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Don’t Get Burned: Life Insurance Contracting & Licensing Tips

Life Insurance Producer Contracting and Licensing Tips:

  1. Contracting vs. licensing
  2. Licensing by state
  3. Licensing in the state the application is written

Editor’s note: This post was originally published on 7/21/16 and has been updated for accuracy and comprehension.

Life insurance producer contracting and licensing are more important than you’d think.

In fact, if you don’t know these ins and outs of insurance contracting and licensing, it could affect your sales success.

Anyone selling life insurance must have a license to do so. So far, I imagine anyone reading this is not confused about that.

On the other hand, just because you have a license to sell does not necessarily mean that you are going to be able to do so – for more reasons than you might realize.

Here’s what you need to know to avoid misunderstandings as well as occasions that will preclude a policy from actually being purchased by your client.

Life Insurance contracting vs. licensing

Even with a license, the only way to sell a policy is through a life insurance carrier that allows you to do so.

If a carrier accepts you as someone who can sell products on their behalf, they’ll contract you to do so.

On the other hand, if they reject your request (they deny you a contract), you still have the license to sell life insurance, but you cannot sell the products that carrier offers.

If no other carrier will offer you a contract, you will be unable to sell life insurance at all.

Licensing by state

When a person is licensed by the state in which they intend to sell life insurance, that license is their “Resident License.”

It allows for the sale of life insurance in the state that it was issued in, but only in that state.

If you intend to sell insurance in another state, you must obtain a “Non-Resident License” for that particular state.

The most important part of this “Non-Resident License” is that it must be in place before you make the sale – and before you and the client sign the application.

If that license is not in place at the time the application is taken, a policy will not be issued and you’ll have to start the application process over.

Finally, you need to know that, if the request for the Non-Resident License is refused, the policy cannot be issued at all with you as the writing agent.

Licensing in the state the application is written

This might be the most important issue when it comes to misunderstandings about an agent’s license and contractual ability to sell life insurance in a given state.

Again, you have to be licensed in the state where the application was taken; however, there are certain situations where the proposed insured resides in a state other than in the state where the application is taken.

Here’s where it can get complicated because it’s usually not the state that sets down the rules regarding where an insured policy must be solicited and an application taken.

Rather, it is the insurance carrier.

If someone lives in Florida and is visiting their good friend – the insurance agent – in California and signs an application in California, it may not fly.

Many carriers will not allow a Florida resident to buy insurance in California, even though the application was “taken” in California and the agent is licensed in California.

On the other hand, some carriers will.

To add insult to injury regarding the complexity of how you must be licensed to make a sale for certain carriers, some states will allow a sale to a “non-resident” of the state you are licensed in, but have other rules regarding where the paramed must take place and may insist on additional forms attesting to where the solicitation took place.

Avoid insurance producer contracting and licensing issues

If all of the above sounds a bit complicated and frightening, it should.

And anyone selling a life insurance policy should pay careful attention to this.

During my career, which has included working with both agents and carriers, contracting and licensing problems are by far the most predominant ones I encounter.

To avoid these problems, if you even have the slightest question regarding your ability to write a piece of business from a contracting or licensing standpoint, call your general agent and get it straightened out before any applications are taken.

What contracting or licensing issues have you run into?

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