The Difference Between A California Health Insurance Broker and Agent

Why Use an Health Insurance Broker?

While the terms are thrown around to people like they're the same thing, they aren't. The differences, while small, are important to know.  An agent is a term used when a person can legally represent an insurance company, and sells or services insurance policies for the company.

Another person in the insurance marketplace is a broker. According to dictionary.com, a broker can be defined as, "a person who functions as an intermediary between two or more parties in negotiating agreements, bargains, or the like."

Often when you buy direct you cut out "the middleman" - a retailer who buys wholesale from a manufacturer or distributor. They mark up the product's price and sell it to you.  You would imagine the same would be true for purchasing a Health Insurance Plan.  It's not.

Health Insurance Carriers will sell direct to you or you can go through a Broker at the same cost.  While you may think you are saving money by going direct, that's not the case.  Moreover, by dealing direct with an insurance company, a consumer loses the perspective of an unbiased and professional adviser.

Traditionally, insurance companies did not sell to the public.  Instead their products were offered to consumers by "agents" who had to be professionally licensed to deal directly with the public.  Consumers actually paid the agent nothing because it was the insurance company who paid the agent a commission, and this commission was not added to the retail price.

The agency system is still in place throughout the U.S. You can find dozens if not hundreds of local independent agents in your telephone book or internet guide. However, thanks to the internet you can also go directly to many insurance companies and get a quote. If you like the quote you can often buy a policy by filling out a few more forms, right on the spot.

Calling the retailer an agent is not an accident.  The Broker is actually your legal representative - your agent - to the insurance company.  The Broker is licensed by your state and carries with them the fiduciary responsibility to be your advocate. They must put your interests first over and above their own, or the insurance company.  Even though the agent is paid by the insurance company, they work for you.

An independent Broker can do important things for you:

• Brokers have at their disposal the ability to quickly check prices and coverages with dozens - if not hundreds - of different insurance companies.  Since rates vary widely a Borker can very likely get you a better deal than you can get for yourself. They can even get you insurance from a 'direct writer' like you could get for yourself.

• Independent agents are a one-stop-shop for all of your insurance needs. An agent typically doesn't sell just Health Insurance. They also sell Dental, Vision, Life Insurance and all the Senior products including; Medicare Supplement, Medicare Advantage, Long Term Care and Prescription Drug plans.   Use them - at no cost to yourself - to handle all of your Health and Life Insurance in one place.

• Insurance is a complicated subject.  Its an agent's business to understand it, and communicate it to you so you understand it as well.  In almost all cases an ordinary consumer will benefit from having someone who deals with this subject for a living.  If there are any hidden surprises, a licensed agent is the one equipped to know where they are.  Even if you understand insurance thoroughly you can get tripped up:  The industry is regulated on a state-by-state basis.  Move from one state to another and you'll find that the coverages may look the same at first glance, but on closer examination things work a bit differently (very differently, in some states).

• Coverages don't just vary from state to state ... they vary from company to company within the same state.  Forms don't necessarily use industry-standard wording and may contain altered provisions that materially affect you in some way... some unknown way if you don't have an expert advisor who is already familiar with a particular policy's quirks.

The above is the good news with regard to what an agent can do for you.  What about the bad news?  Even the bad news has some good news inside of it for the consumer:   If an agent makes a mistake (such as selling you an Insurance policy that is supposed to meet your needs but doesn't), that Broker may well be liable to you for malpractice; something known in the industry as Errors & Omissions.  Your Insurance Broker has an Errors & Omissions insurance policy, just like a surgeon has a malpractice insurance policy.  This is a layer of protection that a consumer enjoys when working with an Broker.

Which brings us to another problem that you create when you go direct.  You have no licensed, regulated insured Broker acting on your behalf.  You are now taking full responsibility for your coverage decisions, and for any mistakes you may make.  No more safety net.

If you deal with an agent, there are certain services and protections you are going to get versus dealing directly with the Insurance company.