Have you ever wondered how an insurance agent makes money from the policies you and many others buy? You can get the insurance coverage through either an agent or broker, but they have to be licensed. They are monitored and regulations are enforced through the state insurance departments.
Difference of Perspective
The exact specifics of the different jobs of insurance agents and brokers may vary a little by state, but in general an insurance agent represents one or more particular insurance carriers and brokers represent you, the buyer. Agents can only represent the particular insurance products they are allowed to by certain insurance carriers. There are very specific products they have binding authority to initiate policies on. Captive agents work for a single insurance carrier, whereas independent agents can represent many.
Brokers can send in your application to many insurance companies on your behalf, but they have no ability to bind coverage. The binder has to come from the actual insurer. You are then given a temporary binder, or policy that will then be replaced by a full policy within 60 days usually. A broker that you personally deal with is a retail broker, but they can then branch out and contact wholesale brokers to try and locate specific coverage policies.
How Do They Make Money?
The money that agents and brokers make is commission based normally. There are a few select captive agents that may receive a salary, but most have to earn commissions based on sales. The commission amounts are based on the premiums that you pay for the coverage. It could be base commissions or contingent. Base commissions are a set amount per policy type and are usually higher for new business rather than renewals. This is so the agent or broker will be more financially motivated to get new business. An example of this is that new workers getting health insurance might earn the agent or broker 15% commission, whereas a renewal may only pay 10%.
It’s the most wonderful time of the year. Bonus Time. Contingent commissions or as many agents call them, bonuses, are extra amounts that are given by insurers as an incentive to get increased volume for certain policies. It is generally a super incentive for an agent or broker to get high volumes of policies for specific companies. Sometimes a bonus can come in the form of a luxury vacation. This may be somewhat expected with agents, but is a bit frowned upon with brokers. This is because a broker is supposed to be working on your behalf, not the insurance companies’.
Very few brokers accept contingent commissions due to the controversial nature of the monies. Any agent or broker that presents you with a policy should disclose contingent commissions if they receive them. It gives you a heads up that they might be pushing the product for personal financial gain rather than it being an actual product that is the best for you and your needs.
This is not to say that every agent or broker getting contingent commissions is not looking after your best interests, but it does give you reason enough to really do your research well before committing to a particular policy. Doing your own homework is the best way to make sure that you are being matched with the right product at the best price.
If something feels off about the policies and prices you are being offered then walk away. Find another agent or broker to do business with. You want to be confident that your agent or broker is being above-board and honest with you about your insurance needs.
Tools for Becoming an Insurance Agent: