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When buying home, auto or life insurance, the choices available for your insurance company and coverage options can be overwhelming. You want to ensure you buy the coverage you need, but don’t want to pay for coverage that isn’t right for your unique situation. An insurance broker is someone who represents you, rather than the insurance company. They will work with you to determine the policy you need, with the best company and price. Working with an insurance broker might save you valuable time and money.
What is an insurance broker?
An insurance broker works as an advisor to the customer. Think of them as your personal insurance shopper. They sit down with you to understand your insurance needs. Then, they use their industry experience and connections to compare various policies from various insurers to find the best protection for you at the best price. Unlike captive insurance agents, brokers are not limited to certain insurance companies, so they can cast a wide net to find what best fits your needs.
At that point, they present policy options to you. It’s important to know that an insurance broker can’t bind coverage for you. That means you’ll need to work with the insurance company or an agent they recommend to actually put your policy in place. Still, your broker can do all of the legwork for you — and can help you understand key differences between coverage options so you can feel informed as you choose your policy.
Insurance brokers vs. insurance agents
To best understand brokers, it’s helpful to differentiate an insurance broker versus an insurance agent. While the broker represents you, an insurance agent represents the insurance company. Not all states have brokers, and in some states, a broker can also be an insurance agent. In those states, broker and insurance agent may be used interchangeably.
There are two different kinds of insurance agents: captive agents and independent agents. Captive agents work exclusively with one insurer (e.g., a Geico agent or State Farm agent). Independent insurance agents work with multiple insurers, meaning they can help you shop policies from all the insurance providers they represent. But at the end of the day, independent agents are tied to the providers with which they work — and getting sales for them is their top priority.
When should I use an insurance broker?
In some cases, brokers charge a fee (more on that next). That said, in many cases, the broker may be able to find better policies for cheaper prices, ultimately helping you save money overall.
With a fee on the table, you probably don’t want (or need) to use a broker if your insurance needs are relatively simple. You can probably get quotes online or work with an agent because your policy options — and the price of those policies — are going to be pretty straightforward.
But as your needs get more complex, looping in an insurance pro who’s on your side can help you find the protection you need at a good price.
Some examples of more complex insurance scenarios include:
- Owning a business
- Owning or renting multiple residences
- Owning or leasing multiple cars
- Excess liability, like if you own a dog from an aggressive breed or a pool
All this said, even if your coverage needs are simple, you might want to use an insurance broker if you’re tired of feeling like you don’t really understand what you’re getting when you pay your insurance premiums. Or if you feel like you might be able to get a better policy but you don’t want to do the research yourself.
How does an insurance broker make money?
This is the kicker. In exchange for being your partner for your insurance needs, brokers need money. They can get paid in two ways:
Insurance companies love when brokers bring them business. So to say thanks, they often offer that broker a commission on the policy premium. You won’t need to pay this amount — it’s money that goes straight from the insurance company to your broker. This happens most often when brokers are licensed insurance agents that can also bind policies.
What does an insurance broker do if they want to make a little more? They can charge a fee for their services. Usually, these fees don’t get too crazy (think: $100 or less for standard insurance policies) – but it’s something to be informed about. Your broker should disclose any fee they charge to you.
Don’t be deterred by a fee, though. Do the math. If your broker saves you money every year by recommending better coverage for a better price, the fee essentially pays for itself.
Ultimately, how much do insurance brokers make? It depends on the fees and/or commissions they charge, and that usually depends on your state. That’s because many state legislatures cap broker fees and commissions in an effort to protect consumers like you. Brokers generally have to disclose their fees and commissions, too. So if you’re thinking about using an insurance broker, you can ask a few for their pricing structure to compare.
How else can I buy insurance?
If you want to skip the broker fee, you have a few other options for buying coverage:
- Going straight to the insurance company: Almost all large-scale insurance providers offer online quote forms. You can start the process there to compare policies and pricing. Then, you can follow the best company’s next steps (usually, an online form or a phone call) to buy a policy.
- Working with an independent insurance agent: This person will be able to compare policies from multiple insurance providers for you. Remember, though, that they represent those companies, not you. It’s up to you to protect your interests.
- Working with a captive insurance agent: If you know you want to work with a specific insurance provider (for example, if you already have a policy with them and want to bundle your new policy with it), you can work with one of their captive agents to buy coverage.