The life insurance industry distributes life insurance polices through two distinct channels; captive agents and brokers. Captive agents are life insurance advisors who work with one company exclusively. In Canada the primary companies using captive agents are Manulife, Sun Life, Freedom 55 Financial (London Life / Canada Life / Great West Life) and Co-operators. Brokers instead are tied to a large ‘wholesaler’ type of insurance agency known as a Managing General Agency (MGA). These MGA’s act as an interface between independent life insurance brokers and a large variety of life insurance companies. Life insurance companies prefer to work with a small number of MGA’s instead of directly with independent life insurance brokers.
Curiously, most life insurance companies that have a captive agent channel also work with independent life insurance brokers through the MGA distribution system. Independent life insurance brokers often still have available the same companies and insurance policies available through the captive channel.
There are some important differences and distinctions between these two channels, and the people that have chosen to work in one channel over another.
Life insurance brokers in general, may be expected to have more experience in the industry. This has to do with recruitment. The brokerage channel has no real recruiting infrastructure. On the other hand, life insurance companies with a captive channel will have an active recruiting infrastructure. Advisors will often get recruited as a captive agent offering only one company’s life insurance policies. They then will either stay within that channel, or leave to become an independent broker. The result of that is that the captive channel will have a blend of new and experienced agents whereas the broker channel will have a higher percentage of experienced advisors.
That’s nice – but other than having a higher probability of an experienced advisor, why do you care? There are some important practical differences that suggest you should consider dealing with an independent broker over an a captive agent.
Differences Between Captive Agents and Life Insurance Brokers
Price. Brokers that have access to a broad range of life insurance products are able to shop and compare on price. Companies ebb and flow when it comes to lowering their premiums so having access to many companies means access to ‘whatever company is currently inexpensive’.
Product selection is a close second. Brokers generally have access to the same insurance policies, at the same prices, as captive agents. But if you have the need for a specialized product, or a feature only available at some companies, then you want the product selection available through a broker. Policies for young children are available at some companies and not others. 30 year term and 40 year term polices are not available at all companies. Some companies offer insurance to consumers at older ages than other companies. Some companies have provisions that are better for smokers. Some companies offer term life insurance where you can choose the exact year to match a mortgage amortization (e.g. 17 year term).
Company underwriting differences can also be important. If you have non-standard conditions (medical and the like) then absolutely there are differences amongst companies. Brokers will commonly shop companies to find the cheapest rating. A captive agent, faced with a decline from their company, can’t readily take it to another company who may insure that client.
Price and product selection are likely to be important factors in your life insurance purchase, and for some people company underwriting can have a huge impact. Dealing with an independent life insurance broker maximizes your benefit in all of those considerations.