Understanding insurance: agent vs. broker
If you're looking for insurance for your home or car, you want to shop around to find the best price. It just makes good financial sense. When shopping for a home, you don’t buy the first house you visit. You don't want to buy the first insurance policy you see, either.
The truth is not everyone knows which questions to ask when shopping for insurance -- or even where to begin looking to get quotes. That's where the help of an insurance agent or broker comes in handy. You’ve probably heard these terms before, but what's the difference between the two?
Although in the real world people can use these two terms interchangeably, in the financial world these two titles represent two very different jobs. Understanding insurance properly requires that you know the difference. An insurance agent runs their business differently than an insurance broker, and each offers different products. Which one you need depends on what you're looking for when it comes to your home and auto insurance.
An insurance agent
Insurance agents work on behalf of the insurance company. They are employees of the company such as RBC Insurance or TD Meloche Monnex. Although they may offer products from different insurance companies, it's important to remember that they are employed by one company. This means they are most likely mandated to sell their proprietary insurance products.
Insurance agents are not able to offer all products on the market. They only offer products that their employer has contracts with and therefore the selection of products may not be a full service offering.
An insurance broker
Insurance brokers operate differently than agents. Brokers do not work for one individual insurance company. They work for themselves and in turn for you the customer. Although both agents and brokers can offer the same types of insurance, since the broker does not have loyalty to one employer they will search the market to compare home and auto insurance policies and find the best option for you (hopefully at the best price).
Brokers are paid directly by the insurance company from where they sell the product. If they don't sell, they don't get paid. In addition to receiving a commission from the insurance company, brokers can also charge a fee.
This is not a hidden cost as brokers have to disclose fees to customers. Note that the fee can vary - or not be charged at all. The longer you've been a client, and the more products you have with the broker, the lower the commission fee will probably be.
Which one do you need?
According to Examiner.com, "Brokers have a much wider spectrum of insurers they deal with. They can purchase insurance for you from markets that are generally not available or insurers unwilling to pay the commissions your agent requires to place business."
However, if you have a preferred insurance provider in mind, such as one that is associated with your bank, an insurance agent will do just fine. Some people like to have all of their financial products with one company.
Consider your needs, and take a little time for understanding insurance. You’ll have a better experience and be more likely to get the products and coverage you need.