What is the Difference Between a Life Insurance Agent, Broker, and Company?
|Type of Insurance Distributor||How They Make Their Money|
|Life Insurance Companies||Policy premiums and net investment income.|
|Life Insurance Agents||Commissions paid by their sole life insurance company employer.|
|Life Insurance Brokers||Commissions paid by various insurance companies as compensation for selling their policies.|
There are two components to life insurance:
1) the actual policy that is developed by a life insurance company, and
2) the sale of this policy to the public.
Life Insurance Companies
Only life insurance companies can create policies. They make their money from the premiums they take in and investment income (less claims and expenses). The sale of these policies is done by all three of the above – insurance companies, agents and brokers.
These days, life insurance companies often sell their policies directly through their websites. For people in a hurry and who know what they want, this can work – although in many cases it is more expensive since it tends to be a simplified issue where few questions are asked. It can also lead to potential problems where there are better solutions offered by other companies. In these cases the person selling the life policy is usually paid a salary or hourly wage depending on whether they work from an office or their home. Bonuses can be offered for achieving targets.
Twenty years ago, most insurance companies sold through a network of agents who sold their products exclusively. A few companies still operate by this model, such as London Life and Primerica, but most Canadians now want choice in the product they purchase and there is current movement away from this model. Generally, sales people working for these companies have been referred to as Insurance Agents because they are agents for a particular company. These agents are paid on commission which can include a draw or the smoothing of their income.
Insurance Brokers are the primary sales force now. They are independent sales agents who represent more than one company. Many brokers will choose three or four companies to represent because it is difficult to become familiar with all companies. Companies are starting to require a minimum amount of business to be written with them to retain their contract. Independent Insurance Brokers are paid a commission by the company they choose to place the business with. Most companies are offering similar commissions.
Purchasing Online Insurance Policies Directly from Insurance Companies
Many Canadians are now going to the internet to find life insurance options and get quotes. The advantage for doing this is that internet-based brokers usually are contracted with many companies. Thus, the people coming to them are able to compare the rates of many companies prior to connecting with a broker. These brokers are usually contracted with many companies and familiar with the insurance products they offer, which will provide the widest choice of options. They are also paid a commission by the company they place the business with.
Who Should You Trust?
Within this mix, who should you trust? A broker is the best choice if you want to have access to the full suite of products offered by many Canadian life insurance companies. However, you should take the time to ask questions to ensure that the broker is more than a sales person; rather someone who is genuinely interested in helping you determine what you need for your family and then select the best product within your budget. Someone you can feel comfortable with.