Should You Use a Broker to Buy Life Insurance?
You’ve decided to purchase life insurance—great! It’s a wise financial move, but have you also decided who to buy a policy from? When shopping for life insurance—and other insurance policies—you have two options: to work with an insurance broker or buy from an agent, either an independent or captive agent.
Both brokers and agents must hold the appropriate licenses to distribute the insurance they are selling and adhere to any laws or regulations enforced by local insurance departments. Beyond this, however, there are differences that can affect if you get the best policy for you.
An insurance broker sells and negotiates insurance policies while representing and acting in the best interest of the buyer. While they work for insurance brokerage companies (not the insurance carriers themselves), their goal is to understand your unique insurance needs and then help comparison shop to find the best policy and value for you. Brokers can also advise on bundling (combining different types of insurance to receive discounts or reduced premiums) and customizing policies, sometimes in ways an agent may not be able to because the agent may be restricted in their policy offerings or simply because they don’t know your needs as well. Because brokers work with multiple insurance companies, they often hold a broader understanding of companies’ offerings and benefits.
A broker’s pay is commission based, which can work for or against you: a broker may be motivated to earn your repeat business and strong referrals, so they’ll offer you a policy with the best value, or they may try to sell you a policy with unnecessary bells and whistles to earn a higher commission. To avoid landing in the second scenario, ask the broker about each aspect of a policy and why they believe you need it. In addition to this, you can ask to see how the broker’s commission rates affect your insurance premium. Brokers are required to provide full disclosure on their commission rates.
Beyond offering a wide selection of policy options and working for your best interests, a good broker will also be available to help if you ever need to file a claim. A knowledgeable and familiar professional who can help in a time of high stress and emotion can be invaluable.
Independent and captive agents
Agents, on the other hand, represent the interests of an insurance company, or, in the case of independent agents, multiple companies. Most agents work on commission, like brokers, although some captive agents are salaried. Working with an agent comes with both pros and cons for buyers.
An independent agent represents multiple insurance carriers and can offer a similar selection of options as a broker would. Usually independent insurance agencies are smaller than brokerage companies, however, so their offerings may be limited. They may also be limited in their ability to offer you all of an insurer’s policies.
Captive agents work for and represent just one insurance carrier. They possess thorough product and policy knowledge for that company, which is great if you already know which company you want to purchase from.
Regardless of whether you decide to work with a broker or agent, doing your own research and asking questions whenever something isn’t clear are key strategies to getting the best deal on a life insurance policy.