Independent Insurance Agents: What They Do and Who Needs One
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Independent insurance agents don’t work for a single company and can sell coverage from multiple carriers.
An independent agent often works with smaller insurance companies.
Working with an independent agent can be helpful if you have complex insurance needs or can't find coverage.
Finding a suitable insurance policy can take time. One option to make the process easier is to work with an independent insurance agent. Independent insurance agents are third-party salespeople who have a relationship with multiple companies and get paid a commission when they sell you a policy. Because they aren’t bound to a single insurance company, they can help you compare options across several carriers to find the right policy for you.
But working with independent insurance agents can have downsides, too. Read on to learn whether you should shop through independent insurance agencies.
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Independent insurance agents, explained
Insurance agents represent one or more insurance companies and earn a commission when they sell a policy on behalf of an insurer they represent. Agents can also help customers assess their insurance needs and provide assistance if they need to file a claim.
There are two types of agents: captive agents and independent insurance agents.
Captive agents work for a single company, either as employees or as independent contractors. They may show you price quotes from multiple companies for comparison, but captive agents can only sell you a policy from the company they represent.
Independent insurance agents represent multiple insurers and can sell you a policy from any of the companies they work with. They must be licensed and have a contract with each of these companies spelling out how the agent can act on behalf of the insurer, as well as the commission the agent will be paid.
Major carriers often use captive agents to sell their products. Independent agents generally work with a range of companies, including smaller ones you may not have heard of. Because they’re familiar with smaller insurers that may specialize in certain niches, independent insurance agents may be able to help if you’re having trouble finding affordable coverage or your insurance needs are complex.
How an independent insurance agency can help you
Not everyone needs to work with an independent insurance agent. For example, if you’re shopping for auto insurance on a single vehicle and you have good credit and a clean driving history, you can probably shop for quotes online without enlisting a pro. But there are some situations when independent insurance agents can be particularly helpful.
Auto insurance: If you’ve had multiple crashes or a serious driving violation, like a DUI or reckless driving charge, your insurance company may classify you in its nonstandard category. That means it considers you a high-risk driver. Independent auto agents can often help you find affordable coverage because they frequently work with smaller companies that are more likely to issue nonstandard policies.
Homeowners insurance: Working with an independent insurance agent can be helpful if your homeowners insurance costs have shot up or you’ve received a nonrenewal notice. Local independent insurance agents will often be familiar with insurers who write policies in your area and can shop for quotes on your behalf.
Life insurance: If you have a pre-existing medical condition, a risky occupation or hobbies an insurer considers dangerous, you could benefit from working with a life insurance independent agent who specializes in impaired risk underwriting. Your agent may be familiar with the carriers who will insure clients with specific risks. The agent may also be able to request information about your situation from the insurer before you formally submit an application.
While a good independent insurance agent can help you find affordable coverage, understand your policy and file a claim, it’s also important to understand what your agent can’t do. For example, many insurance agents want clients to know that they can’t get retroactive coverage for something that has already happened. Also, you shouldn’t wait until after your policy has been canceled to contact an independent insurance agent, as companies view a customer who lets coverage lapse as riskier and may charge higher rates.
How independent insurance agents get paid
Independent insurance agents are paid a commission. The commission structure varies based on the type of insurance and carrier.
Typical life insurance commissions range from 60% to 80% of the first-year premiums, with a smaller amount going toward commissions in subsequent years. Some agents don’t earn commissions after the third year of the policy.
For auto and home insurance, typical commission rates are 5% to 15% of first-year premiums. Agents typically earn 2% to 5% on premiums for renewal in the following years.
Keep in mind that independent insurance agents get paid a higher commission for selling you a pricier policy. If you’re looking at buying a particularly expensive policy, such as permanent life insurance, consider hiring a fee-only financial planner or insurance consultant to be sure it’s appropriate for you. They won’t earn a commission and can help you objectively assess your needs.
Pros and cons of working with independent insurance agents
Be sure to consider these pros and cons before you choose how you are going to shop for and purchase insurance.
Pros | Cons |
|---|---|
Get quotes from insurers you otherwise might not have looked into. | Won't have access to insurers that only work with their own captive agents. |
Find coverage for complicated scenarios, such as auto insurance for a driver with a DUI or life insurance for a person with a pre-existing condition. | May try to upsell you on add-ons you might not need. |
Independent insurance agents vs. brokers
Independent insurance agents and brokers both earn commissions and can help you shop for a policy, but there are a few key distinctions. One key difference is that insurance agents represent the insurance company, while brokers represent a customer.
An insurance broker’s role is to determine the right amount of coverage for the client and search for the best price and terms. However, brokers can’t technically sell you a policy. An agent is needed for underwriting and “binding” the policy, or providing temporary coverage until the final policy is issued.
