What Is An Insurance Broker? The Best Secret Tips

TLTR: This article answers the what is an insurance broker question and explains the intricacies of the insurance broker career, particularly in contrast with that of an insurance agent.

Insurance buyers and laymen often use the words “insurance agent” and “insurance broker” interchangeably. They often do not understand the difference between the two until working with both and experiencing it for themselves. Once they do, however, most would agree that the difference is significant.

Even amongst insurance professionals, a lot of misconceptions and misuse of the terms exist. “What is an insurance broker?” You ask. Have no fear, we’re here to break it down for you.

What is an insurance agent?

To understand what an insurance broker is, you first should understand what an insurance agent is.

According to Insureon, an insurance agent is a professional who sells an insurance company’s products to consumers for a commission. While agents do help consumers find insurance plans that fit into their needs and budget, ultimately agents represent their insurance companies.

There are two types of insurance agents:

• Captive agents. These agents work for only one company. Their main priority is maintaining the sales goals of that particular company.
• Independent agents. These agents work for various companies. Because they prioritize maintaining each company’s sales goals equally, they can be more flexible with their client and focus more on their needs.

What are the key differences between an agent and a broker?

The main differences between insurance agents and brokers are as follows:

• Representation. Agents represent insurance companies, while brokers represent clients.
• Bind coverage. Agents can complete sales, brokers cannot.
• Appointment. Agents are appointed to represent the insurance companies ahead of the sale. Appointments are contracts that set rules for how much an agent can sell and what commission they can make.

What is an insurance broker?

An insurance broker is a professional who represents consumers in their search for the best policy for their needs. Brokers focus primarily on their clients and do research based on their clients’ needs.

While captive and independent agents represent one or more insurance companies, a broker represents their clients. However, because of this, they can’t bind coverage on behalf of an insurer. They have to ultimately make a deal with an insurer or insurance agent to complete the transaction.

What does an insurance broker do?

If they cannot close an insurance deal without an agent, you might wonder what the exact purpose of an insurance broker is. It might seem redundant to pay broker fees along with agent fees.

The main purpose of a broker is to research and ensure the lowest possible cost for the best coverage. Essentially, an insurance broker is a non-biased third party that exists to reduce the amount you pay for insurance. They also help their clients find the most ideal coverage for special circumstances.

For this reason, brokers are often used when clients need to buy heftier and more expensive insurance plans. Getting a broker for your $10 per month pet insurance might prove to be a waste. Getting a broker for your company’s E&O insurance, however, can save you thousands of dollars.

When do I need an insurance broker

The way you buy insurance is a personal choice. Some people prefer to skip using a broker and agent altogether, and buy their insurance directly from a company. This can be done online or over the phone, without having to deal with any agents, just the insurer. But this method works best for clients who already have a detailed idea of their insurance needs and options, or those opting for cheaper and less complicated plans.

Brokers are helpful when people have more complicated insurance needs, like a business owner or a non-profit director who needs more than one policy. You might benefit from an insurance broker if you:

• Have investment properties.
• Have a car collection, or a collection of any kind of vehicle.
• Want to understand the details of a policy such as exclusions and limits.
• Have a business that hires employees.
• Have little time to research on your own.

What is an insurance broker’s salary?

According to a salary estimate made by Glassdoor, based on 413 salaries submitted anonymously to Glassdoor, insurance brokers make an average of $66,714 per year. This would vary greatly based on factors like:

• Location
• Client profiles
• Amount of sales made
• Broker reputation

On the other hand, the median annual wage for insurance agents, according to the US Bureau of Labor, is $52,180. The lowest 10 percent earned less than $29,000, and the highest 10 percent earned more than $127,840. This number is also affected by similar factors.

Ultimately, a broker does make slightly more on average than an agent.

How do brokers get paid?

All brokers make money from either commissions or fees. They may charge both of these things, only a commission, or only a fee. In most states, the law requires brokers to disclose all of their commission rates and other fees upfront. Premiums might bring in additional fees.

Commissions

Insurers pay a commission to the broker when they bring a client to their company. Brokers will often receive a larger commission on the first policy compared to renewals. This ensures clients that brokers can always find them a better deal, as they have no reason to stay loyal to one company.

The number of commission brokers receive also depends a lot on the type of policy. For instance, according to Nerd Wallet, insurance brokers can earn up to a 100% commission the first year.

If you end up unhappy with your insurance plan and cancel it, the broker will lose either part or all of their commission. So brokers work hard to make sure there is a high level of trust and transparency with their clients. If a client isn’t completely on board and satisfied, the broker can’t make a commission.

The commission does not affect the total cost for the client—even if a client were to shop for insurance on their own, they would still pay the same price. The insurer is the party that pays the broker their commission.

Broker fees

Some brokers, particularly experienced and reputable brokers, may charge an additional broker fee. Some states won’t allow broker fees for certain policies. In California, according to the California Department of Insurance, it’s illegal to charge broker fees. In Florida, broker fees are capped at a reasonable $35 dollars.

Broker fees come out of the client’s pocket and are non-refundable. Even if you are unhappy with a plan and end up cancelling, you cannot get your broker fee back. However, if your broker was being dishonest and self-serving in any way, you can file a claim against them for the total amount you spent, including the broker fee.

Oftentimes, people avoid brokers because of their fees. However, with a skilled broker and a large insurance need, any client would save more than enough money to cover the cost of the fee.

How to Become an Insurance Broker

Step 1: Earn a BA in risk management, business, finance, economics or another related field.

Although it isn’t a requirement, if you know early on in life that this is a career you want to pursue, a bachelor’s degree can be very helpful. Potential clients and also brokerage companies will show preference to a broker with a degree. It might seem like just a piece of paper or a status symbol, but its uses extend far beyond that.

A bachelor’s degree in those particular subjects can give you an edge. You’ll have ingrained knowledge that a lot of your competitors may not have. Even if your bachelor’s degree is in a different subject, you’ll have skills such as research, public speaking, writing, and interpersonal skills under your belt.

If a four-year college is not realistic or accessible, even enrolling in a two-year program at a community college can helpfully refine these skills and knowledge of finance, economics, and risk management.

Step 2: Get an internship at a brokerage firm.

Whether you get your B.A. or not, an internship is a crucial step. This exposure to the industry will help you hone your work ethic and understand the structure of a brokerage firm. You will have an opportunity to observe and participate in the internal operations of the firm.

Generally, for internships, you will receive a written evaluation from your management. This evaluation can lead to a great recommendation letter moving forward. You will also be able to learn more about yourself through this process and your own strengths and weaknesses.

Step 3: Get your insurance broker’s license.

Once you feel you’re ready to take the plunge into the workforce, you need to get your license. Every state has different requirements depending on the type of insurance. Figure out whether you want to do life, personal, health, property and casualty insurance or a combination. Some states are no longer allowing brokers to pursue two or more types of licenses and requiring them to obtain a producer’s license instead.

You’ll typically need to pass an insurance broker exam. Make sure you study well in advance. Consider taking courses to supplement your independent study schedule.

Step 4: Find a job immediately.

At a brokerage firm, you will most likely start out as a broker’s assistant, unless you’ve had a long-term internship experience with glowing recommendations. Regardless of where you start, you need to work your way up in order to reach a point where you’ll be trusted with high-profile clients and receive higher commissions.

Start applying for work the day you receive your license. The process of getting from your entry level gig to a high-paid insurance broker job is a steep climb and it would serve you best to start right away.

Step 5: Obtain an Insurance Broker Certification.

For career advancement, you’ll need certification in an area of insurance where you’ve acquired expertise. The National Alliance for Insurance Education and Research offers a number of voluntary certifications for independent agents or brokers. These include:

• Certified Insurance Counselor (CIC)
• Certified Insurance Service Representative (CISR)
• Health Insurance Association (HIA) certificate from America’s Health Insurance Plans (AHIP)
• Certified Risk Manager (CRM)
• Certified Financial Planner Board of Standards offers the Certified Financial Planner (CFP)

Once you have completed all of these steps, you will find yourself receiving abundant opportunity as an insurance broker.

In conclusion

What is an insurance broker? Outside of being one of the best-paying jobs in insurance, an insurance broker is someone who can untangle the web of complexities that comes with insurance and offer their client the best deal possible. It’s a difficult, but rewarding job that makes you someone people can truly rely on.

For more information on the insurance industry, check out our insurance blog. Also, ask any questions you may have in the comment section to get answers from real insurance experts.