Contracting is one of the least talked about processes in the world of disability insurance, yet it’s quite arguably the most important part of a DI contract—at least for the agent. I sat down with our resident contracting specialist to find the answers to our agents’ most commonly asked questions.
K: Why do we need contracting?
E: The simplest answer? To get paid! Contracting can be needed for a variety of reasons, but here are the most common:
1) Establishing a brand new agent with the carriers under DIS. If you have never worked with one of our carriers, or if you were under a different MGA before, then you need new contracting.
2) Confirming an agent’s information if their contract is “old.” If you haven’t written any premium for more than a year, if your banking information has changed, or even if just your last name or address has changed, you’ll need to update your contracting.
3) Moving an agent’s existing appointment code under our hierarchy. For example, agent Joe Smith may have previously worked with a different MGA six months ago, but now wants to place his business with DIS. In this case, even if the previous appointment code is still active, we would need new contracting in order to move his appointment code under our DIS hierarchy.
K: What does contracting entail?
E: The length of disability insurance contracting paperwork depends heavily on the carrier, and the product being sold. However, three requirements are constant:
1) Contracting agreement. This includes the carrier-specific documents an agent must complete, sign and date. For example, the broker information, direct deposit or EFT, commission assignment, Unit assignment, etc.
2) State Licensing. Copies of the agent’s State Insurance License are always requested. We encourage agents to send us copies of ALL their licenses, instead of simply the one that applies to his resident state.
3) Errors & Omission Insurance. A copy of the “E&O” declaration page is always required with any contract being submitted. This provides specialized liability protection against losses.
K: When should an agent submit contracting?
E: Well, it depends. Ideally, contracting should be submitted prior to submitting an application. Lloyds, MetLife & Standard will process contracts as they are received.
That being said, for other carriers (Principal & Assurity) it is more convenient to submit contracting & applications simultaneously. This is because contracting will be held without initial review until New Business is submitted.
But, and this is important, watch out for Pre-Appointment states (PA), which require an agent to be appointed with a carrier PRIOR to them taking an application! Other states have a narrow window for contracting after application submission of 15-30 days.
K: So, does an agent need to be licensed and appointed prior to taking a disability insurance application?
E: Prior to taking an application an agent must always be licensed in the state in which the applicant resides. This also applies to agents with expiring licenses!
For Example: If an agent is licensed, but his license expires the day prior to acquiring client signatures, the application is considered NON-COMPLIANT. Carriers will kick these applications back.
However, an agent is able to take an application prior to being properly appointed with a specific carrier. As explained previously, pre-appointment states are the only exception.
K: There are several types of contracts – General Agent, Solicitor, Corporation – which contract should an agent submit?
E: General Agent contracting refers to agents that would like to be paid using their own social security number. It is easier to refer to these as “Direct Pay” contracts.
Solicitor contracts refer to agents that are assigning their commissions to a business entity that is already contracted with the carrier. For example, if you work for a business entity that is contracted, you would then be a soliciting agent and would submit a shorter “solicitor contract” to assign your commissions to them.
Corporation contracts refer agents who wish to appoint a code to their business entity. For example, a company like the one listed above (has soliciting agents below them) would need to fill out a Corporate Contract and two appointment codes would be provided.
K: If an agent still has questions, what should he do?
E: Contact us. Don’t make any guesses about which contract should be used, or when it should be submitted. It is much easier to go through every step slowly, than to correct errors down the line once commissions have been improperly paid. Even worse, situations that are considered non-compliant typically require new signatures from your clients. Our job is to help make the process as easy and painless as possible for agents, so we’re more than happy to help.