Insurance Agent or Broker? What You Need to Know Before You Decide

by Adam on May 7, 2014

 

Whether you are insuring your vehicle, home, or investing in a life insurance policy for you or a family member, there are a lot of factors, from the details of your policy to which provider you work with. One of the most important is whether you purchase through an agent or an insurance broker.

Here is what you need to know to decide which is right for you:

The Differences

A professional who provides insurance to an individual is referred to as a “producer.” Within that category there are two main types: agents and brokers. Though the terms are used almost interchangeably, there are three very important distinctions.

Who They Work For

There are two main types of insurance agents: captive and independent.

Captive agents are employed by a single insurance agency. They are experts in their own company’s policies and, therefore, are better equipped to offer in-depth advice on which policy is right for you. These agents are under contract to only offer and sell you products from their company.

Independent agents represent multiple insurance providers and can offer you a wider variety of policies. However, like captive agents, they are restricted to what is provided by the companies they serve as an agent for.

Some insurers only employ captive agents, though many rely on a mix of agents and brokers to represent them.

Brokers are a kind of agents, but agents are not brokers.

Insurance brokers are much like an “even-more-independent” independent agent. Your broker works for you, their client, not for a specific insurance company.

Brokers are licensed to sell for many different insurers, but not every insurer on the market. Usually a broker or brokerage represents a variety of well-established, mainstream insurance providers and can sell policies from any one of those companies. Your broker can provide you with a full list of companies that they are sanctioned to represent.

Many brokerages, such as TSG Insurance, work to offer a broad view of the marketplace to help decide which plan most benefits you.

How They are Paid

Brokers are entitled to charge a fee for their services. This fee varies by brokerage and by your relationship with the broker. Brokers work to create long lasting partnerships with their clients. Forming a partnership with a broker you trust can ensure that you are working with a producer who is familiar with your needs and preferences and can provide you with your best options.

Your broker will inform you of their fee. Brokers must disclose this fee and cannot misrepresent it as being part of the insurance premium itself.

On the other hand, agents are paid directly by the company, or companies, they represent. They also receive a commission, according to the cost of your policy.

Agents also cannot increase or misrepresent the cost of your policy. The cost of policies is highly regulated—identical insurance plans will cost the same, regardless of which agent you go through.

Where Their Interests Lie

Because agents are paid a commission by a company, or companies, their best interest is served when you purchase a more expensive policy.

This does not mean an agent will only offer you policies which cost more, only that they have an incentive to encourage you to spend more on your policy. Be sure when purchasing through an agent that you buy according to how well the plan works for you, not according to how much the policy costs.

Brokers may make a commission from an insurance company. However, they are compensated by the insurer to answer your questions and introduce you to the providers’ policies, no matter the price of the policy they recommend for you.

This means they have the means and motivation to guide you to the policy that best suits your needs.

Insurance producers are not one size fits all. It is easy to lean one way or the other based on generic policies, but keep your personal situation, financial means, and relationship with your current insurance provider in mind when making your choice between an agent and insurance broker. There are lots of insurance companies and brokerages to choose from.

If you have an agent or broker in mind, but are not confident that they can provide you with your best insurance options, ask them about it! You are entitled to know all of your options before making your decision.

Candice Harding enjoys writing about a variety of topics including business, technology, and insurance. When she’s away from the computer, she loves riding her bike and exploring the outdoors.

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