Captive - Independent?
What matters and what doesn't. All about what Captive Insurance agents really think about Independents.
Did you know that there are two different types of insurance agents?
Want to learn how you can save hundreds on your life insurance bill?
Insurance is complicated business, needlessly complicated often times. There is lots to know and many wrong turns clients can take. Learn to ask the right questions of your insurance agent to ensure your family is properly cared for.
One quick easy definition before we get started. A captive agent is defined as being an insurance agent that is only able to sell with one insurance carrier or one group of insurance carriers. An Independent which is an insurance agent that is able to work with more than one insurance company.
First thing a Captive Agent Might Say About Working with an Independent.
"They Can't Bundle Your Discounts"
Bundling, or stacking discounts on one form of insurance onto another is a great little trick of the insurance trade. Too often than not though - it does not make mathematical sense. Bundling, which is most often done successfully with Home and Auto Insurance - can occasionally be done with life insurance as well.
However, in order for bundling to be a real consideration, the numbers must add up. Lets start off with how the discount calculation works?
- What is the discount percentage?
- What does it get taken off of? Home, Auto, Umbrella, Life, etc?
- Does it come off the whole premium or just a portion?
- How does your term life rates compare with the open market?
Having run the numbers for clients numerous times - generally I can advise you of the following:
- The Auto/Home/Umbrella Discount often makes good financial sense. Not always.
- The Life Discount is rarely a great deal. However if you are in the market for a low dollar life insurance policy it can make good sense.
- It can not hurt to find out what a life insurance policy costs with your home insurer, however don't let them sell you into a form of life insurance, such as whole life, that you did not want originally.
- Very few captive agents can describe to you how their discounting program works.
- Captive home insurers, such as State Farm, rarely are competitive with term life products in comparison to the open market.
- Captive Life Insurance companies, such as New York Life, also are rarely competitive in the open independent term life insurance market.
The Biggest Discount of All:
The good news for independent insurance agents though is that they are able to offer you the biggest discount of all: "The Lowest Price." In other words, who cares what the discount is...if the final overall price is lower.
First off, Independent Insurance Agents are allowed to be client focused and work with you on what you need and not what we want you to need. Second, by shopping the open market - we can usually save you lots of money over the Captive Insurance Companies.
Second thing a Captive Agent Might Say About Working with an Independent.
"But my Insurance Company has been around for 140 years."
This is an old claim that captive insurance agents like to make. They represent an old storied name brand and that is indeed honorable. But what that has to do with independent agents I cannot say.
First off, why does the age, at least beyond 40 or 50 years - matter about the insurance carrier? In other words why is an older insurance company better than a middle aged one?
According to Wikipedia, the oldest bank in the world is Banca Monte del Paschi de Sienna. Founded in 1472. Does that sound like an appetizing place to put your money? According to the Wall Street Journal, the European Union created an almost $10 Billion Dollar rescue package to protect the bank.
"The European Commission has cleared the way for the multi billion-dollar government rescue of one of Italy’s biggest and most fragile banks by approving a restructuring plan for the troubled lender."
A good recommendation: Check with both a Captive and Independent.
Side Note Here: Independent Insurance Agents can also work with 140 year old companies. 140 year old companies are not necessarily exclusive to captive agencies.
Third thing a Captive Agent Might Say About Working with an Independent.
"They are Commoditizing Insurance"
The fear of life insurance agents commiditizing insurance is comical and silly.
The general idea is that agents that take a necessity such as life insurance and bring it down to a more fully financial and comparative decision - are somehow hurting their clients.
Term life insurance is needed, and need by the vast majority of Americans, yet only a small fraction buy it. There is absolutely nothing wrong with assisting clients in comparing and contrasting similar life insurance products based on various financial pieces of information. One of which happens to be the price. The other financial considerations being the Financial Strength Rating, the benefit amount, and the client's financial needs.
"Oh My Gosh they are commiditizing Insurance" Said the Captive Agent about the Independent. //wholevstermlifeinsurance/about
Making insurance more into a commodity may be potentially one of the best ways to get more people to buy it. Isn't the home buying process somewhat commiditzed?
And by the way if insurance was not already some form of a commodity than why all the boiler plate language in the documents? Honestly when was the last time you read any policy language and thought to yourself, wow this is so original. Its not. Insurance and life insurance specifically became a commodity long long ago.
The World of Life Insurance is Complex, Don't Get Lost.
Fourth thing a Captive Agent Might Say About Working with an Independent.
"Yes, but we are a 100 on the Comdex."
The Comdex is an aggregated form of Financial Strength Ratings that uses multiple ratings agencies and combines their totals, basically. Technically its not quite that simple, but in reality thats what average consumers probably needs to know.
Basically the few 100 comdex companies are generally the captive insurance carriers. So when an agent says we are a 100 on the Comdex they are implying that all the companies out there that are just 99 and 98s are somehow terrible companies.
This argument does have a kernel of truth to it, but its over stated. The comdex probably is slightly more important for Whole Life Insurance vs Term Life Insurance. Nonetheless, worrying about the exact score is not a great idea.
What is a Financial Strength Rating? Simply put its a Credit Rating Agencies measurement of a given insurer's ability to meet and satisfy its claims, both current and expected. Financial Strength Ratings Should Not be confused with Credit Ratings.
For consumers purchasing Term Life Insurance, which is the generally suggested life insurance policy for most Americans, worrying about the differences between a 100 on the Comdex and a 98 seems almost silly. I take a bit of an issue with the way that the Comdex compiles scores. But if you are buying the typical 20 year term, I have trouble imagining worrying about any score above a 85.
A good recommendation: Always Check a Financial Strength Rating every time you purchase any form of insurance.
For consumers that after reading all the negative press still feel like they are interested in a Whole Life policy, then I would advise you to look for a slightly higher comdex score. But focusing on the 100 score will potentially leave you without a few of the best options. TIAA CREF, which is usually not available to the independent channel is one of the best life insurance companies out there. So would you bail on them because they have a 99 vs a 100?
Fifth thing a Captive Agent Might Say About Working with an Independent.
"They aren't backed by the insurance company."
The definition of the word independent - might give this away. Independent agents and independent agencies are not run by the insurance company. However the life insurance policy that you buy will indeed be backed by the insurance company just as if you purchased it from a captive insurance agent.
There really is very little difference in the end. This brings me to the belief that many captive insurance agents do not really understand how an independent agency even works.
Let me explain. Independent Insurance agents have appointments with insurance companies, just as the captive does. The main difference is that the independent is not bound to have only the one appointment but can have dozens and dozens of company appointments.
Sixth thing a Captive Agent Might Say About Working with an Independent.
I have a CXY degree in Insurance, do they?
Many captive insurance agents are inclined to acquire various professional designations. Some of these designations are insurance based while others, such as the CPA, and CFP are more specific to other areas of personal finance. These designations, they believe, make them seem more credible in the eyes of the consumer.
But - this can be an illusion.
Professional designations, in my opinion all stem from either the legal lawyer type designations or physician - AKA doctor type designations - whereby the Dr. has a professional responsibility for your overall health and not just to sell you overpriced items.
A good recommendation: Check your State Insurance Regulators Page.
Sadly this is not the case with some insurance designations. Most professional insurance designations are more based on professional knowledge rather than duty binding the professional to the client. Consider asking your agent if their professional designation creates a "Fiduciary" vs a "Suitability Standard."
This is not to say that a professional designation is in any way a bad thing. It is a wise and noble cause. However - do not assume that a professional insurance designation is putting you in the hands of some caring doctor, because it is not.
I know of No professional insurance designation that has yet prohibited insurance agents from mis-selling over priced antiquated whole life insurance policies to average Americans that cannot afford them long term.
Here is my commitment to you: "I won't sell you an overpriced life insurance product that you neither need nor want."
Seveneth thing a Captive Agent Might Say About Working with an Independent.
"But they Don't Know their Product As Well"
This claim falls into the "Jack of All Trades - Master of None" argument. But wait how different is a term life policy from company A vs company B?
There is of course a strong counter argument to be made. Is a baseball player that served on two teams somehow less competent because of his past? Or is he considered more experienced?
Why would an insurance agent that has worked with 50 companies be less desired than one that only works with one?
It may very well be the case that an independent agent may indeed not know all of the underwriting notes of a given one insurance company as well as the captive insurance agent does. However, isnt that why we have notebooks, computers, spreadsheets, and...phones?
After all do you really believe that an independent insurance broker can't assist you with deciding which life insurance settlement option to use in the case of a life claim?
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