What is a Captive Insurance Agent

A captive insurance agent is an agent who works for one insurance company. Some examples of captive insurance agents are State Farm, Allstate, American Family, and Farmers. All captive insurance agents have one thing in common; they can only place business with one insurance company, the company they represent.

As a consumer working with a captive agent brings many disadvantages, the most prominent being, they can only compare rates from one insurance company on your behalf. Working with a captive agent is a significant concern if you are a consumer who likes to compare prices from several carriers before you make a buying decision.

Let’s dig in deeper to the disadvantages and a real-life case study.

You Don’t Want a Captive Insurance Agent

When preparing to purchase life insurance, it seems like the natural next step is to meet with an insurance agent.

With all of those tremendous and entertaining ads that we see on TV for companies like American Family (insuring your dreams), State Farm (like a good neighbor), Allstate (are you in good hands), and Nationwide (on your side), it’s easy to see why people would lean towards going with a “captive” agent that represents these companies.

But unfortunately, doing so could be a big mistake. The last error we fixed for a State Farm customer was a $350,000 mistake.

Fixing a $350,000 Mistake

One of our clients – a non-smoking 34-year-old male, who was in excellent health was currently paying $24.38 per month for a 20-year term policy that offered a $250,000 death benefit with State Farm. Only looking at just one quote, you may think that’s not a bad deal – a quarter million dollars in coverage for under $25 per month.

But, by working with us, here’s what we found for this very same client. For $25.55 per month – just barely a dollar more each month – we secured him a 20-year term life insurance policy with $600,000 in term life coverage. Our plan provided him with $350,000 in additional benefit – more than double what he was already getting – for practically the very same premium. Just imagine how much better shape his family will be in with an additional $350,000 in the event this policy is ever needed.

What’s the Difference? Plenty!

Although many people may not be aware of it, the truth is that there is a big difference between captive agents and independent insurance agents and brokers.

For example, a captive agent will represent only one insurance carrier, and therefore, he or she is only able to sell the products and coverage from that one particular company.

On the other hand, an independent agent or broker can offer the products and coverage from many different insurance carriers. This way, they can provide you with different options and prices, and primarily find what works the best for you and your specific needs.

Think about it this way – would you instead go shopping at a grocery store that only sells one brand, flavor, and size of “cheese” – and likewise, charges whatever it wants to charge?

Or, would it be better to shop where you can choose the type of cheese that a particular recipe calls for – in the amount that you need – along with having competing brands and differing price points for you to choose from.

Choice May Get You Covered for Less

Frequently, by having access to multiple insurance companies, an independent agent is more likely to find coverage for someone who may otherwise be declined for a policy. For instance, being a captive Farmers agent for ten years, I know just how strict their underwriting guidelines can be.

I also know that other significant insurers may approve applicants who have the very same or similar health issues. In fact, in some cases, these individuals could even be offered preferred premium rates at other carriers, rather than being declined or provided sub-standard premium prices.

Besides, because of the many choices that an independent insurance agent can offer, you can increase the chance that you’ll find the coverage that you need for less.

In looking at the case of a non-smoker male, age 37, which of the following appears to be the better rate for $500,000 in term life insurance coverage – $73.04 per month, or $24.85?

 

The truth is in the numbers. Look at our best rates versus the competition.

Male Non Smoker Best Rate Class age 37

20 Year Term$100,000$250,000$500,000$1,000,000
Local Life Agents$10.30$15.22$24.85$43.76
State Farm$16.30$23.93$37.00$60.05
Farmers$28.35$34.56$56.85$100.18
All StateNA on site$40.92$73.04$NA on site

 

By having access to numerous carriers, independent agents are much better able to serve clients’ needs in terms of coverage than a captive insurance agent – and the premium prices that you pay.