Insurance agents explained
Most people think of an insurance agent as the person who sells insurance. That’s a decent insurance agent definition, but it’s important to note that an agent signs a contract to represent an insurance company. As a representative of an insurer, an insurance agent has the authority to sell its policies and bind the coverage – essentially, confirm your coverage is in force. In return, the insurance company gives the agent a sales quota and pays them a commission
Perhaps the best way to think of an insurance agent is as an extension of the insurer. The insurance agent’s purpose is to drive business to the insurance company they represent.
Captive agents vs. independent agents
There are actually two types of insurance agents: captive and independent. A captive agent works for just one insurance company as either a full-time employee or an independent contractor. Captive agents usually get administrative and sales support from the carrier that hires them, but they can’t sell policies from other carriers. In fact, they also don’t even have access to other carriers’ information so they can’t give their clients quotes to compare.
Independent insurance agents can work with more than one insurer. Like captive agents, independents sign contracts with carriers, so they also act on behalf of the insurance companies. Because they usually contract with multiple carriers, independent agents are better able to offer their clients a choice between policies with different coverage benefits and premiums.
What is an insurance broker?
If you’re shopping for insurance, you may have also come across insurance brokers. They’re also intermediaries between consumers and carriers, but the difference between insurance agents and brokers is who they represent. While agents work on behalf of the insurance companies they contract with, brokers represent the insured, or the consumer or business seeking insurance. In fact, brokers owe a fiduciary duty to their clients.
Insurance agent vs broker
Some people who sell insurance can work with multiple insurance companies. They’re called either independent insurance agents or insurance brokers.
Independent agents contract with several insurance companies and work on their behalf. Brokers, on the other hand, represent their clients. This means brokers look for the policy that best fits the needs of the consumer. Because they don’t represent an insurance company, brokers can’t bind an insurance policy. Instead, they locate the best policy and then submit an application to the insurer for approval.
How do insurance agents make money?
Both insurance agents and brokers make a living by earning commissions on the policies they sell. Unfortunately, this often drives up the costs of the insurance. Think about the commission paid to an agent. An insurer might pay an agent anywhere from six to 12% – or more, and that factors into the premium it charges.
How much do insurance agents make?
In some cases, captive insurance agents are salaried employees. However, in the majority of cases, insurance agents’ income is largely commission-based and varies based on the number and size of policies an agent sells. According to the Bureau of Labor Statistics, there were more than 500,000 people employed as insurance agents in the United States in 2021. The median income? Just under $50,000 per year.
Benefits of buying insurance directly from the carrier
Rather than going through an agent or broker, consumers can buy insurance directly with many carriers. And there’s a good reason to do so: cost savings. Insurance companies don’t have to pay commissions when you buy directly from them, and sometimes they pass that savings on to you.
Saving money is certainly the biggest plus to buying policies directly from an insurance company. But there are other benefits to consider as well, including:
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Carrier knowledge. Many independent agents represent multiple carriers, and it’s easy to mix up the details about one carrier with another. When you work directly with the carrier, you can be sure you’re getting the correct information.
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Clear intentions. Insurance agents’ commissions vary by carrier and policy, and that can give them an incentive to push certain products. If you shop directly with a carrier, you won’t have a representative recommend a policy based on how it affects their compensation.
Direct-to-consumer options can save you money on your homeowners' insurance, but you still want to work with a quality carrier with representatives who can make sure you’re getting the appropriate coverage.
