The most important difference between a life insurance broker and a life insurance agent is the employment contract with an insurance company. Brokers do not have an employment contract with an insurance company and have no authority to act as a representative of the company. Brokers only act as intermediaries that match potential insurance buyers with insurance company products.
The life insurance agent alternatively has an employment relationship with an insurance company and acts as a representative of the company. Agents have an obligation to serve the company's best interests and this can affect an agent's recommendations to a potential buyer.
Are Life Insurance Brokers Really Independent?
Brokers have no employment contract or any official obligation towards an insurance company. This usually leads to the broker being independent and able to trade in the insurance product market to best suit a potential buyer's circumstances. While this may sound like a preferred option for life insurance shopping, the truth is that brokers are not always as objective and independent as they sometimes market themselves.
For many reasons that I come into today, brokers do have conflicts of interest that can obscure their assessment and lead to less objective recommendations.
Sometimes the subjective recommendations that brokers give come more from ignorance than self-interest.
Still, brokers generally have easier access to a broader marketplace for insurance products and can more easily access these products.
Are life insurance agents always biased?
Because life insurance agents represent a specific life insurance company and have certain obligations to that company, they are often criticized for accepted prejudices and conflicts of interest that affect their recommendations. This criticism comes mainly from the assumed standard operating procedure that agents will always try to recommend their employers' insurance products over another company's insurance products unless it is virtually impossible for someone to buy the employer's products.
A very common example of this is the procedural right to the "first right" used by some life insurance companies. The core of this system is that the agent must effectively give his employer first "dibs" to the potential buyer. If the employed insurance company decides that the prospective buyer is not suitable for the company, the agent may then seek alternative insurance products for the prospective buyer.
The criticism of this Systemic view of some consumer groups is that although the employed insurance company may have products that are adequate for the potential buyer's needs, these products may not be the best product for these needs. Given this criticism, the agent should be able to tell the potential buyer about his / her other options outside the agent's employer list, but this is usually a breach of the agent's employment contract.
Although this example is most true for some career insurance agents, it is often taken more literally than agents and their employed insurance companies actually practice it.
Are brokers and agents paid differently?
Yes, brokers and agents are often paid differently. Agents usually receive a commission for the sale of insurance products through their career agent contract. Agents also normally receive benefits through their employer to achieve certain levels of sales volume for insurance products. Examples of this include insurance benefits with reduced cost or no cost to the agent, additional pension benefits and / or certain expense reimbursements for things like office space and other costs associated with running their insurance business.
Brokers also receive commissions for the insurance products they sell, but they rarely receive fringe benefits as agents, as these benefits are more associated with employment relationships. Instead, brokers often receive additional compensation over standard commission fees paid to agents. These bonus rates are intended to help the broker cover the operating costs of the business and to recognize that the broker does not use the company's resources as the agent can (eg has an office paid by the company, uses the company's stationery or uses / benefits from company – sponsored regulatory training.
Because of this additional compensation that is available in some way to both agents and brokers, there is a potential for self-interested recommendations to potential insurance buyers. he / she currently enjoys.
Brokers can trade the bonus compensation they earn on insurance products and recommend those who pay the highest bonus to maximize their profits.
Should you buy from a broker or an agent?
It is difficult to def initially recommend someone to do business only with a broker o is an agent. Brokers tend to have more experience. It is extremely rare for someone with little or no experience in the life insurance industry to start as an independent broker. The experience and training required to be an effective insurance professional usually requires someone to spend the least amount of time as an insurance agent.
However, not all agents are necessarily inexperienced practitioners. Some people remain agents throughout their careers and are skilled in their job of recommending essential insurance products to people.
Often the answer to the question of working with a broker or agent comes down to the specific insurance need. If you are looking for a simple long-term life policy to protect against lost income from early death, the debate over agent or broker discussed is less significant. Long-term life insurance is cheap, even if you do not buy the absolute cheapest option on the market, so an agent's access to a broad marketplace is probably less important.
If you want to buy cash value life insurance and use it for a pension plan or other purpose that attaches great importance to the accumulation of cash value, you are probably best served by a broker who understands this marketplace, has access to several products and understands how each available product best meets different needs within this category of life insurance use.
If you want to buy life insurance as part of a recommendation on real estate or business planning, agent / The broker debate comes down to which person has access to an insurance company with resources to help you manage your life insurance plan. Life insurance companies that focus on selling their products through agents often have better resources in this regard. This does not necessarily mean that you have to buy from one of their agents. Some of these companies also work with brokers.
How do you know which one you are working with?
The terms "broker" and "agent" are not always used in their technical sense. Few states officially recognize brokers by license – instead, they largely issue "agent" licenses to both brokers and agents.
The best way to determine the relationship the person you are talking to has with an insurance company is to simply ask him / her. Something as simple as "do you have an employment relationship with this company?" will tell you what you need to know.
I do not expect to determine if someone is an agent or broker by just looking at his / her business card or other contact material that he / she has. Agents and brokers usually use other professional titles such as "financial professional", "advisor" or "financial consultant" among many other possible titles. would not assume that if you one title or the other, that person necessarily works in the technical capacity of the word.