What Is an Insurance Broker?

If you’re shopping for homeowners insurance, auto insurance, life insurance or another type of policy, you’ll probably notice there are a ton of options out there. Narrowing down which insurer and coverage levels are suitable for your situation can be tricky without help. After all, there are hundreds of insurance companies, and your coverage needs will likely vary depending on your situation. The right insurance broker can make it much easier to find the right policy.

For help figuring out your insurance needs, consider finding a financial advisor.

An insurance broker is a professional that can help you shop for coverage. Brokers don’t typically work for one insurance company, meaning they likely won’t have a vested interest in selling a particular policy like some insurance agents. Instead, brokers represent their customers and work to find the best policies for their needs.

If you’re looking for a new policy, working with an insurance broker may help simplify the research process. They can compare different options on your behalf, choosing several policy options that might work well for your situation. Then, they present the policies to you, and you work together to choose the best insurance coverage.

How Do Insurance Brokers Make Make Money?

Insurance brokers typically make money in two ways, either through earning commissions or collecting a broker fee—sometimes both. Brokers may earn a commission from insurance companies when they sell you a new policy. This commission essentially acts as a bonus from the insurer to the broker for bringing them new business. Typically, the commission a broker earns is a percentage of the policy’s total annual premiums.

Certain insurance brokers may also charge fees, which vary by state but are typically relatively small. These fees can be worth the cost because not only will working with a broker save you time, but doing so may also save you money on a new policy. For instance, your broker may be able to find coverage that offers a lower monthly premium than what you’re able to find on your own. This means you get to keep more money in your pocket.

Insurance Brokers vs. Insurance Agents

There are two types of insurance agents, and both work slightly differently than insurance brokers. Captive agents are professionals employed by one insurer, meaning the policies they sell are from that particular company. These agents may have a vested interest in selling you an insurance policy provided by their employer, even if there are better options for you.

Independent insurance agents don’t work for one insurer, but they may have contracts with several companies. This means that they may only compare and offer a selection of policies from those companies. With a broker, you’ll likely end up with a wider range of coverage options to compare. And more options can be a good thing if you’d like to find the right coverage at the most affordable price.

Frequently Asked Questions About Insurance Brokers

Here are some common queries about how insurance brokers work:

Is Using a Broker Worth It?

How you shop for insurance is a personal matter, but using a broker could make sense if you’re feeling overwhelmed by your options. While insurance brokers may charge a nominal fee, they can also simplify the process of finding the right coverage. They may also provide more options than both captive or independent agents, giving you a full picture of what’s available.

Is a Broker or an Agent Better?

The option that works best for you will depend on your situation. If you already have coverage with a particular insurer and you’re happy with that company, you might choose to work with a captive agent and bundle your existing coverage with a new policy. An independent agent may also be able to provide options from that company and a small selection of companies they’re contracted with. But if you prefer to compare options from several companies, working with an insurance broker could be the right choice.

Do Brokers Earn Commissions?

Yes, insurance brokers often earn commissions. But you typically won’t need to pay their commission, as insurance companies generally do this. For instance, if a broker sells you a policy from Company A, Company A will pay them a lump sum percentage of the total annual premiums on that policy.

The Bottom Line

Insurance brokers can help take the pain out of shopping for a new policy. Instead of comparing several options from dozens of insurers on your own, a broker will do this work on your behalf. While both brokers and agents are generally paid on commission, brokers generally don’t need to sell you a certain policy from a specific insurer to earn their commission. This makes brokers a smart choice for those interested in a full picture of what coverage options are available to them.

Insurance Tips

A financial advisor can help you make the right choices regarding insurance. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Use SmartAsset’s insurance calculator to see just how much life insurance you need.