Insurance Broker V/S Insurance Agent: What’s the Difference?

In the insurance world, the terms “insurance broker” and “insurance agent” are used interchangeably. But are they the same?   

The simple answer is no. There are some critical distinctions between these insurance jobs that you need to know before pursuing one of these careers 

The common ground  

Both insurance agents and insurance brokers act as mediators. They are the bridge between insurance buyers and insurance providers. Anyone interested in working in the insurance field should know how to get an insurance license before being qualified to sell policies. It applies to both brokers and agents. Both operate according to the laws enforced by the insurance departments of their respective states.    

So, what makes an insurance broker different from an agent?    

The key feature that differentiates an insurance broker from an insurance agent is who they represent.    

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What is an Insurance Broker?   

According to Insureonan insurance broker is a licensed professional that serves their client’s best interests. Brokers research coverage, terms, conditions, as well as price from multiple insurance companies. They try to find the best fit for their clients. Brokers are legally bound to recommend insurance products that align best with their clients’ financial interests. Their play a role similar to that of insurance advisors, providing financial advice to clients. 

An insurance broker’s first duty is to look after their clients. Brokers should be able to facilitate insurance solutions to whatever problems clients face. They compare plans from multiple insurance companies to give their clients the perfect deal. They need to be well versed with everything insurance companies offer. In order to ease up the process, brokers need to have the experience to handle specific insurance needs.   

What an insurance broker can’t do is to bind coverage or complete insurance sales on behalf of their client. Insurance agents have this ability, but brokers need their client or an insurance agent to close the deal.   

Now how is this different from an insurance agent?   

What is an Insurance Agent?   

The National Association of Insurance Commissioners (NAIC) defines insurance agents as individuals that sell or negotiates insurance policies on behalf of a company or independently. They are mediators between insurance carriers and buyers. Agents provide buyers with information about the policies that the insurance company or companies that they represent. Once that’s done, they sell the insurance products to the buyers and earn through commissions.    

Despite helping buyers to select the right products, their primary duty is towards the insurance providers.    

Apart from selling policies and products, agents also need to enhance the brand image of the carriers.   

A captive insurance agent works for only one insurer, whereas an independent agent usually represents more than one insurer.    

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How Insurance Brokers get paid  

Insurance brokers get their payout through brokerage once a buyer completes the purchase from the company. Brokers can offer and sell multiple products. The underlying value of the policies they sell determines how much they earn. Because of this, they can experience fluctuations in their income. In various states, they can also charge a broker fee for administrative services they provide to their clients. Since the payment comes from the buyers, brokers are obligated to reveal the exact amount they charge. 

How Insurance Agents get paid 

Meanwhile, insurance agents are not required to disclose the commission rate they receive for every insurance sale. Insurance agents tend to have a more diverse income stream than brokers. Agents mostly make money through commissions. They get a commission every time clients renew their insurance policy. They also get an additional commission if they bring in new clients.   

Captive agents usually receive a commission off the policies they sell. In some cases, they are also are paid on a salary basis by the insurance company they represent. Initially, they might get 5%-10% of the value of the policies. After that, they get recurring commissions every time their client renews their policy.  

On the other hand, independent insurance agents can enjoy a more diverse income stream because they represent more carriers. They have access to a broader range of policies from multiple insurance companies. Because of this, they can cater to a more comprehensive range of needs from the insureds. Providing clients with more choices is the key to growth! 

Boosting your career as an insurance agent  

Earning an AAI designation is another way to enhance one’s career as an insurance agent or insurance broker. Being an Accredited Advisor in Insurance can help every agent provide better quality of service to their client. It can help give agents an edge over those who don’t have it. The Institutes Risk & Insurance Knowledge Group reported that 95% of designees said earning AAI was important to exhibiting professional competency.   

Now that you know the differences between being an insurance broker and insurance agent, which career path do you think is better? Comment your thoughts below! 

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