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Selling an Insurance Agency


7 minute read 

You’ve successfully owned an insurance agency for a while now, but perhaps you’re thinking it’s time to sell it so you can retire or pursue other interests. Fortunately, selling an insurance agency doesn’t have to be difficult, especially if you’re selling to a current employee or a family member. Read on for a deeper dive into selling an agency, how taxes come into play and where to start.  

Taxes and selling your independent insurance agency  

It’s important to understand how taxes factor in when selling your insurance agency. It’s not necessarily what you sell it for as much as what you get to keep after paying taxes. There are basically two ways to sell your agency, depending on whether it’s considered a stock sale or an asset sale:  

  • A stock sale transfers the ownership of your corporation, including all of its assets and liabilities, which can put the buyer at risk of inheriting known — or unknown — past liabilities.  
  • Most insurance agency sales are made as asset sales, which involve transferring the ownership of certain assets of your agency — its book of business, licenses, equipment, inventory, client lists — to the buyer.   

An asset sale of an insurance agency benefits the buyer from a tax standpoint. That’s because it allows the buyer to get tax deductions for depreciation or by deducting the interest on the debt over time. And asset sales allow “goodwill,” which are intangible assets such as customer loyalty and brand reputation, and can be deducted over a 15-year period (for nonpublic companies). 
 
At the same time, a stock sale might be attractive to a seller who wants to receive capital gains treatment for the sale of their stock. This may be at a more favorable tax rate than an asset sale.   

An independent insurance agency may be sold as an installment sale. This typically occurs over a three, four or five-year period and sometimes longer if it is sold to a family member. With an installment sale, the buyer doesn’t have to pay or borrow a lump-sum amount up front. The seller usually stays involved with the agency for a year or several years to help with the transition. The sale price also can be based on the customers who ultimately stay with the agency.  
 

The basics of selling an insurance agency 

If you’re not sure where to start, selling your insurance agency may seem like an overwhelming process. Following a step-by-step process can really help: 
 
  1. Come up with a plan: Realistically, it can take several years to put together an adequate plan to sell your insurance agency. Don’t just sell it on a whim one day. You’ll have many considerations that involve employees and (hopefully) many clients. All of these elements need to be factored in before you’re ready.  
  1. Decide who you’re selling to: Selling to a family member or current employee can be an advantage. You have more insider knowledge about your buyer’s traits. You’re in a better position to assess whether they’ll run your agency in a way that would make you proud and continue your legacy.Once you start confidential discussions, make sure a non-disclosure agreement (NDA) is signed by all parties.  
  1. Get external help: To help you with the transaction, you can get help from an agency merger-and-acquisition consultant. Ideally, you’ll hire this professional when you’re still in the planning phase. They can help you determine the ideal time to sell and other aspects you may not have considered.  
  1. Agree on a selling price: Of course, you must settle on the value of your insurance agency before you can sell it to your buyer. You’ll need to come up with a dollar figure that considers your book of business and customers, not just your physical agency building and your annual revenue stream.  
  1. Set the terms: Negotiate the terms of the sale with your buyer in a way that meets your objectives and timeframe. You might find it’s best to ask them to pay your entire asking price, or as close to that amount as possible, up front. That may be possible if a larger agency is buying it. If that’s not an option, an installment approach may work. If the buyer is a publicly traded agency, a stock swap might be possible, where you receive some or all of the proceeds in stock.  
  1. Finalize the sale: To make everything official, don’t settle for a handshake deal, even if you’re selling to a favorite family member. Make sure to get a letter of intent signed by both parties, and have it reviewed by a certified public accountant and an attorney. You’ll also need a purchase agreement.  
  1. Professional liability considerations: Typically, agency acquisitions involve the sale of assets — client list, equipment, goodwill, etc. This is to avoid the liability from a customer (or former customer) bringing a lawsuit for a prior mistake. The buyer must understand what the errors and omissions (E&O) exposure is and whether there are any known liabilities. The buyer and seller need to coordinate the agency’s E&O insurance coverage, taking into account whether it’s an asset or stock acquisition. If it’s a stock sale, the purchaser should insist that the seller have what is known as “E&O tail coverage” to handle a liability claim against the agency that occurred prior to the sale. 

Factors in valuing your agency 

The best way to sell your agency is to develop an in-depth plan with the help of a professional. At the outset, you’ll want to accurately value your agency so you can maximize your profits. Consider these factors: 

  • Carrier relationships: Buyers want an insurance agency with a good reputation and established relationships with dependable, top-performing carriers that will generate renewals and new business. 
  • Profitability: Buyers aren’t looking just at your agency’s current revenue. They’re looking for how much you bring in annually, profit-wise. The more profitable your agency, the more value it has to a buyer. 
  • Performance: The smartest buyers look for insurance agencies that retain 90% to 95% of clients year over year. If your agency falls into this sweet spot, you can proudly increase the sale value. 
  • Growth: If your insurance agency has grown consistently by 5% to 10% or more each year throughout its lifespan, it’ll be much more attractive to a buyer. The higher the rate of your insurance agency's growth over time, the higher the value it has in a sale. 

Accurately determining your agency’s value while ensuring you earn the maximum profit possible is the best approach to selling your insurance agency. And, staff retention and client services after the sale are important, too.

What is the Big “I”?  
The Big “I” is a national trade federation made up of more than 50 independent state associations and the national association. Its mission is to support independent agents and brokers through membership benefits such as educational tools, informative publications, networking and more. Through the Big “I,” owners, sellers and buyers of insurance agencies are equipped to thrive.  

How can the Big “I” help with selling an agency? 

The Big “I” is an extremely helpful resource when the time comes to sell your agency. With many tools to help you learn about the insurance industry and current market trends, , you can get your questions answered every step of the way. The Big “I” is there to help you deal with any issues that may arise when you’re selling your agency. 
 
You may want to sell your agency to a relative or employee, but the buyer may not have the funds necessary to close the deal. While agency owners sometimes take back a note for a portion of the sale, you’ll still want to receive an adequate amount of funds up front. If the buyer needs financing, the Big “I” has a relationship with InsurBanc, which specializes in agency financing and has experts that can assist either party in a sale. 
 

How to sign up for a Big “I” membership in your state 

Signing up for a membership in your state is easy. Just fill out the online form to get started. Pricing varies by state, agency size and revenue. If you have any questions, the Big “I” is standing by to assist you.



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Here's What You'll Learn... 


  • Taxes and selling your independent insurance agency 
  • The basics of selling an insurance agency 
  • Factors in valuing your agency
  • What is the Big “I”?  
  • How can the Big “I” help with selling an agency? 
  • How to sign up for a Big “I” membership in your state 

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