Choosing a Life Insurance Broker
According to the Insurance Dictionary, an insurance broker is a "representative of an insured, not of an insurance company. Acts of a broker are not the responsibility of the company, and notice given by an insured to a broker is not the same as notice to the company. The broker searches the insurance marketplace for a company in which to place the insured's business for the most coverage at the best price. The broker is not restricted to placing business with any one company."
Thus, a life insurance broker would act on behalf of you, the proposed insured, to find you the most affordable, most appropriate, or perhaps just the available life insurance policy options from an array of different companies. Ultimately, a life insurance broker does YOUR bidding after he informs you of all available options--although he may try to sell you on just what your bidding should be before you give him the final command.
A life insurance broker should be friendly, personable, and readily share with you what companies he works with if you ask him. But of course, he should be very knowledgeable about life insurance and about different life insurance companies. You also want to work with a life insurance broker who is transparent: that is, he will always tell you, if you ask him, how he will be compensated if through him you buy a certain life insurance policy. You should also seek out a broker who has at least five years of experience--because most life insurance brokers got their start as bound agents for one company, and as a result there is little need for you to have to put up with the risk of misinformation from someone inexperienced when you want expert advice.
Generally speaking, life insurance brokers get a percentage of the first year premium that you pay to the insurance company whose product he sells you. He may also earn residuals for keeping it in place through the years and he may be compensated in other ways depending on his agreement with the company in question.
Insurance brokers are, by law, required to act in your best interests first and their own second, should a conflict of interest arise. For instance, if a broker is licensed to two different insurance companies who both offer a virtually identical policy that is of the type you need or want, and all other things such as company quality being equal one company offers a lower premium than the other, he is supposed to make sure you are aware that you can save money with the one company--even if that means he takes a lower commission as a result. If there is ever a clear cut-and-dried case where a life insurance broker sells a policy with a higher premium than the client really needed to pay for the sake of earning a higher commission, he can be sued and he can lose his license to practice.
Life insurance brokers choose who they are licensed to write insurance for. They will thus try to do several different things to improve their own profitability. They will seek to make their offerings as expansive as possible to appeal to as many different potential clients and circumstances as they can. They will also, however, try to do business with companies that pay them the best commissions. Nevertheless, they will also look to insurance companies that offer life insurance products that they want to sell, instead of blindly licensing themselves to companies with good commission rates but inferior or few products. And they will seek to get licensed through companies that will take on most of the customer service burden, because brokers don't have time for traditional CS, as they are too busy prospecting and maintaining client relationships.
So do business with a life insurance broker whom you like and who proves himself knowledgeable. Never let a broker sell you--his job is just to show you all your best options and then place your order for you.