Everyone knows the importance of insurance but for many people, it can be a complex world to navigate. For this reason, people turn to insurance brokers to make their lives easier and ensure they are getting the right policy.
However, one of the biggest questions that people ask when it comes to insurance brokers is do they charge a fee? Here we’ll look at the different ways brokers earn their money to give you some peace of mind.
What is an Insurance Broker?
Before we look into the fees they charge, what exactly is an insurance broker? An insurance broker is a licensed company that acts as an intermediary between insurance companies and individuals, or businesses.
Their role is to help their clients find the most suitable insurance policies for their needs. This isn’t just about different types of insurance, but also understanding the intricacies of these policies and any specific add-ons or exclusions they may have.
The crucial aspect is that insurance brokers are independent. This means they are not tied to any insurance company so you can trust that their advice is impartial. They’ll have access to a wide range of insurance products from multiple insurers. This helps their clients to seek tailored coverage at competitive rates.
Understanding the Fee Structure
It’s important to understand that not all brokers charge for their services in the same way. However, their fee structure typically falls into one of the following categories:
Commission-Based Compensation
This is by far the most common way for insurance brokers to charge fees, and it’s one that means their client doesn’t pay a cent.
The process is that a client is referred to an insurance company through the broker. As a thank you for this business, the insurance company will pay the broker a fee, called a commission. This is often a percentage of the premium that the client pays for their policy.
The client won’t pay for these commissions as they are usually built into the insurance premium. In other words, the cost of the broker’s services is absorbed by the insurance company, and it does not increase the policyholder’s premium.
This is seen as a mutually beneficial arrangement for all parties. The client gets a bespoke insurance policy by receiving expert advice, the broker gets a fee from the insurance company, and the insurance company gets a new customer.
Fee-Only Compensation
While most brokers use the commission-based structure, others will directly charge the clients a fee for their services. A good broker will be upfront about these fees, and they are usually a fixed about or a percentage of the premium.
There are a few advantages to this type of arrangement for clients. Some feel it gives more transparency as they know exactly how much the broker will be receiving. Also as they do not rely on commissions from insurance companies, there is no potential for conflicts of interest.
Fee-and-Commission Compensation
In some cases, an insurance broker may combine both fee-based and commission-based compensation models. They will charge a fee to the client as well as receiving a commission from the insurance broker.
Benefits of Using an Insurance Broker
Now that we’ve looked at the different fee structures that insurance companies charge, it’s a good idea to look at why working with these professionals can be a good idea.
Expertise – Insurance brokers have an in-depth knowledge of the insurance industry. This means they’ll help direct you to the right insurance products and navigate their complex policies. This will ensure a client gets the coverage they need.
Choice and Comparison – An insurance agent is tied to only one insurer and gives you a limited amount of options. In contrast, a broker has access to a wide range of insurance products from multiple providers. This allows them to get the perfect fit for their clients.
Time and Convenience – Many people find it a struggle to understand insurance policies. A broker can help by handling all the difficult parts for you. They’ll do all the hard work and be able to answer any questions you may have.
Tailored Advice – A broker can look at your specific circumstances and help to give you tailored advice. This will ensure you get the right policy for your needs.
Claims Assistance – In the event that you need to make a claim, a broker can help you in navigating the process to ensure you get a fair outcome.
Conclusion
Insurance brokers usually make their money by charging a commission from the insurance company. However, sometimes they will charge a fee directly to a client. If you’re unsure, then simply ask your broker and they should be open and honest about their fee structure.
As we’ve seen, there is a wide range of benefits you can receive from using an insurance broker. If you’re looking for the expertise, choice, and convenience of a broker, then contact Marathon Insurance today and we’ll be happy to help.