An agent or broker can act as an intermediary between you and an insurance company when you buy a policy. They help you understand your coverage options when you’re shopping, ensure the policy purchase transaction goes smoothly, and often provide ongoing support after you buy.
The terms “agent” and “broker” tend to be used interchangeably in insurance, as they provide similar services. However, there are some key differences in what each does.
There are different ways to buy insurance
You probably know that there are multiple ways to buy an insurance policy. Depending on the type of coverage, you can buy directly from the insurance company online or over the phone, through your employer, or through an agent or broker. According to the Insurance Information Institute, agents and brokers sold 35.4% of personal lines insurance (which includes homeowners and auto insurance) in 2020.
Each approach has its advantages. Buying insurance through an agent or broker usually means you'll enjoy higher service levels, personalized advice, and the ability to work with someone locally — often in-person.
What is an insurance agent?
An agent is a professional who provides advice and support for your policy purchase while acting as a representative of one or more insurance companies. Licensed by the state, an agent should have a solid knowledge of the insurance products they sell. This includes familiarity with things such as coverage options and discounts that are available from the companies they represent.
An agent typically can put coverage into effect (referred to as “binding authority”) once you’ve settled on a policy quote. So if you need coverage immediately, you can get it from an agent. This is a key difference compared to a broker — more about that in a bit.
Many agents also handle policy servicing. So if you need to make a change to an existing policy or file a claim with the insurance company, you can usually contact an agent to get this done.
An agent is paid by the insurance companies they represent and typically does not charge a fee for their services.
The insurance agent category can be further divided into two types:
Captive insurance agents
This type of agent represents a single company. That company may pay the agent a salary, or a combination of salary and sales commission. A captive agent tends to receive extensive training on all their insurance company's products, while their offices and websites feature the insurance company’s branding.
State Farm, Allstate, and Farmers are examples of insurance companies that use captive agents.
Independent insurance agents
This type of agent represents multiple companies and earns commissions on policy sales. While they receive some training from those companies for the products they sell, it may not be as extensive as what a captive agent receives.
An independent agent also may not be appointed to sell all of the products offered by the companies they represent. An independent agent does offer the advantage of choice, however. They can quickly check with several insurance companies to find you an optimal combination of coverage and price. Progressive, Nationwide, and Travelers are examples of companies that use independent agents.
What is an insurance broker?
An insurance broker, much like an agent, is a licensed professional who provides advice and support for your policy purchase. Unlike an agent, a broker represents you — the buyer — instead of the insurance company. They have a legal and ethical responsibility (referred to as a “fiduciary duty”) to recommend insurance products that meet your financial needs and usually can access the entire market. A broker thus can help you review policy options from numerous insurers, though they may not have as extensive training in those products as an agent.
A broker earns commissions from insurance companies for the policies they sell. They may also charge you a broker fee, the amount of which is usually capped by state law. This fee doesn’t necessarily make a broker more expensive than an agent. If the cost of the fee can be offset by saving on your insurance premium, then working with a broker makes good financial sense.
A broker does not have binding authority. Once you’ve settled on a policy quote, the broker must send it to the insurance company or one of its agents for coverage to go into effect. A broker must do the same thing for a policy change (for example, if you need a new car added to your policy). While a good broker aims to make this process as seamless as possible, it can delay the transaction.
Should you choose an insurance agent or an insurance broker?
You might notice a lot of overlap in what an agent and broker can do. Each is a trusted advisor who helps you navigate the often-confusing insurance landscape. Each is licensed by the state and bound by applicable insurance laws. Each is paid by one or more insurance companies (though a broker may charge you a small fee).
So it may not make much of a difference whether you choose an insurance agent or an insurance broker. But if you have a choice, consider the following.
Choose an agent if:
- You’re interested in the insurance products from a particular company that the agent represents
- You've done your own policy comparison shopping online and want to talk to an insurance company representative to ask questions and complete the purchase
- You want to work with someone who can bind coverage immediately without relying on a third party
Choose a broker if:
- You want to compare coverage and prices from the widest possible variety of insurance companies
- You have challenging insurance needs, such as car insurance for a driver with multiple infractions, homeowners insurance for an older home, or life insurance for an elderly adult
- Because they can access the entire insurance market, a broker may be able to get you a policy from a company that a particular agent can't access
- You’re looking for a completely unbiased recommendation from an advisor with fiduciary responsibility
Insurance agents vs. insurance brokers summarized
|Type||Captive insurance agent||Independent insurance agent||Insurance broker|
Captive insurance agentRepresents a single insurance company
Independent insurance agentRepresents multiple insurance companies
Insurance brokerRepresents the buyer
Captive insurance agentCommission and/or salary paid by the insurance company
Independent insurance agentCommission paid by the insurance company
Insurance brokerCommission paid by the insurance company; broker fees paid by the customer
TypeCan bind coverage?
Captive insurance agentYes
Independent insurance agentYes
Captive insurance agentHas access to and knowledge of all the insurance and financial services products from the company they represent; can bind coverage
Independent insurance agentCan offer insurance products from the companies they represent; can bind coverage
Insurance brokerCan offer insurance products from the entire insurance market (less bias)
Captive insurance agentOffers products from only one insurance company
Independent insurance agentMay not have access to every insurance product offered by the companies they represent
Insurance brokerMay charge a broker fee; may not know all the ins and outs of some insurance companies; lack of binding authority could delay policy purchase
An insurance agent or broker can help simplify your insurance options
You have a lot of choices when it comes to insurance, and it can be challenging to be sure you're getting the right policy for your needs. An insurance agent or broker can help you simplify your options to be confident you're covered.