Life Insurance Broker vs. Agent: What’s the Difference?

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Making the decision to secure your loved one’s future by getting a life insurance policy can be one of the most helpful and important financial purchases out there. However, where do you start?

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What guidance is available to make sure you can obtain the right kind of life insurance for you and your family? Who is best to help you get coverage: a life insurance broker or a life insurance agent? Below, we break down the major differences between life insurance brokers and life insurance agents, and who may be best for you and your family. 

Overview: Life Insurance Broker vs. Agent

Both life insurance brokers and life insurance agents are licensed within their respective states. They both are required to comply with all insurance regulations and statutes. However, the way brokers and agents approach their life insurance work is a bit different. 

Life insurance brokers 

Life insurance brokers represent the consumer in finding the best coverage for their needs and budget. Brokers are unable to bind coverage, so they hand over your completed life insurance application to the insurance carrier for the completion of the sale. This means an insurance broker won’t be able to give you a preliminary copy of your insurance contract—even before the insurer issues the official policy.

Life insurance agents

Life insurance agents represent one insurance company exclusively (also known as captive agents) or multiple insurance companies (independent agents). Agents essentially work for the insurer and are able to independently complete the sale, also known as binding coverage. In theory, this means you can receive coverage immediately from the represented company as opposed to when working with a broker.

Another key difference between the two insurance professionals is that agents only offer life products sold by the companies they are appointed to represent. That said, insurance brokers may offer their clients many different insurance products and companies. A life insurance broker is focused on pleasing their customer and working on providing the best life coverage possible. 

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What does a life insurance broker do?

Life insurance brokers are able to represent their clients best by accessing a wide variety of life insurance products. Brokers closely evaluate different types of life policies, as well as the life insurer itself. They analyze each insurance company’s financial security, claims paying history, and customer service reviews. 

In addition, life insurance brokers usually specialize in a particular market, industry, or risk type. For instance, a broker might be dedicated to exclusively helping high-risk trucking companies secure small business coverages. 

Although brokers aren’t allowed to bind coverage, they are equipped to help clients complete their life insurance application and guide them through the underwriting process. Brokers can secure an insurance binder (temporary insurance contract) signed by the carrier’s underwriter. Within 30 to 90 days, the insurance carrier will replace the temporary policy with the official policy. 

There are two types of brokers, retail and wholesale, which are defined as the following: 

  • Retail brokers: If they are unable to secure the right coverage from a traditional insurer, the broker will usually contact a wholesale broker. 
  • Wholesale brokers: This type of broker works as an intermediary between insurance companies and retail brokers. Wholesale brokers that arrange policies for unusual or high-risk insured people are called “surplus lines brokers.” 

Most brokers are independent or work for a life insurance brokerage. They typically charge a fee for their professional services. 

What does a life insurance agent do?

As mentioned above, life insurance agents represent one or many insurance carriers. They may work under one of the following arrangements:

  • Captive agents agree to sell insurance products for one single insurer. For example, agents that work for State Farm or Allstate are captive agents and only sell insurance policies on behalf of those specific insurance companies. Captive agents won't be able to get you insurance quotes from any other insurer besides the one for which they currently work. 
  • Independent agents agree to sell a long list of different insurance products from various insurers. These types of agents have a contractual agreement (called an appointment) with each of the insurers they represent. As part of their appointment, the insurance carrier pays a commission to the agent for each policy sold. 

Agents may also receive additional compensation, known as contingent commissions, by meeting established performance criteria. Insurance brokers are rarely able to earn a contingent commission as this practice fell out of favor years ago. Life insurance agents don’t always know the amount of contingent commission, if any, they may earn from a sold policy until the end of the underwriting year. 

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Life Insurance Brokers vs. Agents: Which One Do You Need?

Both life insurance brokers and life insurance agents are licensed professionals. They both can assess risks, offer coverage suggestions, provide a few policy options, assist with the claims process, and act on your behalf when dealing with the insurance company. Considering all the similarities, it’s no surprise that you may be wondering which one you need. 

Let’s further break down life insurance brokers versus agents.  

Insurance agents may be a better choice for you if:

  • You already have other insurance policies with a certain insurer and would like to bundle coverage for a better premium.
  • You want a particular insurance company only, in which case a captive agent may be best. 
  • You want the agent to complete your policy purchase.
  • You do not want to pay any service fees like you would when working with a broker. 

Insurance brokers may be a better choice for you if: 

  • You are considered a high-risk individual and may have trouble finding coverage. 
  • You don’t mind paying a professional broker fee for their services. 
  • You prefer an impartial recommendation on finding the best life insurance policy for your budget and financial planning needs. 
  • You want to compare different life coverages and price points that are available throughout the life insurance marketplace. 

Obviously, you should feel free to chat with both a life insurance agent and a life insurance broker. You can tell each insurance professional your objectives and let them tell you how they can assist. There’s no cost to phone a life insurance broker or agent to get more information.  

Life Insurance Brokers vs. Agents: Do They Cost the Same?

The cost to you as a consumer is the same whether you use a broker, an agent, or go directly to the life insurance carrier. Both insurance brokers and insurance agents earn commission from life insurance policies they’ve sold. Some of these professionals also earn a combination of salary and commissions.

Life insurance agents usually earn most of their commissions during the plan’s first year. For instance, an agent may earn as much as 120 percent of the premium for the first twelve months of life coverage. The renewal commissions for subsequent years typically will drop to an average of 7.5 percent or lower. 

Keep in mind, the life insurance agent or broker you select should give you a compensation disclosure statement. This document details the types of commissions they receive from the insurance company. For example, the disclosure statement may tell you whether the agent or broker earns a base commission or a contingent commission. 

Making the Choice Between Broker vs. Agent 

Making big decisions can be tough because you don’t want to make a mistake. It’s challenging enough to figure out how much life insurance you may need or how your family will handle the responsibility for funeral costs. Now you have to decide which life insurance professional can assist you in this daunting process.

In the long run, both agents and brokers are licensed experts that can help you. It’s simply a decision of cost and product offerings. For many, life insurance can help ease stress they may have when deciding on any end-of-life plans.

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