Insurance Brokers: Who They Are, What They Do, and Do You Need One?

Shawn Plummer

CEO, The Annuity Expert

Insurance is an integral part of our lives. It safeguards us from financial risks, providing a safety net in uncertain times. However, navigating the insurance market can be challenging, given the myriad of options available. This is where an insurance company can help, with their representatives – insurance agents, playing a crucial role. In this article, we will explore the world of insurance brokers, their value, and how they can assist you in meeting your insurance needs.

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Who Are Insurance Brokers?

An insurance broker serves as a bridge between you and the insurance company. These individuals are equipped with the requisite knowledge about insurance policies and your specific requirements. Brokers can help you find an insurance policy that caters to your needs and fits within your budget.

Although engaging an insurance broker may incur a fee, the total expenditure might still be less. For instance, if a broker helps you save $100 annually on a policy for three years and charges a $100 fee, your net saving stands at $200.

When Should You Opt For an Insurance Broker?

The decision to use an insurance broker is largely a personal one. However, they are particularly beneficial for those with complex insurance needs, such as landlords or small business owners who need multiple policies.

You might find an insurance broker advantageous if you:

  • Own multiple properties or vehicles
  • Wish to gain in-depth knowledge about your policy, including its limitations and exclusions
  • Require business insurance
  • Prefer to compare offers from multiple insurers without expending personal time and energy
  • Desire a personal connection with someone who understands your background and insurance needs

If you’re considering permanent life insurance, it’s advisable to consult a fee-only financial advisor.

How Do I Get an Insurance Broker?

To find an insurance broker, you can follow these steps:

  1. Determine your insurance needs. Understand the type of insurance coverage you require. It could be health insurance, car insurance, home insurance, or any other specific type.
  2. Research local insurance brokers. Look for insurance brokers in your area. You can use online directories, search engines, or ask for recommendations from friends, family, or colleagues who have used the services of insurance brokers in the past.
  3. Check their credentials. Once you have a list of potential insurance brokers, verify their credentials. Ensure they are licensed and registered to provide insurance services in your state or region. You can usually check this information on the website of your state’s insurance department or regulatory authority.
  4. Evaluate their expertise. Consider the expertise and experience of the insurance brokers. Look for brokers who specialize in the type of insurance coverage you need. For example, if you require health insurance, find a broker who specializes in health insurance products.
  5. Assess their reputation. Research the reputation of the insurance brokers you are considering. Read online reviews, testimonials, and ratings from their clients. This can provide insights into their professionalism, customer service, and reliability.
  6. Arrange a consultation. Contact the selected insurance brokers and request a consultation. During the meeting, discuss your insurance needs, ask questions about their services, and evaluate their responsiveness and ability to understand your requirements.
  7. Compare quotes and offerings. After the consultations, request quotes from the brokers you met. Compare the coverage options, costs, deductibles, and any additional services or benefits they provide. This will help you make an informed decision.
  8. Make your selection. Based on your research, credentials, expertise, reputation, and quotes, choose the insurance broker that best aligns with your needs and preferences.
  9. Finalize the paperwork. Once you have selected an insurance broker, they will guide you through the necessary paperwork and help you complete the insurance application process. They will also explain the terms and conditions of the policy you choose.
Insurance Broker Consulting

The Payment Structure of Brokers

It’s vital to understand how brokers earn their income to ensure you’re dealing with a broker primarily interested in finding the right policy for you rather than prioritizing their earnings. Brokers usually earn through commissions or broker fees, or sometimes both. Most states mandate brokers to disclose commission rates and other fees upfront.

Insurance Broker Commissions

When a broker successfully links you with an insurance company, they receive a commission from the insurer. This commission varies based on the policy and the company and is generally a percentage of the premium.

Often, brokers earn a higher commission on the first policy compared to renewals. Life insurance brokers can earn up to a 100% commission in the first year, which could potentially motivate them to sell you more life insurance than necessary. It’s therefore recommended to consult a fee-only financial advisor when buying a permanent life policy, which is typically more expensive and complex than term life insurance.

Brokers have a financial incentive to ensure you’re satisfied with your policy. If you decide to cancel your insurance or stop making payments within the first few years, the broker may need to return the commission to the insurer.

Insurance Broker Fees

Some insurance brokers charge fees in addition to receiving commissions. These fees must be reasonable and disclosed to the buyer. Some states have restrictions on these fees. For example, Florida caps broker fees at $35.

Insurance Broker vs. Independent Agent

It’s easy to confuse insurance brokers with independent agents, given that both work with multiple companies and earn a commission. However, independent agents earn solely from commissions.

While both brokers and agents profit more when you buy more coverage, they need to maintain quality customer service to retain your business.

Insurance brokers represent the buyer, whereas independent agents represent insurance companies. Agents can bind a policy, providing temporary coverage before the policy is finalized and issued. An insurance broker typically works with an agent or insurer to bind a policy.

While independent agents work with more than one insurer, they have contracts with specific companies and are often limited to selling certain policies. This could restrict your insurance options to those companies. However, an independent insurance agent may have more knowledge about the companies and policies they sell than brokers.

Other Ways to Buy Insurance

To avoid broker fees, you can purchase insurance:

  • Directly from the insurance company, either online or over the phone
  • Through a captive agent who works exclusively for one insurer
  • With an independent agent

Even when working with an independent agent or insurance broker, you can still compare rates yourself. Using an insurance comparison tool can help you find the most affordable price by comparing rates from multiple companies.

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The Bottom Line

Insurance brokers provide a valuable service, helping you navigate the complex world of insurance and finding the best policy for your needs. Whether you decide to use a broker, an independent agent, or buy directly from an insurance company, the most important thing is to ensure that you are adequately covered and comfortable with your choice of insurer.

Remember, insurance is not an expense but an investment to protect your family, assets, and financial future. No matter how you choose to purchase your insurance, the ultimate goal is to provide peace of mind, knowing that you’re prepared for life’s unforeseen events.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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