Have Bad Credit? It’s Still Possible to Become a Licensed Insurance Broker
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
If you have bad credit, you can still get an insurance broker bond by going through a bad credit program. If you do, you can expect your surety bond cost to be higher than if your credit was good. When a bond company conducts the underwriting process to evaluate your risk factors and decides to approve your application, it will give you a quote for the bond premium you will have to pay. If your credit is good, you can expect to receive a quote for a low premium of as little as 1% of the bond amount you are required to post.
Bad credit bond programs provide bonds to applicants with poor credit. They will have to pay a higher premium of up to 10% or more to secure their bonds. For example, many states require insurance brokers to post bonds of between $10,000 and $20,000. If you have good credit, you might anticipate paying a premium of $100 to $200 at a 1% quote. If you have to go through a bad credit program, the same bond might require you to pay a premium of $1,000 to $2,000.
However, your bond will need to be renewed. If you improve your credit and avoid bond claims, you might anticipate receiving better bond 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.
