As a business owner, you know you need insurance. But it’s not always obvious which policies you need, and where you should buy them. This is why we’re going to explore the difference between insurance agent and broker. But before we do that, let’s start with a refresher in terms of the importance of insurance itself, as well as choosing the right insurance provider.
Insurance is valuable to you as a business owner, as well as an individual. It helps protect you – and those around you – in the event of unforeseen circumstances such as mistakes, accidents and even natural disasters, depending on your policy. As an entrepreneur, there are many different types of business insurance
policies to consider, depending on the nature of your business. To better understand the different policies, you can do research online, or you can speak with a peer that you trust. Another option is to speak with a business insurance broker or business insurance agency for guidance, before you make a purchase (we'll cover this more in a bit).
The key is to make sure that any policy you purchase is suited to your line of business. This means that the policy covers all the potential risks involved in your type of work. You also want to check the policy fees. For example, how much the policy will cost per month and per year, and make sure the payment terms match your cash flow. Another thing you should be looking at are the deductibles
. This means how much money you will need to pay out of pocket, before your policy pays anything. And you may want to look into things like how much “extras” like a certificate of insurance
costs, or how much it costs to add an additional insured
What Is an Insurance Agent?
Since the point of this article is to understand the difference between insurance agent and insurance broker, let’s begin by defining our terms. An insurance agent can be one of two things. In many cases, an insurance agent is someone who works directly for one specific insurance company. Their job is to sell the insurance products that this company provides. This is the most standard setup in terms of agents. That being said, an insurance agent
may work for more than one insurance company. In this case the person would be called an independent agent.
Most agents work according to “lines of authority”. Each line of authority is a different type of insurance that they are licensed to sell. So a single agent may not be able to cover every aspect of your insurance needs. If they work in a big company, however, they can easily refer you to someone in-house to fill in the gaps. In terms of pay, general insurance agent commission is set by the company they work for, so you may not be able to negotiate the price.
What Is an Insurance Broker?
Now that we understand what an insurance agent is, let’s understand an insurance broker. Basically, the difference between insurance agent and broker is their relationship with the insurance company. An agent works directly with the company on an existing contractual basis. As such you may see the agent as someone who essentially represents the insurance company. An insurance broker, however, is more a representative of you, the buyer, than the insurance company. That's because this person isn't limited to working with specific companies. Instead, they can look for the best policy to meet your needs, across as many different insurance companies as possible.
Where Does the Insurance Company Come into the Picture?
In addition to the difference between insurance agent and broker, it is important to understand the difference between insurance broker and insurance company. So here it is in a nutshell. The insurance company is the bottom line provider of your insurance services. It does risk analysis, determines the payout parameters for each policy, and sets the premiums, deductibles, and the likes. More simply you might say, the insurance company provides you with the actual coverage in terms of compensation, should you need to activate your policy.
Both insurance brokers and insurance agents work with insurance companies. In some cases, you are required to go through either one of these two channels in order to work with the insurance company itself. In other cases, however, you can purchase your insurance policy directly from the insurance company. The main benefit of this, obviously, is saving on commission fees.
What’s the Best Choice for Business Insurance?
It’s hard to say whether an insurance agent or broker is better for your particular business. The choice, in fact, is rather individual.
There are a few benefits to working with an insurance agent. For example:
- As a direct representative of the insurance company, an agent can get you answers to almost any insurance inquiry, quickly.
- This also means that the person will be particularly knowledgeable about the company’s policies.
- Similarly, as an insider, an agent may be able to process your claims quicker.
- And finally, an agent can get you all your policies from one place, keeping your paperwork concentrated.
Working with an insurance broker also has its benefits, like:
- This person essentially works for you, not the insurance company.
- A broker is excellent at assessing your risks, and recommending the right policies for your business.
- A broker works with more than one company. This gives you more access to the exact coverage that you need, as opposed to what the company is selling.
- You may actually be able to get lower rates with a broker, as the insurance companies know this person is shopping the competition.
Of course, like we said, you can also find certain insurance policies on your own, directly through the insurance company. But a broker or an agent can be very helpful if you’re the type of person who likes to have someone with whom to talk things through. Just make sure that whichever of these two options you choose – either the agent or the broker – that the person is fully licensed to operate in your state. And feel free to shop around yourself. You can speak to a few different people to find the right match for you.
Some Business Policies to Consider
Remember, as a small business owner you have a lot on your plate. Minimizing your risks through insurance is essential to your success. This means you need to look into all the policies that may be relevant to your line of work. For example, pretty much every business needs general liability insurance
, that’s a given. You’ll also need some sort of property insurance – whether you’re working out of your home or a rented space. If you have employees, there’s workers’ comp
to consider, and if you or your workers drive on the job there’s commercial auto insurance
In other words, the term business insurance is fairly broad. What it means to your exact line business differs from another. As such, it may well be worth your while to speak with an insurance pro.