Licensed Insurance broker and insurance agent are words that get used interchangeably. However, there are some critical differences between them and essential to understand. An insurance broker and an insurance agent both operate on common grounds and hence, misunderstood for the other. In this blog, we will be discussing about the differences between an licensed insurance broker and agent. We shall briefly discuss about how the two operate and their sources of incomes.
Licensed insurance broker and an Insurance agent: What is the difference?
Like we mentioned earlier, a licensed insurance broker and an insurance agent operate on common grounds. They act as mediators and are the bridge between insurance buyers and providers. In order to become a certified insurance broker or an insurance agent, they both need to know how to obtain an insurance license. Both operate according to the laws enforced by the insurance department of their respective states. However, this is where the similarities end.
Licensed Insurance broker
A licensed insurance broker are professionals that serve their clients best interest. They try to find the best fit for their clients, by research coverage terms, conditions and price from various insurance companies. Brokers generally play a role similar to insurance advisors by providing financial advices to their clients. A licensed insurance broker’s duty is to look after their clients and facilitate insurance solutions to whatever their problems their clients face. According to Small Business, a licensed insurance broker cannot bind coverage or complete insurance sales on behalf of their clients. This ability lies only with an insurance agent. An insurance broker will require their clients or an agent to close the deal.
Licensed Insurance agent –
According to National Association of Insurance Commissioners (NAIC), insurance agents are licensed individuals who sell or negotiate insurance policies on behalf of a company or independently. Although insurance agents are obliged to sell the right products to their clients, their primary duty is towards the insurance providers. In addition to selling policies, agents must also focus on enhancing the brand image of their carriers. Insurance agents relay the information about the policies provided by their carriers and upon completing this, sell products to their clients and earn through commissions.
How do insurance brokers and insurance agents earn money?
In the case of a licensed insurance brokers, the underlying value of the policies they sell determines how much they earn, causing their income to fluctuate. In various states, brokers also charge broker fee for services they provide to their clients. However, brokers need to reveal the exact amount they charge since the payments come from the buyers directly.
Insurance agent have a more diverse income stream than insurance brokers. They earn through commissions and various other ways. Such as, when a client renews their insurance policy or when agents bring in new clients. Some captive agents also get paid on a salary basis by the carriers they are representing.
Licensed Insurance brokers and agents have their similarities and their differences and understanding them is very important. While one works for the best interest of their clients, the other operates to enhance the brand image of their carriers. Nevertheless, they are bound by the same laws of their respective states and are obligated to provide the right products required by their clients.