Most people are confused by the distinction between insurance agents and insurance brokers and it is easy to see why. After all, both professionals sell insurance and earn a commission on it.
The biggest difference between the two is that the insurance agent is a commissioned salesperson who works directly for an insurance company. The agent is a direct representative of the company, as well as a person who sells insurance. That’s why agents can perform tasks like filing claims or taking insurance payments.
The best way to think of an insurance broker is as a matchmaker who tries to arrange a relationship between a customer and an insurance company. The broker does not work for the company or represent it, although he or she does receive a commission from the insurer for referring a customer to it.
Broker vs. Agent
A broker works with a variety of different insurance companies and offers a wide variety of products. Many brokers specialize in certain kinds of policies, such as surety bonds for businesses and professionals or commercial liability coverage. Some brokers specialize in commercial vehicle coverage, while others might work with a certain industry, such as construction.
The line between an insurance broker and agent is often blurred. There are many insurance agents that also act as brokers and vice versa. Some brokers will also act as agents for one particular brand of auto or homeowners insurance. Many agents act as brokers of high profit products, such as life insurance or bonds, but as agents for a car or home insurance company.
Some brokers will use auto insurance as a sort of loss leader to get customers into the office. Once in the office, the broker will try to sell the customer more profitable coverage, such as life insurance, in addition to auto coverage.
When to Use an Insurance Broker
Generally, the best time to use an insurance broker is when you need specialized coverage that you might not understand. If you have never purchased commercial liability insurance or a surety bond before, it is a good idea to buy such a policy from a broker.
Unlike regular auto or homeowners insurance, such coverage is often not sold directly to the public. The market for specialized business coverage is often limited, and only certain companies might work in specific areas.
Another time to use a broker is when a policy must be custom tailored to your needs. A perfect example of this is the insurance on supercars and other high value vehicles. Generally, if a vehicle is worth more than $100,000, you will need a policy written specifically for it.
Certain business activities may also require a custom policy. You may need to go to a broker to insure a specialized vehicle or a piece of equipment you use in your business, such as a bulldozer or a tow truck.
A big reason to use a broker is that he or she will usually be familiar with insurance requirements in your area. State laws often require certain businesses to have a specific amount of coverage. Persons are sometimes required to get bonding or a certain kind of policy to get some kinds of business licenses in many areas.
If you’re going into a new business, it is often a good idea to talk to an insurance broker. The broker might be able to get you the coverage you need and save you money on it.
How to Find an Insurance Broker
Finding an insurance broker can be difficult because there are some agents that call themselves brokers. Many of these people may not be that knowledgeable about insurance.
A good rule of thumb to follow is to avoid agents who are closely associated with a particular insurance company. This includes those who have signs with insurance company logos in their offices or company-themed advertising and participate in company-related events.
Another is to check where the broker operates from. Generally, full-time brokers operate out of an office in an office building like lawyers do. Be leery of an individual that operates out of a storefront or a cheap office.
Some brokers may call themselves by other titles, such as broker dealer or producer. One way to look for a broker is to check the phonebook; brokers will be listed there.
There are also online insurance brokers, some of which are very reputable. If you cannot find a broker in your area, try working with an online broker.
Finally, there is an easy way to tell an insurance broker from an agent. The agent will usually offer only one coverage from one company, while the broker will offer a variety of policies from several different companies. That can save you a lot of money.