Homeowners or renters insurance, car insurance, motorcycle, boat or RV insurance, wedding or engagement ring coverage, and life insurance are just a few examples of the types of insurance coverage you may need throughout your life. And with so many ways to buy insurance these days, it can feel overwhelming to get started.
The good news is we're here with a guide sharing the pros and cons of buying insurance through an agent, broker, or direct, and what method may be best for you.
WHAT IS AN INSURANCE AGENT?
An insurance agent acts as an intermediary between you and an insurance company. Agents typically represent one specific insurance company and sell on behalf of that company, but there are some insurance agents who can represent multiple companies and sell their policies for a commission.
There are two types of insurance agents:
- Captive agents typically represent only one specific insurance company
- Independent insurance agents typically represent one or more insurers
The important distinction is that an insurance agent has an agency agreement, or contract, with the insurer(s) that stipulates the different types of insurance the agent can sell and the commission rates for each policy. Agents are able to complete an insurance transaction from start to finish.
Agents also must be licensed and are governed by state regulations.
WHAT IS AN INSURANCE BROKER?
On the other hand, an insurance broker serves as an intermediary between you and potentially several insurance companies. They can help you compare different insurers and do your coverage shopping for you to find the best insurance for your needs. Their primary duty is to you, the client, and they will examine your needs and search from a variety of insurers to find you the right policy at the right price.
Brokers do not represent insurance companies, so they can’t bind on coverage on behalf of an insurer. Instead, brokers hand your account over to the insurance company or one of their agents to complete the transaction.
Brokers may focus on one type of industry, such as life insurance, or they may be able to help with multiple insurance products, such as auto, home, and life. As with agents, they must be licensed and they are governed by state regulations.
Another thing to note about brokers is that they make a commission based on a policy sale, typically as a percentage of your monthly premium and paid by the insurance carrier. Because it costs insurance companies more to sell you insurance through a broker, buying a policy through a broker may have a higher price tag.
WHAT IS BUYING INSURANCE DIRECT?
Buying insurance direct means you essentially do all of the work to compare and buy your policy yourself. This means you would call the insurance company or go to their website to purchase the policy you need. Whenever you have a question or if you need to change your coverage, you’d work directly with the insurance company.
WHAT’S THE BEST WAY TO BUY INSURANCE THAT SAVES TIME AND MONEY?
- Has expertise in a specific area with a specific carrier
- Represents insurers
- Can complete insurance sales from start to finish
- Not able to help you compare all of your options—typically sell for one insurance carrier
- Do not always handle claims
- Can help you compare all of you options
- Represents you (the client)
- Can search for policies from multiple, different carriers
- Do not always handle claims
- Policy can cost more due to commission policies
- Cannot complete sales (must hand off to insurer)
- Final cost may be lower
- Can avoid some fees
- No pressure from salespeople while shopping
- Direct relationship with insurance carrier
- Fast and easy to apply or update coverage
- You must contact insurance company directly with questions or to change coverage
- Requires more shopping to get quotes from each company separately
- Purchasing a complex or customized policy can be more difficult
To help determine whether you should buy insurance through an agent, broker, or direct, ask yourself some of these questions:
- Do I already have a connection with an insurance company? If so, working with one of their agents can make the experience smoother.
- Are my insurance needs complex or simple? Simple may make buying direct better, while more complex may require help from an agent or broker.
- Do I know the type and amount of coverage I need? If not, working with an agent or broker can help ensure you get the coverage you need at the right levels.
- Do I want to do my own research to compare coverage and prices? If so, buy direct.
- Am I comfortable working directly with an insurance company with questions about coverage or claims? If not, you may want to work through an agent or broker. Otherwise, direct may work just fine.
At the end of the day, an insurance broker plays a type of advisory role to help you find the best coverage, with their responsibility being to you. They can examine several policies and recommend coverage from different companies, and then turn your policy over to an agent or provider to complete the transaction.
On the other hand, an insurance agent can sell policies from one or more insurance providers they represent, while acting as more of a closer than an advisor. Agents can explain the different options, but they will ultimately leave the decision up to you. Then, they can help complete your transaction and bind coverage.
While some consumers prefer to have a go-to person they work with when it comes to managing policies and coverage, others would rather have some of the features you can only find buying direct, like online live chat, instant downloadable policies, custom dashboards, and more. Buying direct also puts all of the shopping, comparing, and purchasing in your hands without pressure from a salesperson. While this can be more difficult depending on your needs, it can also offer more flexibility.
Whether you use an agent or broker or buy direct ultimately depends on your preferences and insurance needs. There are pros and cons to weigh and compare, but the important thing is to go with what will make you the most comfortable and get you the coverage you need, at the most affordable cost.