Finding a suitable insurance policy can take time. One option to make the process easier is to work with an independent insurance agent. An independent insurance agent is a third-party salesperson who has a relationship with multiple companies and gets 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.
What is an independent insurance agent?
An insurance agent represents one or more insurance companies and earns 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.
A captive agent works for a single company, either as an employee or as an independent contractor. Captive agents may show you price quotes from multiple companies for comparison, but they can only sell you a policy from the company they represent. An independent insurance agent is someone who represents multiple insurers and can sell you a policy from any of the companies they represent.
An independent insurance agent must have a contract with each company it represents. The contract spells 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 agent 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. A local independent insurance agent 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, 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 do 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 an independent insurance agent gets 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.
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.
FAQs
An independent agent is a person that sells insurance products from various companies in the insurance industry. Independent agents and brokers don't work for a specific insurer. Instead, independent agents work for an insurance agency.
What is the advantage of using an independent insurance agent? ›
One of the major benefits of working with independent agents includes getting many quick quotes from multiple insurance carriers. If someone is shopping for insurance, independent agents are a great place to start checking out policies because they can check several different companies' rates all at once.
Who do independent insurance agents represent quizlet? ›
An independent insurance agent has relationships with multiple insurance companies but represents the insured by comparing coverage and costs to provide the most appropriate insurance. The premium for transferring a risk should be affordable fo the average customer.
Why do so many insurance agents fail? ›
Insurance agents succeed when they prioritize their customers' needs over their own profits. The most commonly cited reason insurance agents fail is that they fail to listen to their customers and take the time to find the best product to suit their needs.
What is the difference between an agent and an independent agent? ›
Independent agents rely solely on commissions from whatever carriers they write a policy with. However, they may receive higher commissions than a captive agent, depending on the insurance company(s) that they work with. Likewise, they aren't usually required to force a sale to clients to meet sales quotas.
How do independent agents differ from company agents? ›
While independent agents do not have access to the support and referrals that insurance companies provide to their exclusive agents, independent insurance agents have the benefit of being able to offer their clients policies from multiple insurance providers, giving them the ability to offer a wider selection of ...
What is the disadvantage of insurance agent? ›
Commission-Based Income: One of the biggest downsides of being a life insurance agent is that your income is commission-based. You must sell policies to earn an income. This can be stressful, especially when you are just starting in the industry.
Do independent agents represent their clients to the insurance provider? ›
They may be directly employed by the company or work as independent contractors. Independent agents can represent multiple insurance providers and compare policies. They work as independent contractors but are representatives of the insurance company.
What is the disadvantages of being an insurance agent? ›
Unpredictable Income
While the insurance industry is stable and the income is lucrative, it can sometimes be hard to plan ahead and know where your next paycheck will come from, since your income may be solely based on sales made. To succeed in this field, you must be a go-getter.
What does SL mean in insurance? ›
Surplus lines insurance protects against a financial risk that a regular insurance company will not take on. Surplus lines insurance policies are available in a variety of types for both individuals and businesses. Surplus lines insurance is generally more expensive than regular insurance because the risks are higher.
An independent insurance agent works and is appointed with multiple insurance companies. This gives them greater access to insurance products and allows them to meet their agency's sales quotas by selling policies from multiple insurance carriers.
Who legally represents the insured? ›
Agents represent insurance companies. Brokers represent their clients. Brokers have a fiduciary duty to their clients, which agents do not.
What is the hardest part of being an insurance agent? ›
An agent who is only out to earn a commission, regardless of the needs of the client, is not likely to last long in the business. Agents and brokers who listen carefully to what their clients and prospects say will be able to earn their trust, which is the hardest part of their job.
Why do people dislike insurance agents? ›
No Trust in the Insurance Agent or Insurance Company
Some are just paranoid, but others have had past experiences that justify their lack of trust. Whether it has been lack of service from their agent or not being treated fairly on a claim, bad experiences can put a very negative light on the insurance industry.
What is the failure rate for insurance agents? ›
Dear Friends, Somewhere around 80% of new insurance agents hired by independent marketing organizations fail and quit within their first 12 months of getting their license. And then within 5 years, 80% of the remaining new insurance agents will struggle and quit! That is a 90% failure rate for new agents.
What are the two basic types of insurance agents? ›
Captive agents sell insurance for one specific company. The one and only insurance company that they represent is typically a “name brand” company. You might even see their commercials during the Super Bowl. Independent agents, on the other hand, sell insurance for several different companies.
Is it better to use a local insurance agent? ›
If you choose a local insurance agency, you benefit from the services of someone who knows the industry and the local area exceptionally well. They will be in the best position to advise you and give you their professional opinion on the insurance products that are right for your specific needs.
Why do insurance companies use agents? ›
Insurance agents are salespeople for insurance providers. Their role is to help find insurance customers and to help those customers find the right types of coverage for their needs.
