What Are the Differences Between a Broker And an Agent?

What is the difference between an independent life insurance broker and a captive life insurance agent? This infographic helps us figure that out:

life insurance brokers vs agents


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  • Ami Maishlish
    January 20, 2015 at 5:12 pm

    For the record, in Ontario as well as most other provinces, legally there is only one type of life insurance intermediary license – a life insurance AGENT license. Whether the person holds out as a life insurance agent, broker, advisor or whatever. Moreover, the licensing requirements are the same and the Continuing Education (aka CE) requirements (at least in Ontario) are best described as inadequate.

    Consumers should not take it for granted that if a life insurance salesperson holds out as a “broker”, (s)he represents many companies or is able to sell the offerings of a variety of companies. Conversely, captive agents are not necessarily limited to selling only the products of a single company. Among captive agents there are those who only represent the products of companies contracted by their MGA while there are captive agents whose contracts permit them to sell the products of more than a single company. In most jurisdictions, the agent, broker or advisor – however they hold out – is only required to meet the “suitability” benchmark. That benchmark is not and should not be confused with the benchmark that should, but unfortunately isn’t required, which is the “best interest of the client” benchmark, and of which the “suitable” element is only a part. On this, for quick basic example, if the determined needed suitable insurance amount is $200,000 but for the identical premium the same suitable product from the same suitable company in the same underwriting class, $300,000 can be purchased, then I’d venture to argue that the $300,000 is more in the client’s best interest than the $200,000 face amount. Unfortunately, only the very top strata of life insurance intermediaries know of these possibilities and care to invest in the necessary tools to identify the added benefits when such are available.

    If I was shopping for life insurance and the life insurance representative was holding out as a “broker”, I would expect her/him to present me with a full and unedited market survey along with her/his recommendations and reasoning for the recommendations. The recommended product doesn’t necessarily have to be the cheapest; of course there are qualitative elements that need to be taken into account along with price. In that regard, I would expect the life insurance rep to also provide me with a specimen of the actual life insurance contract. There is absolutely no reason that I can think of for the text of the insurance contract not being disclosed to the consumer prior to or at the very latest at the point at which the consumer is asked to complete and sign an application form.

    As to “product knowledge”, before we even get to that the insurance rep should have sufficient knowledge, professional tools and understanding to assess the consumer’s needs, and to explain the assessment to the consumer. Caution: A mere multiple of yearly earned income or a mere calculation of the Present Value of X number of years of earned income is NOT a needs assessment and clearly not a “needs analysis” but only a guess and perhaps part of the process. Solutions are not made in a vacuum, first we need to assess and define the “problem” to be solved! In order to be in the client’s best interest, the solution needs to address the “problem”/need most efficiently in terms of qualitative and quantitative perspective, and within the context of the client’s circumstances. That, first requires both professional knowledge and “product” knowledge. Relating to “product” knowledge, insurance companies frequently tweak their products both qualitatively and quantitatively. The insurance rep should have the necessary tools to keep up to date in detail in order to adequately consider the options. A mere print out from the MGA of a survey of the initial premium costs or an internet lookup of initial premium costs alone is insufficient to meet the “best interests of the client” benchmark in most cases. This is even further accentuated if the so called survey is generated to artificially omit available options.

    As to “value”: Value is a composite of “price” and qualitative aspects. We need to keep in mind that in a competitive environment such as exists for life insurance as well as other areas such as computer hardware and software, the general rule is that you get what you pay for. A corollary to that rule is that, in a competitive environment, the value per dollar increases with price. A simple and very basic example of that is that the cost per thousand dollars of life insurance drops as the amount of insurance purchased is increased. A reminder again that in general the qualitative aspects of the insurance are just as important as the quantitative. Of course you want to purchase an insurance policy where you are not only approved to pay premiums but are also approved, at issue, to qualify for a claim in case the insured event occurs. Demand to receive a specimen copy of the contract. It is a legal document that may determine whether you just purchased a booklet or insurance that will pay a claim if the insured event occurs. In that regard, READ the life insurance application form VERY CAREFULLY and do so BEFORE signing it. Pay close attention to each question that is asked and answer it in the BROADEST terms noting all information and not skipping any. The insurance company may not approve you to pay premiums if you disclosed everything but they don’t want to assume the risk; however, they may contest or deny a claim if you bought the insurance, paid the premiums but omitted facts and events that the insurance company may consider to be material to their decision whether or not to accept the risk transfer. When the policy arrives, READ both the policy AND the copy of the completed application form that is enclosed (if the copy of the completed application is not enclosed, demand it as it forms part of the insurance contract). If you find anything missing on the completed application form, attend to the matter immediately. It may make the difference between being or not being covered! An insurance policy where you are only approved to pay premiums but not necessarily for coverage has a value to you that approaches NIL. When speaking with the insurance rep, remember that there is no such thing a “stupid question”, except for the question that perhaps should have been asked but wasn’t. With the speed and reliability of e-mail it is also a good practice to ask the question(s) in writing and ask for a written response. The foregoing is equally applicable regardless of whether the insurance rep holds out as an agent, broker, advisor or whatever other marketing term evolves over time.

    As to “Back office Support”, As to MGAs who service multiple company “independent” life insurance intermediaries.., some profide superior back office support including quality continuing education, subscription to the top financial and life insurance tools in the market, including LifeGuide, financial and taxation specialists, etc. The other extreme is where the MGA is a “volume” paper processing house with the bare minimum of back office support available to the intermediary. Ditto for captive agent management offices. Some are great in terms of support and some are… There is no hard and fast rule.

    …just a few remarks on my part and from the consumer perspective.

    • LSM Insurance
      January 20, 2015 at 5:35 pm

      Thanks for sharing your thoughts Ami.