Nobody wants to spend the time and effort going through the process of getting an insurance quote, then gear up for making a change to a new insurance company, just to find out that there’s some additional fee they weren’t aware of that could drastically affect their decision. Hopefully, I can shed some light on how an insurance broker gets paid to better help you in the decision-making process. (Because personal insurance (auto and home) and commercial (business) insurance are 2 different animals, in this article, I’m going to be focusing on personal lines insurance.) One thing to keep in mind while looking for a new insurance agency is there are strict laws in place in each state that govern the insurance industry and provide the framework for these different payment options.
There are a few ways that an insurance broker can get paid. Typically, an insurance broker is paid a commission from the insurance company that they place your insurance with. It’s usually a percentage of the total cost you pay for the policy and it’s already built into the price of the insurance. The percentage of commission is set by each company individually and is pre-approved by each state. It’s the same way that an insurance agent who is not a broker is paid. You may be wondering if you can bypass the insurance broker and go directly to the company and not have to pay that commission, therefore saving on your insurance cost. The answer is no. Even if you went directly to one of the companies your price would remain the same, they would just keep the commission and you would now be dealing with an 800 number as opposed to an agency, but paying the same price.
In addition to a commission, many states allow a broker to also charge a broker fee. Usually the only parameters for this fee is that it has to be reasonable, disclosed and typically has to be accepted with a signature. Some insurance brokers charge a fee for all new business, renewal business and for many service transactions. Some just charge a fee for new customers with their first policy.
We choose not to charge a broker fee and only receive commission from the companies we partner with.
If you have any questions regarding this or anything else insurance related and would like to ask an expert, give us a call at 1-800-665-5154.
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So how does broker get the money from insurance company. They call in when someone wants a policy and say they’re a broker and they get a commission? How do brokers find the best policy? is there a program the use to check them all?
Hi Averi, brokers get paid by placing a client with a company. They have a contract with the company to sell their insurance product. When the sale is made or when the customer renews their insurance, a commission is paid to the insurance broker. At our agency we use software to get quotes back from all the companies we work with so we can see which is the best for the client.
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How do brokers decide which insurance company is best? What is the information they require to come up with the insurance company best suited to my needs. I have used State Farm since 1991 for car and home insurance and never evaluated if I was getting the best coverage for what I was paying. What questions would I be ask by a broker?
Fantastic question! Different companies are good at different things. Hopefully any broker you work with will take your unique situation into consideration before recommending a company. For all types of insurance they should have an idea of your assets and how much you have to lose. What type of lifestyle do you live and what’s important to you. Specifically for home insurance it would be things like pools, pets, quality and size of your home, are there children in the household, how much does it cost on average for construction in your area… For auto insurance the questions would be more geared to your vehicle/s such as do you want OEM replacement parts if your car has to be fixed in an accident, do you use your vehicle for work, do you driver for Uber on the side, do you want all the bells and whistles or do you just want the lowest price.
Each company excels in different areas so truly understanding someone’s situation is important. That being said, 80% of people are just looking to lower their monthly cost and aren’t too concerned with the details of the company as long as they aren’t losing coverage from what they currently have.
I hope that answers your question. Thanks for commenting!
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I want to become an insurance broker and curious how long before I would start to actually make money? Thanks
Hi Raul, Commission is typically paid by the insurance companies within a month of a policy being issued. The thing that might prevent you from making money right away is the length of time it can take to get set up with the different companies.
If I use more than one fee charging broker, am I obligated to pay them all or just the one who’s results I choose to go with?
Hi Raul, typically broker fees are only charged if there is a sale. Most agencies don’t charge a broker fee just to quote insurance. So the quick answer is just the one who’s results you go with.