Insurance brokers make everyone’s life easier when it comes to looking for the best possible insurance plans, but did you know that most people can actually make do without one?
How much do you know about insurance brokers? Everyone knows that they deal with insurance plans, but do you know what they actually do? Do you know if you need one?
This post will answer everything you need to know about insurance brokers. After reading this, you will have a better understanding of what it is they really do. You will also be able to confidently determine if you actually need one.
Insurance Brokers Defined
Insurance brokers are middlemen. They are intermediaries between people and insurers. Their ultimate goal is to find the best insurance plan for you that suits all your needs with the best possible pricing.
Hiring insurance brokers simplifies one’s life by leaps and bounds as you wouldn’t have to go from one insurer to another and meet with different people, you just meet with them and tell them everything you need and they will handle it for you. At the end of the day, you just have to choose which plan you prefer. All research and necessary forms will be provided by them. However, you would have to pay for their services via broker fees.
Paying for a fee can ultimately work to your advantage because you can end up saving thousands of dollars by having less expensive insurance plans offered by your insurance broker that only required $100. You may have paid $100 for broker fees and still end up saving hundreds as your insurance broker offered a soundly priced and affordable plan.
When do you need an insurance broker?
You don’t always need to hire an insurance broker. Buying insurance is strictly a personal activity and you alone ultimately decide on what kind of protection to choose. But then again, it’s best for some people with complicated insurance needs to hire one. People like small business owners or landlords that require several policies will greatly benefit from hiring an insurance broker as all concerns, factors, and requirements will be duly met with ease and in a stress-free manner.
Having an insurance broker will highly benefit you if you are in any of the following situations:
- You own multiple homes or cars
- You need someone to fully explain every single insurance factor and dynamics like limits and exclusions
- You own a business
- You want to do extensive research on different insurers because you want to fully know what offers are available for you but you have no time and energy for it
- You need a professional that can fully guide you and help you in fully protecting you from liabilities and securing all your insurance needs.
PRO TIP: If you’re looking for permanent life insurance, you should opt for a financial advisor that works on a fee-only basis.
How do brokers earn?
You need to know how brokers earn their money because you need to protect yourself from brokers who are only after making money. You need to know so because you would want to build a personal relationship with an insurance broker that has your welfare and security as a priority.
There are two ways for brokers to make money: via commission or via broker fee. Insurance brokers are often required by law to fully disclose their fees and commission rates upfront. Insurance brokers in Perth are required to do such. Regardless of legal requisites, you should still go out of your way to inquire about a broker’s charges apart from premiums.
1. By commission
Commissions are earned by insurance brokers whenever they successfully sell a company’s insurance plan. The rate varies per company depending on the kind of policy. It is often calculated on a percentage basis considering the premium.
New policies get higher commissions than renewals. So much so that some even get 100% commission during an insurance plan’s first year. As such earning could heavily motivate brokers to sell more life insurance plans, you should opt for a fee-only financial advisor that will not pressure you to consider or renew plans.
You need to know that some brokers can be heavily invested in your purchased plans as some can be required to repay or return paid commissions should you opt to cancel your insurance plan or stop paying.
All commissions are automatically included in computing the price of any insurance policy. Should you opt to not hire an insurance broker, you will pay for the same amount, just that the insurer need not pay a commission for an insurance broker.
Because all companies give commissions to insurance brokers, brokers are expected to be neutral and free of any preference of one insurance provider over another. But some companies significantly give more perks like gifts or bonuses for every new client. So it’s always best to ask your insurance broker upfront when it comes to commission. It will save you from having to experience unnecessary pressure.
2. Broker fees
Apart from commissions from insurance companies, insurance brokers also earn from charging service fees. All broker fees are required to be sound and fully disclosed to all clients. Most states have fee restrictions. Do take note that broker fees are non-refundable in most cases. This means that no money will be returned to you should you opt to cancel your policy. An exception to the case would be if you’d encounter a fraudulent or dishonest broker.
Independent agent vs insurance broker
Independent agents are insurance brokers that earn money purely on a commission-basis while insurance brokers earn money both via commissions and broker fees. Independent agents work for the profit of insurance companies while insurance brokers work for your welfare and represent your needs and concerns.
You can buy insurance without an insurance broker
If you don’t want to pay broker fees, you can do the following:
- Inquire directly with insurance companies. You can do this via phone or online.
- By looking for an independent agent that works for an insurance company
- By looking for a captive agent
Take note that you’re free to still look around for insurance plans even if you have an insurance broker or independent agent. You can also use insurance comparison tools online to help you easily compare different plans.
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