Home Insurance Broker Definition – InvestopediaMarch 31, 2022
If you’re looking to buy a homeowners insurance policy, you have several options. You can buy directly from a insurance company, through an agent who works for one particular company, through an independent agent who works with multiple companies, or through a home insurance broker. This article explains how home insurance brokers work and when you might want to use one.
Home insurance brokers are similar to independent insurance agents, who arrange for life, home, automobile, and other types of insurance policies.
A home insurance broker, also called a homeowners insurance broker, is an individual or company that acts as an intermediary between home buyers or owners and insurance companies. Unlike a “captive” insurance agent, brokers deal with multiple homeowners insurance companies. In this way they are similar to independent insurance agents, who arrange for life, home, automobile, and other types of insurance policies.
The main difference is that the independent agent represents the insurance companies, while the insurance broker represents the insurance consumer. As such, independent agents can sell policies, while brokers simply connect the consumer to the insurance company.
A home buyer or owner might want to use an insurance broker if they're looking for the best possible price on a policy or if there is something unusual about the property they want to insure. For example, some insurance companies won't write policies for certain types of homes or those in certain areas, such as hurricane or tornado territory. A home insurance broker should know each company's rules, which can save the client time that would otherwise be wasted in applying to the wrong companies.
A home insurance broker should ask you much the same questions as an insurance agent would before recommending a policy to fit your needs. Here are some things to think about before you meet.
The typical homeowner's insurance policy consists of four main parts, according to the Insurance Information Institute, an industry-sponsored group.
1. Coverage for the structure of the home. This coverage should pay to repair or replace your home if it is damaged by any of the perils (such as fire) listed in the policy. If your home is at risk from other, non-listed perils (such as flooding or earthquakes), you’ll need separate coverage for those. Your broker may be able to arrange for that insurance, as well. If you have a mortgage, your lender is likely to require that you purchase a specified amount of coverage.
2. Coverage for your personal belongings. This part of the policy covers your furniture, clothing, and other ordinary possessions. The dollar value of the coverage is usually based on the coverage you have on the structure; for example, it might equal 50% to 70% of your structure’s coverage. If you have particularly valuable items, such as jewelry or artwork, you may want to buy a special policy endorsement, rider, or floater to make certain you have enough coverage on them, just in case.
3. Liability coverage. This part covers you if, for example, someone is injured on your property and sues you. It can also provide coverage if you’re sued for bodily injury or property damage away from your home. Homeowners policies generally come with at least $100,000 in liability coverage. If you want more liability coverage than your policy will provide, ask the broker about purchasing a separate umbrella policy. If you have a home office or run a business out of your home, you’ll also want to mention that to the insurance broker. Failure to do so could lead to a cancellation of your policy, according to the National Association of Insurance Commissioners.
4. Additional living expenses. If your home is made unlivable by a covered mishap, this coverage can help you pay your hotel and restaurant bills until life returns to normal.
Note, as well, that you may have a choice of different levels of coverage:
In addition, you and your home insurance broker should discuss how large a deductible
you are comfortable with. That will depend on how much you could afford to pay out of your own pocket after an incident. As with other types of insurance, the higher your deductibles, the lower your insurance premiums should be. Homeowners insurance companies will typically subtract your deductible from the amount they pay you when they settle your claim.
Homeowners insurance deductibles are often quoted as either a dollar amount, such as $500 or $1,000, or as a percentage of the home's insured value. In the latter case, if you have $100,000 in insurance and a 2% deductible, you'd be on the hook for $2,000.
Complicating matters a little, some policies in certain states will have several different deductibles depending on the reason for your claim. For example, you might be subject to a different deductible if your home is damaged by wind, hail, or a hurricane than if fire is to blame. This should all be detailed in the policy, and your insurance broker should be able to address any questions you have.
Home insurance brokers are typically paid by the insurance company they connect the homeowner with. Their fee might be a percentage of the insurance premium.
If you're buying a home, your real estate agent may be able to recommend a broker to you. Note that if you're taking out a mortgage, your lender will typically require you to show proof of insurance at or before your real estate closing. If time is tight, a broker could be helpful in expediting the process. If you end up being dissatisfied with that particular insurer, you can shop for another company later, either on your own or with a broker, when you’re under less time pressure.
Insurance agents and brokers are licensed by the states. To become and remain licensed, they must typically take a specific list of pre-licensing courses, pass an exam, and satisfy continuing education requirements in the future. Some states also require fingerprinting and a criminal background check. You can generally tell if a particular broker is licensed in your state by using the look-up tool on your state insurance department's website.
You can also check out home insurance brokers in other ways. Some are listed on the Better Business Bureau website, along with their BBB letter grade rating in some cases. Review sites such as Yelp list home insurance brokers, as well.
A home insurance broker is a sort of middleperson between you as a home buyer or homeowner and the companies that sell homeowners insurance policies. Brokers work with multiple insurers, unlike so-called captive insurance agents who work for just one. A broker may be able to get you a better price or save you time in shopping for a policy on your own.
Insurance Information Institute. "Homeowners Insurance Basics." Accessed Jan. 18, 2022.
National Association of Insurance Commissioners. "Homeowners Insurance," Select, "Satisfy Your Mortgage Lender." Accessed Jan. 18, 2022.
National Association of Insurance Commissioners. "Homeowners Insurance," Select FAQs, Select, "What's Not Covered in My Policy?" Accessed Jan. 18, 2022.
Insurance Information Institute. "Understanding Your Insurance Deductibles." Accessed Jan. 18, 2022.
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