Insurance is essential for many small businesses. Without it, you may be leaving your business vulnerable to unexpected costs associated with accidents, mistakes, and injuries.
But many small business owners wince at the idea of buying insurance.
And can you blame them?
With so many options, it can be complicated and confusing. How do you know if you have the right coverage? How do you know if you have enough coverage? How do you know if you’re paying too much for coverage?
As a small business owner, you may want to delegate this time-consuming task to someone else. That’s an excellent idea, but it may lead to more questions. Do you need an insurance broker or an insurance agent? Is there a difference? And what are the pros and cons of each?
Don’t let these questions stop you from seeking the help of an insurance professional. In this article, we’ll explain the difference between brokers and agents so you can find the best fit for your business. Let’s get started.
An insurance broker is a professional who acts as an intermediary between you and an insurance company or insurance agent to help you find a policy that best suits your needs.
Insurance brokers represent you, the potential insured. This is an important distinction from an insurance agent, who represents the insurance company (more on this to come a bit later).
Insurance brokers usually earn a commission from insurance providers when they help sell a policy. Their commission is typically a percentage of your policy’s total annual premium, and they also may earn an additional amount when you renew your policy.
Note: As a consumer, you’re typically not directly paying the broker’s commission since it’s built into the insurance premium.
In addition to receiving a commission, some insurance brokers charge a fee for their services. For example, a broker may charge $100 for a standard insurance policy. Some states limit fees to protect consumers from being overcharged. Before you hire a broker, you should ask how they work and how much they charge.
You know your business. Insurance brokers know insurance. That’s why it may make sense to put your insurance needs in the hands of an experienced professional.
Here are some benefits of using an insurance broker:
An insurance broker is a professional who is required to have an insurance broker’s license before they can practice. Because they require formal training, they understand different insurance policies and which ones suit your business. Working with a broker can help you make the right choices and provide peace of mind that you are appropriately covered.
When you want to save money on a purchase, you shop around. With insurance, brokers do this for you by shopping through multiple insurance carriers. They can match your business with the insurer and policy that fits your needs and provides the best value.
Every business is different, and yours may have some unique risks. An experienced insurance broker will get to know your business and help you select a policy that’s best tailored to your specialized needs. They also may identify areas of risk you haven’t realized and recommend appropriate coverage to protect your business.
One of the biggest insurance hassles for small business owners is dealing with claims. You can learn more about the six most common business insurance claims and how to avoid them. Many brokers can help you navigate the challenges associated with claims so you can settle them as quickly and efficiently as possible.
Researching and shopping for insurance can be tedious and time-consuming. When you hire a broker, you can delegate those tasks to an expert who may likely accomplish them in less time. While your broker does the legwork, you’ll have more time to focus on your business.
A broker’s role doesn’t always stop after you’ve purchased a policy. Your broker may continue providing valuable services, such as helping you settle a claim or adjusting your coverage as your business grows and matures. It may be comforting to know you always have a knowledgeable, trusted insurance partner on your side.
A broker can help you navigate your insurance needs in many ways, but hiring a broker isn’t for everyone. If you’re still wondering if insurance brokers are worth it, here are a few disadvantages to consider:
As previously mentioned, some insurance brokers charge clients a fee, in addition to earning a commission. Fee amounts and how often you’re required to pay them can vary, depending on your state’s insurance code. To avoid surprises, ask about a broker’s fee structure before hiring them to help ensure it aligns with your state’s guidelines and budget.
Whenever you hire a professional, you should make sure they’re legitimate. An insurance broker should be licensed to offer policies in your state. Studies show that around 30 percent of Americans have fallen victim to insurance fraud, so be sure to ask for their license number. You can verify their status with The National Association of Insurance Commissioners’ lookup tool that accesses licensing information for brokers and insurers in all states.
Brokers shouldn’t advocate for one insurer over another. However, some companies offer insurance brokers bonuses or gifts for bringing in clients. That may sway a broker to sell the products and services of one provider over the other, even if it’s not in your best interest. Beware of any broker who pushes you to buy a policy immediately or doesn’t provide coverage options.
Binding is an insurance term that indicates when an insurer officially begins coverage. Insurance brokers cannot bind the coverage themselves, so they must turn the process over to an insurance agent to complete. If you need insurance coverage quickly, the binding authority may be a factor to consider.
Unlike an insurance broker who works on your behalf, an insurance agent works for an insurance provider — or possibly more than one provider. They have in-depth knowledge of the products offered by the company or companies they represent and can help you with the best policy for your needs.
There are two types of insurance agents: captive and independent.
Captive agents: A captive agent typically works with one insurance company and sells only that carrier’s products.
Independent agents: An independent agent usually works with several insurance carriers and can provide you with quotes from multiple carriers.
An independent agent sounds a lot like an insurance broker. But remember, a broker works on your behalf, while an independent agent sells policies for the insurance companies they represent.
When finding the right policy for your small business, you may choose to work with an insurance broker or an agent. Ultimately, the choice comes down to your individual needs.
We’ll walk you through some pros and cons of working with an insurance agent:
In addition to earning a commission, an insurance broker may charge you (the insured) a broker’s fee, whereas insurance agents typically work solely on commission from the insurer they represent. That means you generally won’t pay any additional fees when hiring an agent. All that being said, there are some states which permit agents to charge a fee
If you’re interested in a particular insurance provider, an agent who works on behalf of that carrier can provide you with an in-depth understanding of coverages and terms. They will know the policy’s finer details and can help you decide what to buy. They also can assist you throughout the entire process of your insurance purchase.
An insurance binder is a temporary insurance policy that provides you with proof of coverage until your full policy is issued. An insurance agent can issue a binder if their insurer has afforded them binding authority. In contrast, a broker must obtain a binder from an insurance agent or the insurance company.
Insurance agents are knowledgeable, licensed professionals who are regulated by state laws. An agent may have multiple licenses since they are required to obtain a license for each type of insurance they sell.
Insurance agents have detailed contracts with insurance providers who outline the specific policies they can sell on behalf of the company. And if they are a captive agent, you’re limited to policies from one provider. If you’re shopping around, you may want more options.
Because insurance agents work for certain insurance companies, they will match you only with policies from those providers. If there’s a better, more affordable insurance option for your business, you may not be presented with it.
Small business insurance is what we do, and thousands of small businesses trust us to protect their growing businesses. We help make insurance clear, affordable, and simple — so you can stay focused on building your dream.
We built Simply Business to serve the needs of small business owners. As a result, we offer insurance solutions that truly aim to meet your needs. We know you have unique challenges and pain points, so we take time to get to know you and your business.
We know what it’s like to start a small business. The days are long, and you may have little time to research and purchase insurance. Our goal is to make finding the best coverage easy — so you can spend more time doing what you love.
We partner with a broad range of insurance providers specializing in affordable, flexible, and tailored quotes. You can see how easy it is to get a quote in the section below.
We’ll find the protection that your business needs, customized for you. No fees. No hassle.
We’re here to help. Whether you’re just getting started or have existing insurance, our team is just a phone call away.
And our support doesn’t end there.
We have several helpful articles that may answer some of your questions, such as What is Liability Insurance? and How to Find the Right Small Business Insurance Policy.
If you’re wondering if your small business needs insurance, check out 5 Signs You Need to Get Small Business Insurance.
You’ve worked hard to build your small business. Now is the time to get small business insurance to protect it.
Many owners of small businesses worry about the cost of insurance. That’s why we offer an easy way to get small business insurance quotes. You can compare quotes online, find the coverage that fits your budget, and select the best insurance for you. See for yourself with our online comparison tool. Just answer a few questions to get free quotes from top insurers in your industry.
With just a few clicks, you can get insured online in minutes. Or if you want to talk to one of our licensed insurance agents, call 844-654-7272.
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Choosing insurance for your small business can be stressful. We get that. That’s why you may want to leave the job to an insurance expert. Having an expert on your side can free you from hours of reviewing and comparing insurance policies — and it also may save you money on your policy.
I've always loved to write and have been lucky enough to make a career out of it. After many years in the corporate advertising world, I'm now a freelance writer—running my own show and contributing to Simply Business. Fun fact: I have three desks in my house, but I still do my best thinking walking in the woods.
Susan writes on a number of topics such as workplace safety, customer sales, and workers' compensation insurance.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.