General /BLOG

Financial Best Practices for Agents

By  Senior Market Advisors  on March 1, 2022

Being a Medicare agent is a lot like running a business. And to maintain success, you will need to approach your finances like a business owner, including keeping them separate from your personal expenses and tracking your costs to stay on budget. Here are some of our financial best practices for agents in the Medicare field.

Business or Personal? 

If you’re just getting started in insurance sales or looking to take your business to the next level, it’s important to keep your personal and business finances separate. It’s easy for this line to blur, especially as an independent agent who may be making your own hours and even working from your home. 

Even agency principals can run into issues when they want to sell their business if their personal finances are entangled in the organization. Save yourself some headaches down the road and keep them separated!

Accounting and Tracking

To fully manage your costs and profits, you will want to find the best accounting solution for your needs. This could mean hiring a certified accountant or simply purchasing and learning how to use an accounting software like Quickbooks. Whatever method you choose, properly tracking your expenses is vital for your business. 

Lead Expenses – The cost of new leads is one of the largest and most crucial investments for agents and agencies. But getting in front of a lead is just the first step in the acquisition process. The amount of money it takes you to convert a new lead into a client is known as your cost per acquisition, or CPA. 

Client acquisition can be very costly for insurance agents and companies, but it’s one of the necessary expenses that will keep your business going. The basic formula for calculating your acquisition cost is:

Total $ amount spent to acquire new clients / Total # of new clients gained in that same time period = Cost Per Acquisition

Of course, acquiring new clients can cost you time as well as money. The time you spend with each client should be factored into your model. A higher CPA is not necessarily bad if it is gaining you more sales in the same period of time (i.e. having a high CPA and closing 4 deals per day, instead of closing 1 per day with a lower CPA.)

Marketing – Marketing efforts are something every agent should include in their budget.. Nowadays a lot of marketing takes place online via digital and social media advertising. But many Medicare agents still swear by direct mail or local networking for organic lead generation.

The agency or carriers you work with may also offer co-op funding opportunities to help you with your marketing costs. Once you’ve determined your marketing channel of choice, you will want to keep a record of your monthly marketing costs and plan accordingly.

Operating fees – When preparing your budget, don’t forget to include the annual expenses that will keep you compliant and legally covered. These costs may be on the smaller side but are vitally important to remember.

Errors & Omissions insurance: E&O insurance is designed to protect agents against legal action from a client who provided incorrect or misleading information. Most agencies you may partner with will require some degree of E&O coverage. A typical policy will provide $1,000,000 of coverage for about $300 per year but it’s important to know the details of your plan. Different policies may work on an aggregate basis instead of per occurrence, and most will only cover you while they are active and not for old business. Be sure to get the right coverage since E&O insurance is not the place to cut corners!

License fees: On top of the standard producer license renewals, Medicare agents are required to pass an annual exam called America’s Health Insurance Plan Certification, or AHIP. This exam tests your knowledge of CMS regulations around the selling of Medicare products and costs $175 every year. But if you login through the SMA account, you can get a $50 discount. Some other common fees include:

  • State appointment fees
  • Continuing education fees
  • Carrier appointment fees (sometimes deducted directly from that carrier’s commissions)