Who Is The Right Choice?
Insurance Agent Vs Broker
TLTR: This article explores insurance agent vs broker by discussing what they do, and how they make money. It also highlights their advantages and disadvantages and explains when and why you should pick one over the other.
You wake up one morning and decide that you want to buy a new car at the end of the year. As an employee, you know that you’ve worked hard in your profession for long enough to finally be able to treat yourself to some nice wheels.
You also know that you need to get it insured to keep it financially protected it were to somehow get damaged. But as someone who’s never insured anything in their life, you’re confused about who you need to reach out to for assistance.
When you look up insurance online, you’re most likely to find two types of insurance professionals; insurance agents and insurance brokers. But, which one should you choose? What are the benefits and drawbacks of choosing one over the other?
In this blog
- What are insurance agents and brokers?
- What is an Insurance Broker?
- Advantages of Choosing an Insurance Broker
- Disadvantages of Choosing an Insurance Broker
- What is an Insurance Agent?
- Advantages of choosing an Insurance Agent
- Disadvantages of choosing an Insurance Agent
- Insurance Broker versus Agent: Which is Right for You?
- Frequently Asked Questions
What are insurance agents and brokers?
To put it simply, the primary job of both insurance agents and brokers is to sell insurance to their clients. Both professions need to be licensed in their states and comply with all the set rules and regulations, and both insurance agents and brokers act as intermediaries between the insurance buyers and the insurance provider.
They can both sell different types of insurance policies like:
- General Liability Insurance
- Business Owners Policy
- Errors and Omissions
- Commercial Property Insurance
- Commercial Auto Insurance
- Professional Liability Insurance
- Workers Compensation Insurance
However, there are some distinct differences between the two.
What is the difference between an insurance agent and a broker?
The primary difference between insurance agent vs broker is who they represent.
While insurance agents represent one or more insurance companies, insurance brokers represent the insurance buyer.
What is an Insurance Broker?
Insurance brokers work directly with insurance buyers and are not tied in any form with insurance companies. They utilize their knowledge, expertise, and experience to help you assess your unique insurance needs and then find the coverage that’s best suited for you.
Insurance brokers have professional ties with insurance companies. But, as professionals in the field, they know which companies are competent to work with. So, you can rest assured that the recommendations they provide are fully unbiased and in your best interest.
When you contact an insurance broker for a quote, they will first acquire some of your personal information and assess your needs. They will then compare coverages from several insurance providers to get you a list of the best conditions and rates. Furthermore, they may also search for opportunities to lower your rates by combining different types of insurance as bundled packages.
Some key roles and responsibilities of insurance brokers include:
- Develop effective marketing strategies
- Carry out administrative tasks and document management
- Manage business development and promotional activities
- Establish professional relationship between insurance buyer and insurance providers
How Do They Make Money?
Insurance brokers make a living by collecting broker’s fees and charging commissions. Once their client has accepted a quote and completed a purchase with the insurance provider, the insurance broker receives a certain percentage of the premium cost as commission from the insurer.
The commission rate depends on established regulations that vary according to state laws and are based on the amount of annual premiums sold to clients.
Insurance brokers rely on business from existing clients. This allows them to earn additional commissions when their clients need a new insurance policy or have to renew an existing policy.
Advantages of Choosing an Insurance Broker
Insurance brokers make almost all of their income through insurance companies for selling their policies and products. So, apart from the initial broker fees, you won’t have to pay for their time and service.
Low chance of Bias
Insurance brokers aren’t tied to any insurance providers. So, when they offer you policy options to choose from, the chances of bias are low if not non-existent. They can provide you with the best rates on insurance policies by finding you the best coverage options.
They have a great understanding of which policy suits you best. As their livelihood depends on keeping up with the changes in the insurance market, they are also experts when it comes to the latest policy trends.
Availability of Discounts
Some insurance companies also offer top-rated insurance brokers with special prices on their policies. So, based on your broker, you can obtain certain policies at discounted rates.
Disadvantages of Choosing an Insurance Broker
Reliance on Insurance Agents
Since insurance brokers represent their clients and not the insurance company, they cannot bind the coverage themselves and must turn the process over to an insurance agent to complete.
Lack of Training and Experience
Insurance brokers aren’t trained by insurance companies like insurance agents are. So, they might not know all the specific details or be aware of available discounts and offers. This means that, they could be costing their clients a lot of unnecessary expenses.
As mentioned, insurance providers compensate the insurance brokers. Some insurance companies provide bonuses to brokers who meet their sales targets. This can mean that some insurance brokers might be biased towards selling the products and services of one carrier over the other.
This can also lead some brokers to be more focused on closing a sale, rather than thinking about the best interest of their clients.
What is an Insurance Agent?
An insurance agent is a professional who acts as a representative for insurance companies. They help their clients select the right insurance to buy, but represent the insurance company throughout the process.
An insurance agent allows their client to choose from available policies that are offered by the carrier.
There are primarily two types of insurance agents:
- Captive agents typically represent one insurance company. For example, State Farm sells its policies through captive agents. They are usually employees or independent contractors of the carrier and are provided with office space, training, and administrative support.
As captive agents, they can only sell the products and services offered by their carriers. For example, if the carrier only sells personal lines, the captive agent cannot sell business lines.
Furthermore, they cannot sell the policies that are provided by another carrier even if that policy provides better coverage at a cheaper rate.
- Independent agents or insurance sales agents can represent multiple carriers rather than a single entity. They act as middlemen between insurance buyers and insurance sellers to facilitate a transaction.
They have legal contracts with the insurance provider called “appointments”. This contract specifies the policies they can sell and the rate of their compensation.
Unlike captive agents, independent agents receive commissions from the policies they sell and are not considered employees of any specific insurance company.
Some key roles and responsibilities of an insurance agent include:
- Solicit new business
- Assess their client’s insurance needs
- Assist clients in completing applications
- Bind coverage
How Do They Make Money?
The rate of commission that captive agents make depend on whether they are employees of their parent company or independent contractors. Captive agents who are regarded as employees are provided salaries and benefits. Captive agents who are classified as independent contractors are provided with payment based on sales and commissions.
According to the U.S. Bureau of Labor Statistics, insurance agents made an average of $52,180 annually or $25.08 per hour in 2020.
Independent agents are paid solely on a commission basis. They are compensated by insurance companies every time they sell their insurance policy and when their clients renew their policy. Compared to captive agents, their commission splits are higher. Furthermore, since they can sell from a wider array of carriers, they have the potential to earn higher rates.
Advantages of choosing an Insurance Agent
If you’re adamant on a specific insurance company and opt for a captive agent, they might be able to get the policies you need at discounted rates. If you choose an independent agent, they can offer you multiple policies at varying rates for you to choose from. This means that you can choose the policy that meets your budget while also meeting your needs.
Assuming you choose an independent agent, they can provide you with products from a wide array of insurance carriers. This means that you can choose the policy you want to get, not just based on price, but also on coverage preference.
Saves time and effort
Insurance agents also offer a one-stop solution to their clients. Instead of spending your own time and effort searching for insurance policies, they consolidate your insurance needs under one roof.
For example, let’s say that you had bought homeowners insurance from an independent agent and now are considering getting car insurance; instead of starting from scratch, you can simply reach out to your insurance agent.
Unbiased and reliable advice
While advice from a captive agent can be biased towards the company they work for, independent agents provide you with mostly unbiased advice. This is because they aren’t bound to selling products and services from a single company.
So, if other clients had a negative experience with an insurance company, they can quote you from another company that has a much cleaner record.
If we have convinced you that opting for an insurance agent is the right way to go, then click here find an agent right away!
Disadvantages of choosing an Insurance Agent
As with insurance brokers, there’s always a chance that some insurance agents might be sales-driven. This means that they may be offering you insurance products and services aimed at closing a sale for a company. So, they might not have your best intentions in mind.
Possibility of Inexperience
Some insurance agents are just starting out in the industry and as a result, don’t have a lot of practical experience. This can mean that they might not know how to deal with your unique insurance needs and situations. They might also be unaware of some specific policies and discounts.
Insurance Broker versus Agent: Which is Right for You?
Opting for an insurance agent might be better if you have an existing policy with an insurance provider and want to bundle your coverage with different types of insurance. Going with an agent might also come in handy if you want to compare the coverages by yourself and talk with them regarding queries and to complete the policy purchase. They might also be more helpful if you’re set on a particular carrier or a group of carriers that you’ve chosen.
Insurance brokers are suitable if you’re looking to compare coverages and rates from the wider insurance marketplace. As they have lesser ties with insurance companies, the chances of biases are also much lower. Additionally, if you’re looking for specific insurance that isn’t as common, they might have a greater ability to scope out a wider range of options.
However, it should be noted that while agents don’t charge any additional fees, insurance brokers might charge a one-time broker’s fee for their service.
Did you find this blog informative and helpful? Let us know in the comments down below.
Frequently Asked Questions (FAQs)
What are the top insurance agencies of 2021?
Investopedia made a list of the top insurance agencies of 2021 on the basis of specific characteristics. The list is as follows:
What things should I consider while choosing an Insurance Agent or a Broker?
Ask for referrals
If you’re looking for an insurance agent or broker, the best place to start is by asking your friends, family, and co-workers who they use and how satisfied they are with their service. You can also look up their business reviews online on review platforms like Yelp.
Identify the coverage you need
Once you’ve identified the agent or broker that you want to work with, step back and determine what type of coverage you need. Make sure that you have all your documents in place. It’s common to not be fully certain on which coverage you want. But a good agent or broker is there to help advise and guide you through the confusion.
Assess the persona
The agent or broker that you chose might have had glowing reviews online, but in reality, might not meet your assumptions. As a client, you want your agent to be there for you as a supportive and knowledgeable friend who is also easy to reach and talk to. They need to be able to deal with and complete any insurance-related processes in a quick and efficient manner. So, make a note of your initial interactions with them. It’s never too late to back out and opt for a different insurance agent or broker.