How Much Does It Cost to Become an Insurance Agent?

By Jonathan Decker

Insurance agents enjoy many job perks, including flexibility, steady income growth, job security, and work freedom. They also get the satisfaction and reward that comes from directly impacting others’ lives. However, before they can achieve this, they must first make some investments to succeed.

The cost of becoming an insurance agent varies by state. Some are tangible, and others take time to accumulate. The following information can help anyone who asks, “How much money do I need to save to become an insurance agent?”

Before starting, they should consider what type of insurance they want to sell. The primary options are an accident and health insurance license, life insurance, personal lines insurance, or a property and casualty license. Many agents start with one and work into the other once they have a steady client base. For the basic introductory process, the following information reflects the cost of becoming a basic property and casualty agent.

Cost of Education

An insurance agent must first have a high school diploma or GED. While a college degree isn’t necessary, it creates a solid foundation for a business. The average bachelor’s degree in the U.S. ultimately costs $9,000 a year for tuition only, though the cost widely varies by state and university. This puts a bachelor’s degree in the $36,000-$45,000 total range just for tuition, with many students spending upwards of $100,000 for the total cost of education when they factor in room and board, books, fees and more. On the other hand, many agents pursue an associate’s degree where the average annual cost is closer to $3,500 a year and typically commute to college. Several associate degrees align with a career in insurance, such as an Associate in Science in Business Administration – Risk Management & Insurance, an Associate of Applied Business Degree in Insurance, or an Associate in Applied Science (AAS) in Risk Management and Insurance.

Consider the options and determine what makes the most sense for you and your family. Unless a degree is needed for a specific type of insurance, some agents may be better off focusing on other investments.

The other option is to obtain a license through your state. This includes a minimum of 90 credit hours of pre-licensing courses for property and casualty insurance. The cost varies slightly from state to state, but a basic course ranges anywhere from $50 to $250.

Cost of Licensure

Anyone who wants an insurance license must pay a licensing exam fee, a fingerprinting/background check fee, and a license application fee. The costs of licensing vary greatly by state, so it’s important to check the state the agent plans to work in. For these purposes, we’ll compare the costs in Alabama, Massachusetts and South Dakota. The licensing exam fee is as follows:

• Alabama: $75
• Massachusetts: $49
• South Dakota: $95

Fingerprinting and background checks are sometimes included in the application fee, but the example states charge the following:

• Alabama: $48.25
• Massachusetts: Included in application fee
• South Dakota: Included in application fee

Next is the license application fee.

• Alabama: $80
• Massachusetts: $300
• South Dakota: $25

Costs swing rapidly between states. For example, obtaining a license in Alabama would cost $203.25, in Massachusetts, $349 and in South Dakota, $120.

In many states, agents can re-take the test for a small fee if they fail the first time. Once the license is obtained, it must be renewed within the period designated by the state. Most states require some type of continuing education and re-licensure every two to three years.

Cost of Supplies

Once you are a licensed agent, it’s time to start purchasing supplies and figuring out where you’ll be operating your business. Many agents work from home, which can be a significant cost savings, avoiding the costs related to renting an office space and commuting. That being said, renting an office space could be in your best interest if you want a dedicated location outside your home to work and meet with clients. The following is an example of what it costs to set up a small agency in a rural area – rent and associated costs typically rise if you set up your business in a medium or large-sized city:

• Basic equipment like printers, furniture, and computers: $2,500 - $5,000
• Lease deposit and minor renovations: $3,000 - $6,000
• Marketing and advertising, business cards, and flyers: $1,000 - $2,000
• Emergency fund and initial operating costs: $4,000 - $8,000

Marketing and branding are also important to establishing a solid customer base, so be sure to consider these costs when starting up. For independent agents working from home, you can likely bring the cost of supplies closer to $3,500 – $5,000, in addition to your licensing, appointments, training, exams and other cost considerations.

Time Cost

Becoming an insurance agent isn’t easy. It’s something that can be done on the side while the person works a full-time job, but that extends the licensing and set-up process. Some questions potential agents should ask themselves include the following:

• How much money do I need to save to become an insurance agent?
• How long will it be before money comes in from the agency?
• Do I have a buffer in case the process takes longer than expected?

Cost of Getting Appointed

These costs vary based on whether the agent is a captive or independent. Captive agents only work with one carrier, while independent agents can shop through various carriers.

Captive agents normally purchase a “book” of customers upfront from the carrier, creating an immediate stream of income. Even with this expense, the overall costs of becoming a captive agent are typically low. There are plenty of benefits of being captive, including access to training and resources, plus extensive marketing conducted by your appointed company. That being said, the commission rate is lower for captive agents when compared to independent agents. Captive agents receive a salary plus benefits on top of their commission, which can help make up the difference.

• Pros: Far easier and affordable startup, immediate stream of business, accessible training and resources, salary plus benefits, marketing from carrier
• Cons: Lower commission rate, less flexibility with work hours and office location/work from home, limited to captive carrier options with no ability to sell outside

For independent agents, it can take longer to build up a book of business. The benefit to being an independent agent is that you can shop around and find cheaper options to attract and retain customers, leading to significant growth since your options are more diverse. You’ll be on your own when it comes to acquiring leads, but the possibilities for growth are far less limited than what you may experience as a captive agent. Your commission rates will be higher, though you won’t receive benefits or an annual salary for your work. You’ll be your own boss as an independent agent, permitting you to work when and where you want. For some, you can consider working in insurance part-time while having another part-time or full-time gig with salary and benefits.

• Pros: Much higher earning and growth potential, flexibility with your work schedule and work location, ability to get appointed with various carriers to provide better or preferred options to help close sales
• Cons: No salary or benefits, no guaranteed stream of leads, higher startup costs and effort, starting a business from scratch can be tedious

Understanding the Overall Cost

As we’ve covered, the cost of becoming an insurance can vary significantly. For some, eliminating overhead and education costs can allow you to get started in the insurance industry for as little as $5,000. To get educated, appointed and licensed, set up an agency, and have enough capital to support an agent through several months of business building, agents could potentially spend anywhere from $30,000 to $50,000. Though your costs and results will vary, you could be one of the many who find success in the insurance industry. Get in touch with other agents, friends or family in the industry, and look to develop a roadmap to help you pave a path to success.

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