Why you probably shouldn’t buy a life insurance policy from a captive agent

Published by thegulguy on


So full disclosure, I was introduced into the world of insurance by a recruiter at New York Life for my first job out of college.  It was a less than ideal experience.

There are over 800 companies that sell life insurance in one form or another in the United States (which is a pretty crazy number when you think about it) Most companies will let any licensed agent sign on for them – you send policies their way, and they pay you when the consumer completes the purchase – simple enough to understand.

Some life insurance companies however, require that an agent sign on exclusively with that company.  In return, they get training and potentially some start up marketing or a stipend to help them pay rent in the first year or so.

These companies are probably familiar to you – New York Life, Northwest Mutual, MetLife, Guardian, State Farm.  They tend to be old line companies that have been around forever and own impressive Art Deco buildings in the city.

How they work

New York Life and the rest tend to recruit aggressively out of college, but their primary requirement for employment is usually the ability to fog a mirror.  Life insurance is not an easy product to sell (ask me how I know) so the turnover rate is extremely high. The average life insurance agent’s tenure at those places tends to be under two years.  

Because the agent’s livelihood is based on entirely on commissions you make. (the stipend I mentioned earlier on goes to those who already placing cases) If you can’t put meat on the table, you don’t get paid.

I can attest that doing work and not getting paid for it is one of the worst feelings in the world! Doing it for months at a time is simply spirit breaking – and provides a quick exit which happens to many agents.  I believe the turnover rate has increased to 93% of life insurance agents that don’t survive their first 3 years.

Most Agents are inexperienced

The numbers are so bad that I believe that average licensed agent has sold only two policies in their lifetime.  The next time you are at the bar, ask around – I bet someone within 10 feet has probably held a life insurance license at some point in their life!

At the captive life insurance company though, all is going as designed. The 7% who survived easily pay for the recruiting, licensing, and paperwork expenses that non-successful agents cost. As you’ll see later, it’s because the policies they offer are overpriced and hard to qualify for.

Because of this, if you run into a captive. agent, chances are you could very well their guinea pig! They hopefully know their own products decently, but it doesn’t hurt to assume they probably don’t know how to recommend the appropriate product for you.

They focus on whole life

All of the major life insurance companies I listed earlier focus heavily on permanent life insurance, especially whole life (Metlife is somewhat excluded from this critique).  It is their bread and butter – they are structured from top to bottom to sell these policies and they prefer to keep it that way.

To drive this point home, just look at the commission structure for the agent on all of these places.  If an agent can sell their permanent products at a decent clip, they get plenty of trips, recurring income, and stability.

But, if you’re an agent at one of these companies selling mostly term, you won’t get any of that. The only thing you really have going for you is a list of people with term policies that you are going to have to try and convert to whole life next year.

Did I mention that all of their term policies have a free conservation rider because again, the point is to sell as much whole life as possible.

Agents who mainly sell online don’t have the same pressures. You certainly have to keep getting cases in to put food on the table, but many agents out there are doing just fine selling mostly term or nearly all term.  

I think that there are definitely some valid reasons to spend more for the permanent insurance (and this blog tries to address some of their best use cases), but in most cases the middle class American is better off with a term policy to cover their working years and plenty of cash in the bank and nothing to pay off by the time they retire. (this used to be more true than it is now)

They have few choices

Anytime time a potential buyer says they were talking to a Northwestern or NYL agent I know I have a huge competitive  advantage. Agents who are stuck at a captive agency are also stuck with one product that tends to be pricey for what it does (remember, someone has to pay for the expenses of all the failed agents)

As an indpendant agent, I can give you several different choices depending on your prefrences:

Want the absolute cheapest policy out there from me? Most of the time that’s gonna be a Banner policy, though I generally urge you spend an extra couple of bucks for Protective.

The NYL agent has to offer his uncompetitive New York Life policy.

Want a non-med that mostly will issue within 24 hours?  Well a lot of the time you’re best off with Sagicor.

Want a non-med but with all the bells and whistles and riders that allow you to use the policy if you suffer a heart attack and need  help getting back to work? That’s gonna be Phoenix Life or Forester’s.

Again, The only thing the NYL agent can offer you is the same NYL term policy.

They have strict underwriting

This is sort of a behind the scenes look, but in my experience, the underwriting is strict at most captive places.

The companies that sign independant agents know that they are always in competition – if let’s say Mutual of Omaha (this is just an example) wants to rate everyone who’s ever had a little high blood pressure into a worse category – well they can’t because indie agents would quickly stop recommending their policies.  

Agents are the last people in the world who want to come back with, “Well we talked about $40 a month but the insurance company priced you at $84/mo – so do you want to pay by credit card???”

Captive agents don’t have that luxury – they are stuck with the underwriting team they signed up for. This is another area that offsets their high turnover. By keeping the insured group relatively healthier than other companies, the big captive agencies can reduce the amount of life insurance that actually pays out – and sending less out allows the company to keep more. 

The best agents become recruiters

Do you know what happens to the few agents that do manage to run this gauntlet of no experience, limited selection, and whole life focus?

They become recruiters!

That’s right, do well at any of these companies and you can now focus on building a team of people to sell insurance instead of having to do the dirty work themselves!  

When your agent is more focused on recruiting new people to the business than actually becoming more knowledgeable about the business, you are the one who is getting shortchanged.

Still Looking for A Captive Agent?

That’s fine – you might have a friend or old colleague who just got into the industry- you’ll know because they’ll tell you !  A brand new insurance agent is highly encouraged to solicit friends and family (it’s a part of their formal training)

I’m just recommending you meet with an indie agent to get a second opinion. Maybe they’ve  got a great policy for you that ends up being only $5 more a month than an independent agent’s policy – but what if it’s $50 a month cheaper?

You simply won’t know until you meet with someone who has all of products, and all of the knowledge to find the best policy for you!