What is an Insurance Broker? | A complete guide
Have you ever wondered what is an insurance broker? Simply put, they can help you find the best insurance policies that fit your needs. Admittedly, getting insurance on your own is relatively easy. However, working with a professional can be beneficial since they can help you with the process and answer any questions that you may have.
What is an insurance broker?
Insurance brokers work as intermediaries between insurance companies and people who need insurance (buyers). Since insurance brokers don’t work for specific insurance providers, they can shop around with different insurance companies to find a policy that works best for their client’s needs.
Since insurance brokers require a license to sell insurance, you can feel safe knowing that they’re up-to-date with what’s happening in the insurance market. Insurance professionals also need to pass exams and keep up with industry regulations to maintain their licenses.
What does an insurance broker do?
Now that you know what is an insurance broker, you’re likely wondering what they do. Insurance brokers look out for their clients’ best interests by searching for insurance plans that have the best price. They’ll look at the different policies and coverage options based on your insurance needs. They’ll then present you with different quotes, so you can pick the best insurance policy for your needs.
To be clear, insurance brokers act as middlemen. They match insurance buyers to insurance products. They don’t bind coverage since they don’t work for the insurance company directly. Instead, they get the paperwork in the hands of both parties to ensure that the policies can be completed.
Every insurance broker is different but generally speaking, the different types of insurance they offer include:
- Life insurance
- Auto insurance
- Home Insurance
- Business Insurance
- Disability insurance
- Critical illness insurance
It’s worth noting that there are different types of insurance brokers. While some sell all types of insurance, many will focus on one specific type of insurance. For example, life insurance or auto insurance.
When to use an insurance broker
While it may seem obvious to use an insurance broker to find the best coverage, they’re not necessarily a good fit for everyone. Some people prefer to handle insurance sales on their own, but in most cases, a broker is good for people in the following situations:
- You need complex insurance or have specific needs
- You have multiple cars or homes
- You want to pay the lowest premiums possible
- Business owners who aren’t sure what insurance they need
- You’re looking for specific insurance coverage
- You don’t understand the insurance industry and need advice
- You prefer to have a personal relationship
How insurance brokers make money
Naturally, people will want to know how insurance brokers make money. In most cases, insurance brokers are paid a fee by insurance underwriters (providers). This fee differs depending on the type of insurance, but it can be as high as 20%.
Some brokers also charge broker fees, which are paid by the client. That said, this is rare as most provinces have banned this type of fee structure.
It doesn’t matter if you’re getting a new policy or looking at insurance renewals, the way insurance brokers make money is the same.
Insurance broker vs agent
Many people assume that insurance brokers and insurance agents are the same things. To be fair, they’re very similar, but there are a few minor differences.
Independent agents will formally represent a specific insurance company. There are even types of insurance agents that represent multiple insurance companies. They’re only able to sell their company’s products on behalf of their clients.
A retail broker is like a free agent who can offer any insurance product from various providers. Since a broker works for the client, and not an insurance provider, they can look for the best coverage for your needs.
Keep in mind that there are online brokerage firms that offer insurance products directly to consumers. With one search, you can get quotes from different insurance providers. This gives you maximum exposure within a matter of minutes.
Since insurance brokers make money by selling you products, some agents/providers might try to sell you products that make them a higher commission. When dealing with an insurance broker or agent, be sure to ask them many questions. Also, make sure you understand the product before you agree to purchase it. For example, in most cases, term life insurance makes more sense than universal life insurance. If your insurance agent is trying to push you on universal life, make them explain why.
Are insurance brokers worth it?
In most cases, insurance brokers are worth it. They’ll shop around for you and make a recommendation based on your needs. Since they’ll often be searching with 30+ insurance companies, you can quickly compare the coverage and costs before making a decision.
In most cases, insurance brokers are being paid by the insurance provider, so there’s absolutely no cost to you.
How to buy insurance
By now, you know what is an insurance broker. Buying insurance through a broker is arguably the best way to find policies that are ideal for your situation. That said, there are a few different ways to purchase insurance, such as:
- Directly through the insurance company. This can be done online or over the phone.
- Through captive agents that typically only work with one insurance provider.
- With an online insurance broker.
Regardless of which route you go, it’s always best to shop around. Be sure to ask your insurance broker, agent, or company details questions so you understand your policy before you commit.