Choosing the right way to buy insurance

An Agent, A Broker or Dealing Direct; Your Best Option For Buying Insurance

If you're in the market for any kind of insurance products, it can be a little intimidating. With the wide range of options, considerations and decisions to make, purchasing a policy can be more complicated than buying a car. To help you select the best product for your purposes, it may be helpful to compare the three ways of becoming insured. Those three methods are; through an insurance agent, via an insurance broker, or going directly through an insurance company's own sales department. Your best option may depend on a number of variables unrelated to who sells it to you, but here are the major differences between the three methods.


Buying Direct

For some people, dealing with the sales department of a major insurance firm is the way to go. They view insurance agents and brokers as "middle-men" who need to be removed from the equation to save on their 'cut of the action'. They believe, and rightly so, that agents and brokers don't work for nothing and that somebody has to pay their commission. Some also suspect that the more hands that handle a transaction, the greater the likelihood of errors being made.


Things to Think About

The reality of buying direct, however, is that it is likely to cost you the same or even possibly less to go through that "middle-man" because the customer isn't paying the commission, it's the Insurer. Depending on the size of the clientele of an agent or broker, they may be able to use their leverage to get your insurance from the provider less expensively than buying through the Insurer's own website.

The increased chance of error is also not based in reality given brokers and agents generally have years of experience at filling out insurance-related documents. They are much less likely to make a mistake on paperwork compared to some random person filling out a form on an Insurers website.

Another issue associated with purchasing a policy directly through the Insurer is that you are limited to only the products offered by that one company. This may be problematic because each insurance provider has a unique set of offers for their clients and a 'one size fits all' policy may not fit you. Brokers and agents, on the other hand, are paid to be knowledgeable about what products are available and what the exact terms and conditions of the coverage mean.

Buying through a Broker

In theory, insurance brokers are independent sales agents not beholden to any specific company. They are knowledgeable about the various product offerings of most, if not all of the major players and can suggest. This put them in a position to be able to find the policy that fits your needs best.

Buying insurance through a broker will not make your coverage any more expensive, either as the broker's commission is paid by the Insurer, not the consumer. As well, if they have a large slate of clients, insurance brokers can wield a lot of pricing leverage and save you money.  Competent brokers also know the ins and outs of the claim system and can guide you through the process, if a claim becomes necessary, better than if you had bought the policy direct from the Insurer, according to consumer satisfaction surveys.

Things to Think About

There have been revelations about disturbing practises of insurance brokers recently that may explode the theory of them being wholly independent and always working in the best interests of their clients. According to a report in the Globe and Mail, some Insurers reward brokers who supply clients to them with deluxe vacations for themselves and a guest. These trips can cost upwards of $10,000 to the Insurer but it is money well spent if it means the Broker is funneling business their way to get the freebies rather than because it is the best policy available for their clients. It is similar to the practice of drug companies enticing some doctors with trips and expensive gifts to proscribe their products; a practice which Ontario's medical regulator is trying to have banned, according to this story in the National Post.
How can you tell if your broker is 'on the take' or not? You really can't. You can only forge a relationship with the broker and use your exposure to them to establish your level of trust.


Buying from an Agent

An agent is similar to a broker except that instead of dealing with a wide range of Insurers, they only deal with one. They are like a salesman for the policy holder which, to some, may sound like a mixture of the worst elements of buying direct and the broker sales model. This is obviously not the case in the real world, however, for it was, the need for agents would be nonexistent and they would have died out decades ago. They have not.


Things to Think About


The sales agents strength is knowing the company's wares inside and out. They can respond to queries much more authoritatively than a person at an Insurers call center and, like brokers, have much experience at filling out sometimes confusing insurance documents properly. If you are buying insurance through a specific carrier because of the unique demographic it serves, an insurance agent might very well be your best bet. And like their broker brethren, their commission fees are paid by the Insurer, not the purchaser, so the extra layer of competent service comes at no extra charge to the consumer.


So what's best for you?

As is so often the case in complex matters, the answer to what is the best sales model to use for purchasing an insurance policy is "It depends." If your purchase is relatively straightforward and you feel confidant you have the information you need to make a good decision, buying direct may be right for you. If you have developed a relationship with a broker you can trust to operate in your best intertets, then a broker could be your ideal choice. If, however, you are a municipality, a non-profit, or a chamber of commerce member, for example, and need a product designed specifically for that demographic, a sales agent would be well worth a look.

Author: Dennis Chamney

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Dennis Chamney has been in the financial services industry since 1987 and associated with the Chambers Plan since 1988. He has spent 8 years on the board of various Chambers of Commerce in his marketing area. Dennis Chamney Insurance Services Inc. specializes in customized group benefit plans for small to medium size businesses, as well as financial planning for business owners.

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