Piecing together a contract


Lately I have received several questions about why certain elements of a contract are required. It may seem tedious to worry about all these details but without an approved contract there is no business. Since this is not an everyday occurrence for most of us I have compiled a list of what is necessary and why.

Carrier specific contracting paperwork is always required. This is where signatures and all of your personal information will be compiled. The contract will also include any provisions that the company has for you to write business with them. Knowing what sort of contract you are entering into is generally wise and I personally would take the time to go through the provisions of any agreement I was entering into just for my own peace of mind.

A copy of your insurance license for all states where you would like to write business with this carrier will speed along the process. Your resident state should always be included and additional states can be added as necessary. This can often be acquired by the carrier or contracting specialist but any items the carrier does not have in front of them when contracting is received will slow down the contracting process.

Anti-money laundering training is required for all producers since the Patriot Act. The actual provisions for this training were fairly ambiguous but since each carrier was left to interpret for themselves, most have settled on a biennial training requirement (there are a few exceptions that require annual training) and will hold all business if that time period has passed without a renewal.  This means that with initial contracting you should submit your most recent renewal and be prepared to submit renewals as you complete them.

Errors and Omissions is insurance coverage for insurance producers that protects you in case you make a mistake( otherwise known as an error or omission) that leads to negative consequences for the client which could ultimately result in a lawsuit. This is something that all producers must have in force in order to write business and most carriers will require proof of coverage to work with an individual.  While we all hope never to be in the situation of needing this coverage as insurance producers we also know the value of being prepared in the event that the unexpected happens. Since the carrier could potentially be held responsible in the event that an individual selling their products in not covered most carriers require this to be in place before they will even consider a contract.

A completed W-9 is not required for all contracts but some carriers will request this as part of the contracting packet. This is for tax purposes just as if you were accepting employment with the carrier and allows for more effective reporting to the IRS.

A direct deposit form along with a voided check is required by many carriers. For those carriers that do not require direct deposit, they do pay faster and at a lower dollar amount if it is set up. Ultimately this makes getting paid easier so it makes sense to set it up.

Additionally carriers require hierarchy information. This is something that will come from your managing general agent or MGA (for a lot of our readers this will be Insurance Services group). One of the most overlooked elements of the contract is that for independent agents it is often a sub-contract. In order to protect themselves and to facilitate “in good order” business many carriers only offer contracts with an intermediate party involved, the MGA is essentially an expert who helps keep business going with minimal interruptions.  By signing your contract your MGA is essentially vouching for you with the carrier, lending you the credibility they have earned to encourage the carrier to accept your contract, and agreeing to help get good business in the door.

If you need help with any of these elements the best thing to do is ask. After all, one of the best things about the structure of contracting is that the experts are built in.


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