How to Open an Insurance Brokerage

If you open an insurance brokerage, you get a contract with several companies to sell their business. You can provide products from the companies for other reps and be a general agent, or simply use the products to write your own clients. There are drawbacks, such as providing your own health insurance, office and employer's side of FICA. However, you will also make larger commissions and deduct the business expenses on taxes while you still get the standard deduction on your personal taxes, a huge savings at tax time.

Things You'll Need

• Insurance licenses
• Errors & omissions insurance
• Car
• File cabinets
• Website
• Dedicated phone line
• Premium-only checking account

Instructions

1. Work for someone to get experience. The insurance industry requires a lot of training and hard work. You need to either start very small and keep a second job on the side, or use the training and financial backing of a large company. You need licensing for the products you intend to sell, a reliable vehicle if you meet people in their home or business, or an office from which to sell. Most brokers either buy an existing brokerage or begin under the wings of a large company. If you sell online, you need a license for your state and a reciprocal license in all the states where you write business. Other states normally just require a copy of your state licenses, an application and a fee.

2. Purchase errors and omissions insurance, or E&O insurance. Large companies either carry it for their reps or self-insure. This insurance protects you if you make an error that costs a client money, or if one decides that his error in purchasing the wrong coverage was yours.

3. Find companies that offer the products you want to sell. As a broker, you represent the customer rather than the company, so get products from quality companies that offer competitive prices. Don't select a company based on the rate of commission unless all other factors are the same. If you worked for a large company and this is your flight to independence, you'll find that normally your old company offers the same products through the brokerage side of the house.

4. Open a premium-only checking account. No matter what state you reside, commingling funds business and personal funds is against insurance law. You need a business account for the premiums that you use for nothing else.

5. Select an office if you're setting up a storefront. Sometimes people start a brokerage from their home because they go to the customer, such as those that sell employee benefits or have an Internet production base. Often property and casualty agents sell from a storefront office to make it easier for their clients. Regardless of the method you select, you'll need a computer, separate office phone, printer, office supplies and file cabinets. If you sell online, you'll need to build a website.

6. Decide how you're going to find your customers. With the introduction of the "no call" list, telephone prospecting is more difficult for the independent broker. If you have an Internet-based brokerage, use an article-writing services to draw people to your site. Direct-mail services are also available for any type of business setting. Cold-calling on businesses is another method of reaching the people that you want to sell. Always ask for referrals if you do business in person.

7. Keep a regular schedule. The hardest part of being an insurance broker is keeping motivated and profitably active. Schedule all the activities you need to accomplish so that you don't miss any or take too many "vacation days." Track your expenses and profits. No matter how small you are, you still need to pay taxes, and that requires an proper set of books.