Insurance Agents: What's the Point?
An insurance agent’s job is to get to know you, figure out what you need, then find the policy that best fits those needs.
Insurance companies can be tough to deal with. Between putting you on hold when you have a claim to spamming your email (or phone) with promotions, you can easily get annoyed, not to mention downright angry.
But what if you didn’t have to deal with insurance companies? What if you could just tell someone what you want and they go out and get it for you?
Well, in a nutshell, that’s what an insurance agent does.
What is an Insurance Agent?
Simply put, an insurance agent is someone who sells an insurance company’s products. Their job is to get to know you personally, understand what you and your family need, and find the policy that best fits your life.
Insurance agents come in two different types: captive and independent.
Captive agents work for one insurance company (hence the name: they’re bound to serve one insurer). Geico, Allstate, State Farm, and other major insurers all hire captive agents to sell their specific products.
Since they sell insurance for only one company, captive agents often get a bad rep. But that’s not necessarily a bad thing. Because they know their products so well, they can help you understand how it works, and if it’s not the right fit, they can pitch other products that may be better suited for you.
Independent Insurance Agents
Unlike captive agents, an independent insurance agent isn’t bound to a single company: they represent a variety of insurers. Because of that, they can open you up to a whole world of insurance products, not just those sold by a single company.
Often, you give your agent basic information—like where you live and the coverage you want—and they’ll return with a handful of quotes, usually the best of the batch. In addition to this, most independent agents will review your policy annually: if your rates start to creep up, they’ll shop for cheaper insurance elsewhere.
Read: 5 Questions to Ask Before Choosing an Insurance Agent
What Does an Insurance Agent Do?
Yes, they sell insurance policies. But whether captive or independent, insurance agents have three additional responsibilities:
1. File claims
When an accident happens, your insurance agent is your first point of contact. They’ll tell you what you need to do, the steps you’re going to take, as well as continue helping you until your claim is settled.
Read: How to File a Claim that Gets Paid Sooner
2. Make Changes to Existing Policies
Did you recently move? Get married? Have a baby? Well, then—you need to update your insurance. In this case, your agent looks at your new situation and helps you decide how much coverage you should add (or take away) to your policy.
Read: Having a Baby? Here's How Your Insurance Needs Will Change
3. Serve as the Contact Between You and an Insurer
An insurance agent is simply a middleman. Their familiarity with the insurance industry and technical jargon means they’ll make sure your insurer receives all your necessary information and documentation. This can be especially useful when it comes time for you to file a claim, when tension is high and time is of the essence.
How Are Insurance Agents Paid?
Hiring an insurance agent is a lot like hiring a financial advisor: the cost may be worth it in the long run because professional guidance provides greater security. However, it is important to know how your insurance agent is being compensated to ensure that their recommendations can be trusted.
Insurance agents are generally compensated in one of three ways:
- Commission only
- Salary only
- Salary plus bonuses or partial commission.
If your insurance agent is compensated by salary only, you have no cause for concern because she will be paid the same amount whether she sells you a policy or not. You will likely be charged a flat fee to enlist the agent’s services, regardless of which products you purchase.
When commissions and bonuses come into play, however, you may need to do a little homework. When agents are paid with commissions, that cost is often passed onto you in addition to your policy premium. Though bonuses are not directly funded by insured premiums, agents must meet sales quotas to earn bonuses.
The degree to which an insurance agent must rely on bonuses or commissions correlates strongly with the degree of caution you should employ when considering their recommendations. An agent compensated entirely by commission is highly motivated to sell you the most expensive policy available, even if a cheaper one is just as suitable. A commission-based agent may also be motivated to sell you additional policies or expensive endorsements to existing products. Though this rule applies equally to captive and independent agents, the wider variety of products available to independent agents means they are more likely to be able to offer policies that fill their wallets while still meeting your needs.
Of course, not all agents are money-grubbing opportunists. However, an unscrupulous agent can be just as educated and professional as any other and can easily lead those who do not fully understand their own insurance needs into purchasing unnecessary or overpriced coverage. Understanding both the type of coverage you need and how your insurance agent is compensated can help you avoid getting fleeced (find out how to tell if someone is a legitimate and authorized agent).
Why Work with an Insurance Agent?
Insurance agents help you with claims, true, but their real value lies in the wealth of knowledge and experience they bring to your policy. In addition to helping you fill your insurance needs, here are three benefits to having an agent on your team.
1. They Help You Understand Your Policy
Insurance can be incredibly difficult to grasp, especially when your needs require more than home and auto. Sometimes all you need is a human voice to explain exactly what you should buy.
2. They Save You Time
Let’s be real—you have better things to do than shop insurance quotes or research companies online. Insurance agents take on the boring work so you can get back to the more important things in your life.
3. Help You Find Discounts
The insurance world is full of discounts, and sometimes you may qualify for one or several without realizing it. Your agent will be able to find the discounts that apply to you, even if you don’t know they exist.
What Are the Downsides of Insurance Agents?
Insurance agents can be a big help, especially if insurance makes your head spin. That being said, if you’re fairly knowledgeable about insurance, you may not need one. Here are some things to consider before you hire an agent.
1. Expect Them to Talk. Sometimes, a Lot
Insurance agents are usually people-persons, meaning your phone calls may not always be fast and easy. On top of that, your agent may sell other financial products, like annuities, and if you’re buying insurance from them, chances are they’ll pitch those products, too.
2. They May Be Hard to Reach
Often when you file a claim or make a request, agents are quick and responsive. But every now and then, they’re slammed with other client’s work, and it may take them longer to take action than if you had done it on your own.
3. You’re Not Always Saving Time
If your situation is fairly simple, and you have a good grasp of how insurance works, you can use third-party websites to get insurance quotes from a variety of companies. In most cases, if you know what you want, you’ll save more time than if you called an agent, told them your information, and waited for them to get back to you.
Read: How to Pick the Right Insurance Agent
Bottom Line: Do You Need an Insurance Agent?
Insurance agents help you file claims, make changes to your policy, and answer any insurance questions you may have. If your agent is proactive, they may even shop rates for you when your premiums start to creep up. An agent can add value by providing additional advice, coverages, and experiences that you might not have thought of. This will all depend on the individual agent you work with.
That being said, you don’t absolutely need an agent to buy insurance, and, when your situation is fairly simple, you may save time buying insurance online.
Written by Steven Porrello
Steven Porrello is a writer at Insuranceopedia and a frequent contributor to Motley Fool Canada. Over the years he's developed a passion for helping people with money problems, whether it's paying down debt, finding the right insurance policy, or figuring out how to do taxes.