What is an Insurance Broker?
An insurance broker is an individual who helps consumers find coverage suited to their needs and specifications. They function a lot like insurance agents, but there are key differences between an insurance broker and agent.
Types of insurance professionals
When you’re shopping for an insurance policy, you may want to consult with a professional to go over your options and identify the best coverage for your needs and budget. There, you have two options:
Insurance agents. Agents work for the insurance company.
Insurance brokers. Brokers work independently.
Each type of insurance professional comes with a significant pro and con directly linked to their employment.
Because insurance agents work for the insurance provider, they’re limited in the number and type of policies they offer. Specifically, they’ll only show you options from the company for which they work. Another insurance company may offer a policy that better aligns with what you want, or similar coverage at a cheaper price. But because the agent is directly linked to the specific insurer (or insurers, in the case of independent insurance agents), they choose from a specific selection of policies.
Brokers, on the other hand, don’t have any loyalty to one insurer over another. They can shop from the marketplace at large to identify policies that may be best suited for you. That said, once they find a policy, they won’t be able to bind coverage for you because they’re not technically an employee of the insurer. They’ll need to connect you with an agent at the insurance company you choose to put the policy in force.
Long story short, a broker can mean more options, but working with one can also add steps in the process of securing coverage.
How insurance brokers make money
It’s pretty clear how insurance agents get paid: by the insurance company. But since brokers work independently, you might be wondering how they earn a living.
Generally, brokers get paid via a fee, commission, or both:
Broker fees: These are one-time payments you make to the broker in exchange for their services. Most states have laws that govern brokers’ fees. State laws generally require the broker to clearly disclose the fee to you, for example, and some states cap the amount brokers can charge in fees.
Broker commission: While you pay a broker’s fee yourself, the insurance company pays their commission. This is essentially the insurer’s way of incentivizing brokers to bring their clients’ business to them.
Because many brokers work on commission and because the commission is a percentage of the dollar amount of coverage they sell, brokers who sell higher-dollar policies earn more. Consequently, it’s important to review your coverage needs and ensure the policies a broker recommends align with them. That’s not to say that all brokers will push for you to buy more coverage than you need, but every industry has unscrupulous actors. Knowing what you require going into the process can protect you from getting talked into excess coverage.
Buying insurance on your own
If you want a full spectrum of options but you want to avoid broker fees and potential upselling, you can shop policies on your own.
That said, buying coverage without the advice of an insurance professional is generally only advisable if you’re confident that you understand your coverage needs and your policy options. Otherwise, it may make sense to engage the services of either a broker or agent.