance in a particular state, you have to be licensed in that state first.

You have to get licensed in the state you live in first before you can get licensed in other states that you don't live in. Here's how both licenses work:

  • Resident insurance license A resident insurance license allows you to conduct insurance business in the state you live in. It is issued by the department of insurance in the state in which you live. If you don't conduct any business outside of your state, it could be that you will never need the next type of license.
  • Non-resident insurance license A non-resident insurance license allows you to conduct insurance business in the other states you do not live in. It is issued by the department of insurance in those states. In order to obtain a non-resident insurance license in any state, you must have a resident license in the state you live in first. 

While your resident license requires several steps, the nice thing is that once you obtain your residence license, getting your nonresident licenses in other states is basically just paying a fee and filling out some paperwork for that state.

Alright. Now that you know what kind of license you need and that you have to have a resident license first, let's walk you through exactly what you have to do to get that resident insurance license.

Step 1: Visit the Department of Insurance Website for the State You Live In

In my case, I live in Indiana and so I want to go the Indiana Department of Insurance website. I found the website I needed by going to Google and typing in "Indiana department of insurance". Just substitute whatever state you live in for "Indiana." Chances are you'll see a link to your state's department of insurance will be one the first listing in the search results.

Once on the department of insurance website, I located a link for "licensing" and then looked for information on resident licensing. This took me to a page that had several sections on it that had all of the information and requirements needed to get a resident license.

Step 2: Complete the Pre-Licensing Requirements

The next step is to figure out what requirements you need to complete in order to get your license. Usually this is some sort of education that you can do by going to class or studying on your own online. The companies that provide this education need to be approved by the insurance department.

In Indiana's case, they list the requirements on a website called I looked through a few of them and looked for one that offered online courses through webinars. That would be important to me as it probably would be to a lot of people because it's a lot easier to fit into your schedule. But if going to class is your preferred method of study, be sure and look for approved providers who offer in person classes instead.

There were a lot of providers but I found one that I liked called Because I got my license many, many years ago, I can't say personally how good it is. I have had other people tell me it is ok. When I did mine I actually went to a week long class.

As I mentioned above, you want to take the Life and Health insurance pre-licensing.

After you've completed the required pre-licensing courses, you'll be ready for the next step.

Step 3: Take and Pass Your Insurance Exam

Now you are ready to take your exam. Just like the courses had to be offered by approved providers, the exams are also only given by those approved by your state.

If you chose a good provider for your course work before the exam, you should be prepared and be able to pass the test.

I use to always joke with new agents that no one with the firm had ever failed the licensing exam. I did this because of the movie The Firm with Tom Cruise. Before he took the bar exam, all of the associates of the firm came by and reminded him no one with the firm had ever failed it.

The test use to be pass fail in my state back in the 1990's when I took it. I found out immediately after I took it if I passed. If you don't pass, then you can take it again after a set amount of time.

Once you pass your exam, you are nearly there and ready to take the next step.

Here's a video I did about the process if you want to watch it as well as read the rest of my instructions.

Step 4: Submit Your License Application to the Department of Insurance and Pay Your Licensing Fee

Once you pass, you'll go back to your department of insurance website to apply for your license. You'll have to submit your pre-licensing requirements along with the licensing fee. Most of this is done electronically these days.

After a short period of time, and a few dollars later, you'll be legal in the eyes of the department of insurance and can now get legally get paid commission from insurance companies

Congratulations! But you aren't finished yet. There's one final important thing to remember.

Step 5: Follow the Law, Complete Your Continuing Education Requirements and Renew Your License When Required

Each agent is responsible for follow the insurance laws in the states you are licensed in. Those vary by state. Your home state usually requires you to complete so many hours of continuing education every year or two. That education carries over to non-resident states as far as I know.

You don't want to skip the continuing education requirement or forget to renew your license. I know one agent who forgot to renew his license and continued to write insurance after his license expired. He was disciplined by the department of insurance, put on probation and had to pay a hefty fine. Now every time he applies for a non-resident license, it's a huge hassle to document what happened to that state's satisfaction.

How Much Will It Cost Me to Get Licensed?

To get your licensing completed, besides the time you need to invest in completing the steps, you can expect to pay between $300 to $500 to your life and health insurance license.

How much exactly will depend on the fees in your state and whether you take classes instead of self study.

Here's a short breakdown for Indiana to give you an example.

  • Pre-licensing $150 self study
  • Exam $50-$100
  • License fee $40

To get a better idea, just check out the resources I mentioned above from your state's department of insurance website.

Should I Take Classes in Person or Self Study?

This is a tough one. In general, if you retain things easily and are a good test taker, you won't have any problem getting licensed and self study might work for you. However, if it's harder for you to retain stuff, then in person sessions might be a better way for you to go.

I will say the nice thing about in person classes is if you have a good instructor, they'll make sure you know what you need to know to pass.

Remember, all you have to do is pass. After you pass no one thinks about it anymore or remembers what you got.

As far as how hard the tests are, I'd say the P&C exam is little tougher than the life and health exams if you decide to take it but there's no reason you can't pass it.

Will I Know Everything I Need to Know to Be a Successful Life Insurance Agent After I Am Licensed?

Unfortunately, the study you do for the exam helps you to pass the exam. And while it's definitely important, the licensing process doesn't teach you what you need to know to be successful agent. The real learning starts once you are licensed.


The steps involved in becoming an independent insurance agent are really easy and are pretty similar from state to state. It just takes a little bit of time, a little bit of studying and a few hundred dollars.

Once licensed in your home state as a resident agent, you can then apply to be a non-resident insurance agent in state in the country. I know I'm licensed in double digit states and have worked all across the country over the years.

You can eventually too. After you follow these steps to begin your journey as an agent, you'll be well on your way.

If you have any problems, remember you can always call your the department of insurance and they will be glad to help.

Let me know if you if you pass your exams and what your experience was like in the comments. Also let me know if you have any questions!

Good luck!