How to Start an Insurance Company

So you’re an insurance agent that wants to take your career to the next level and own an insurance company. The problem is you don’t know which steps to take to get there. Don’t worry, everyone feels the same way when venturing into a new business, especially one in the insurance industry.

Starting an insurance company brings plenty of advantages, including unlimited earning potential and being your own boss. This article will highlight the steps you need to take to start an insurance company and prepare you for your next business journey.

Step 1: Prepare a business plan

The first thing you need to do is prepare a business plan for your insurance company. This document will serve as your roadmap to building a successful business by highlighting objectives, identifying target markets, and more.

A sound business plan will help you meet objectives, minimize risks, and improve communication between you and your potential stakeholders. Here’s what to include when preparing your business plan:

• A detailed mission and vision statement included the executive summary.
• A brief company description explaining your business and how it differentiates itself from the competition.
• The list of insurance products you plan on offering to your customers.
• Thorough market analysis highlighting the specific niche you want to target.
• In-depth marketing strategy to connect with your target audience.
• Current financial standing and plans for funding acquisition.
• Organization overview highlighting your executive and management team’s experiences.

Presentation is crucial to attracting investors to your insurance company. Take the time to prepare a business plan to set your business for future success.

2. Choose the legal structure of your insurance company

The legal structure of your business will determine your personal liability, tax obligations, income distribution, and more. There are multiple business structures for you to choose from and these are:

• Sole proprietorship – The most common legal structure for businesses. You are fully responsible for overseeing the entire operations and benefit from pass-through taxes, meaning you pay taxes based on your insurance company’s profits.
  
• General partnership – A legal structure that involves two or more owners that share profits, assets, and financial/legal responsibilities. Like a sole proprietorship, a general partnership has simplified tax obligations but comes at the cost of unlimited liability since the business entity is not separate from the partners.
  
• Corporation – The most complex of all legal entities, a corporation is a separate entity from its owners, thus protecting it from personal liability. It’s the most attractive legal structure for investors since it has the potential to raise capital through publicly trading stocks.

• Limited liability company (LLC) – A hybrid between the three legal structures, a limited liability company combines the tax advantages of a sole proprietorship and a personal liability protection of a corporation. It’s also more flexible in terms of management where owners can share day-to-day responsibilities.

The U.S. Small Business Administration (SBA) blog can help you make an informed decision on which legal structure you should use for your insurance company.

3. Register your insurance company’s name

The next step to starting your insurance company is to register the business name. With a bit of creativity and market research, you can create a name that resonates with your target audience and brand identity. Once you’ve decided on your business name, you can register and protect it in four different ways:

• Entity name – protects your business name at the state level
• Trademark – protects your business name at the federal level
• Doing business as (DBA) – a legal requirement in some states
• Domain name – secures your insurance company’s website address

Make sure to do research within your area regarding the requirements of registering your business name.

4. Secure a federal employer identification number (FEIN)

After sorting your business name, the next step is to acquire a federal employer identification number (FEIN). All businesses in the United States need to obtain a FEIN as it’s necessary for businesses to file tax returns. You can apply for a FEIN online by filling out the form SS-4 or through the mail and sending it to the IRS address.

Once you have your FEIN, you must register your insurance company as a resident business entity in your state. To do this, contact the state insurance commissioner’s office and pay the registration fee.

5. Obtain business permits and licenses

Every state, municipality, and county has its own requirements for business licenses and permits. It’s important to check with your local area to know which paperwork you need to secure. Here’s what you need to know:

• Licenses – State governments require licenses from businesses to verify the proficiency of the applicants within their trade. Licenses also cover relevant rules and regulations which applications should be familiar with.
• Permits – Permits are a type of license that enable businesses to operate their services. A government agency inspects the worthiness of an establishment to ensure it adheres to state or federal laws.

Because of the complexity of these documents, we highly recommend reaching out to a lawyer or accountant to help you secure the right permits and licenses for your insurance company.

6. Protect your business with insurance

Lastly, before your insurance company operates, you must first secure the appropriate insurance coverage. Your company’s insurance needs will vary depending on its structure and the assets it possesses. As an insurance agent, you’re likely familiar with the risks businesses face when running their day-to-day operations.

For starters, you want to secure general liability insurance to protect your business from claims involving bodily injuries and property damage. If you happen to buy or lease an office space, you’ll need commercial property insurance to cover lost, stolen, or damaged business property. 

Often general liability insurance and commercial property insurance are bundled together in a business owner’s policy to ensure adequate protection for your business.

Lastly, you’ll want to secure cyber liability insurance to protect client data and malicious software attacks. Assess the complexity of your business and secure the right insurance to safeguard your assets.

Wrapping up

Starting an insurance company is no easy task. The checklist is pretty long, and it requires diligent planning and research on your end. Hopefully, this article gives you insight into starting your business and helps you get one step closer to your goals.

Managing the financial health of your company is crucial to its success. If you need any help with expert bookkeeping services, our team is ready to assist you. Feel free to fill out the form below, and our team will get back to you shortly.