Have Bad Credit? It’s Still Possible to Become a Licensed Insurance Broker

Becoming a licensed insurance broker can open new horizons. However, if you have bad credit, you might wonder whether obtaining your license to work as an insurance broker in your state is possible. Each state has licensing requirements with which you will need to comply. Fortunately, it is not impossible to obtain your insurance broker license even if your credit is poor. Here is some information about the process and what to expect.

Insurance Broker vs. Insurance Agent

The first thing to understand is the difference between an insurance broker and an insurance agent. Insurance agents represent insurance companies and earn commissions by selling the companies’ policies. They help customers obtain the right coverage while representing the insurance company under an agency agreement that defines the policy types the agent is authorized to sell and their associated commission rates. Insurance agents can be captive agents or independent agents. Captive agents typically only represent one insurer, and independent agents might represent multiple insurers. Insurance brokers represent customers instead of insurance companies. They help their customers find different types of coverage and might sell policies from multiple insurers.

Unlike agents, their primary duty is owed to the customer instead of the insurance company. Brokers might assess a customer’s needs and search for the best policies at the right price from multiple insurance companies. Brokers earn money through broker fees, which are percentages of the policies they sell. Since they don’t represent an insurance company, brokers can make recommendations based on their client’s needs rather than the insurance company’s best interests. Both insurance agents and brokers are required to obtain licenses in most states. Here’s the process of getting an insurance broker’s license with bad credit.

1. Understand Your State’s Requirements

The requirements for insurance brokers vary from state to state. The first step to becoming a licensed insurance broker is to check your state’s requirements. You can search for your state’s requirements for the lines of insurance you would like to sell on the National Insurance Producer Registry (NIPR). In some states, insurance brokers are referred to as producers and must obtain a producer’s license instead of a broker’s license.

2. Complete Your Pre-Licensing Requirements

Before you apply for a license, you will need to complete all of the pre-licensing requirements. These can vary from state to state. The following are common requirements in most states; however:

• Take pre-licensing courses
• Submit fingerprints for a criminal background check if required in your state
• Take and pass the licensing exams required for the lines of insurance you wish to sell

Once you complete these steps, you will have a deadline for obtaining your insurance broker’s license, so you should submit your application immediately. You will need to pay fees for each pre-licensing requirement and application fee, so you should make sure you know what they are.

3. Apply for an Insurance Broker Bond

In most states, you will need to secure an insurance broker bond as a condition of obtaining your license to lawfully operate as an insurance broker. This is a surety bond that involves the following parties:

• Principal – Insurance broker required to obtain a broker bond
• Obligee – State department of insurance requiring the bond
• Surety – Bond company issuing the bond to guarantee the broker will follow the law and engage in ethical business practices

When the surety approves a bond application, it guarantees the broker will comply with the terms of the bond and the laws of the state. If the broker engages in misconduct, the party that was harmed can file a claim against the bond. While the surety will pay a valid claim, the insurance broker will be legally required to reimburse the surety in full.

Insurance broker bonds are not insurance and do not protect brokers against claims. Instead, they protect consumers from potential misconduct. When a surety approves a bond application, it extends a form of credit to the broker based on potential bond claims. For this reason, bond applications undergo underwriting so the surety company can evaluate the risk it would face by approving the bond application.

Surety companies consider multiple factors when evaluating a bond application, including the potential broker’s credit history, financial stability, assets, reputation, and others. Securing a bond is the main issue for would-be insurance brokers with bad credit. While some bond companies won’t underwrite surety bonds for applicants with bad credit, others offer bad credit programs through which a broker can obtain a bond so that they can get licensed.

4. Go Through a Bad Credit Surety Bond Program

In the realm of surety bonds, even individuals with less-than-ideal credit can secure coverage through a specialized avenue known as a bad credit program. Understandably, this route comes with its nuances, particularly in terms of cost. When assessing your risk profile, bond companies typically offer a quote for the premium based on various factors, with credit being a significant determinant. For those boasting good credit, premiums as low as 1% of the required bond amount are common.

However, for those venturing into the territory of bad credit bond programs, the landscape shifts. Premiums can surge to 10% or more, reflecting the perceived higher risk associated with poor credit. To put this into perspective, consider state requirements for insurance brokers, often falling within the $10,000 to $20,000 range. While those with good credit might secure a bond with a premium as modest as $100 to $200 (at a 1% quote), the same bond, under a bad credit program, could command a premium of $1,000 to $2,000.

It’s worth noting that bond renewal is a recurring necessity. However, demonstrating credit improvement and steering clear of bond claims can pave the way for better rates in the future.

5. Submit Your Insurance Broker License Application

Once you have completed all of the pre-licensing requirements and have secured a bond, you will need to submit your application. You will need to submit certificates showing you passed your exams and completed your classes. You will also need to ensure the bond company sends a bond form to the state showing you have met the bonding requirement. Finally, you’ll need to submit application fees for your license.

While it can be more expensive to become a licensed insurance broker as someone who has bad credit, it is not impossible. If you work to improve your credit after you post your bond, you might enjoy better rates when it is time to renew your bond and your license. When you operate your brokerage, make sure to always comply with the law and the conditions of your bond to facilitate the success of your business.