Life Insurance Agents vs Brokers

Everyone’s heard of an insurance agent. Insurance agents sell life insurance products like whole and term life, annuities and final expense policies. 

They’re seemingly everywhere. Insurance agents work for either one company or can work for themselves. They help their customers find the best insurance for their needs, but they don’t actually work for the customer.

The insurance broker, on the other hand, works directly for the customer. An insurance broker works closely with their clients to find them the best deals, kind of like an insurance manager. 

While both help their customers with insurance products, there is a difference. Learn more now with Benzinga’s guide.

What is a Life Insurance Agent?

A life insurance agent is a licensed professional who sells life insurance products and policies to consumers for a commission. Types of insurance include:

• Term life
• Whole life
• Variable life
• Universal life
• Final expense
• Annuities

Commissions are paid by the insurance companies. While a life insurance agent does help consumers in their search for the right insurance policy, they do not represent the customer, but the insurance company itself.

Life insurance agents sell products that help protect their customers against the unexpected. Whether they need life insurance for their job or as an individual, a life insurance agent has the ability to handle policies from initial search to final execution. While the life insurance agent works for the insurer, they do have a responsibility to get their customers the best deal possible.

Becoming a life insurance agent is a process and the industry is tightly regulated. In order to become a life insurance agent, first you need to get your license. In some states, an approved pre-licensing course is required. In all states, prospective agents must pass a state-approved exam. 

Not everyone can become a licensed insurance agent. Along with passing an exam, you have to be fingerprinted and pass a background check.

Types of Life Insurance Agents

There are several types of life insurance agents. Here’s a quick breakdown of the most common types.

Captive

Captive insurance agents represent just one insurance company. It can be more if the company has subsidiaries, but mainly they do not have a conflict of interest between companies. A good example of an insurance company with captive agents is New York Life, or State Farm. While big companies like these operate in most states, the agents themselves are only required to be licensed in their state of operations.

If a life insurance agent wants to sell products in other states, they’re not required to become licensed again in that state. It’s only required that they obtain a non-resident insurance license, and that the products they’re selling are available in that state. 

For captive agents, because the companies are usually large and have a presence in multiple states, they usually have a department to help agents complete the process. Some states even have reciprocal agreements.

Independent

An independent insurance agent is not beholden to any one insurance company and thus can shop around for competing quotes for their customers. Technically, because the insurance companies pay their commissions, they do still work for the insurer.

They do have more leeway, however, than a captive agent in that they have more carriers to choose from. This is not to say that a captive carrier doesn’t have their customer’s best interests at heart, but an independent life insurance agent’s ability to get quotes from more than one company sometimes means lower prices and more choices.

Both captive and independent insurance agents have the ability to sell insurance products and are not limited to the types they sell. They both work on commission

What is a Life Insurance Broker?

Insurance brokers act as intermediaries between the consumer and the insurer. They work directly for the customer and unlike an insurance agent, do not have the ability to bind a contract for the insurer. While they are paid commissions by the insurance company, when it comes time to binding coverage they must hand off the deal to the agent.

A life insurance broker, of course, is a broker who deals primarily with life insurance products, everything from whole and term policies to annuities and final expenses. A life insurance broker, just like an agent, works on commission, typically anywhere from 2% to 8% of the premiums.

Life insurance brokers also make money by charging transaction and consulting fees. For the average individual, an insurance broker may seem a bit over the top. For medium and large-sized companies and group policies, an experienced broker can help save the company thousands of dollars.

The Fee-Only Life Insurance Broker

Because there sometimes can be perceived a conflict of interest between the insurance broker and the insurance company, some people like dealing with a fee-only insurance broker instead. Because the customer pays the fee, there is no confusion about who the life insurance broker works for, the consumer or the insurance company.

A fee-only life insurance broker works as a consultant and is typically paid a flat fee, or by the hour. Most fee-only brokers specialize in high-ticket products like permanent life insurance, or work for medium to large-sized companies where group policies are involved.

Fee-Only Life Insurance Brokers:

• Charge an hourly or flat fee, never commissions.
• Focus on either original purchases or re-evaluations to permanent life insurance like whole and universal life, even annuities.
• Usually spend anywhere from five to 15 hours with their clients and doing the research. Smaller cases can be accomplished in as little as two hours.
• Typical clients for fee-only life insurance brokers include people planning their estates, medium and large-sized companies and organizations. Having a fee-only life insurance broker not only saves you money, but lends credibility to the decision-making process.

Who Needs a Life Insurance Broker?

Not everyone needs a life insurance broker. For the average consumer looking for a typical term or whole life policy, simple price shopping will do. It’s easy enough using a quote comparison website to get the best rates. You might benefit from having a life insurance broker if you:

• Run a medium-size or large business and offer group life insurance policies. Even the slightest savings per policy can amount to big savings when added all together.
• Have a large family and want to get life insurance for everyone in the family.
• Are a top wage earner and need a high death benefit.

Again, unless there’s big money involved, you really don’t need a broker. Do your own price comparisons and brush up on life insurance know-how with Benzinga.

Differences Between Insurance Agents and Brokers

Bottom line: Agents represent the insurance companies; brokers represent the customer. While both do take commissions from the insurance company, a broker makes additional income from fees, like transactions and consulting. An agent is interested in finding the best deal for their customer, and a broker is more concerned with educating the customer and doing the research. 

An agent, whether captive or independent, tends to lean toward certain products where commissions are higher, from insurance companies they deal with on a regular basis. Not that they don’t do their best by their customers, but a broker is more inclined to sit down with the customer and teach them all about the process — all their best choices, no matter the carrier.

Compare Life Insurance

Still not sure if you need an agent or a broker? Let the life insurance experts at Benzinga guide you through the process and answer all your questions. Here are our top picks for life insurance providers.

Find Your Life Insurance Today

When it comes to life insurance, Benzinga runs the gamut. Whether you’re looking for term or whole life insurance, final expense or even financial products like annuities, Benzinga offers an array of articles to help you learn more. 

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