How Do Insurance Brokers Get Paid? A Plain-English Guide for Employers

Most insurance brokers get paid through a commission from the insurance companies they place coverage with. That commission is already built into the premium, so in most cases using a broker doesn't add a separate bill for the employer.

But broker compensation isn't always that simple. Some brokers charge a broker fee, some earn bonuses, and commission rates vary by type of insurance. Here's how insurance brokers make their money, how it compares to an insurance agent, and the questions to ask so you know exactly what you're paying for.

Insurance broker vs. insurance agent: what's the difference?

Both help you buy insurance policies, but they represent different sides:

• A captive insurance agent works for one insurance company and sells only that company's insurance products.
• An independent agent is appointed with several insurance companies and can compare their plans.
• An insurance broker works on behalf of the client, not the carrier. A broker shops multiple insurance companies to find coverage that fits your insurance needs.

In employee benefits, the line between an independent agent and a broker is often blurry, and many firms do both. What matters most is how many carriers they compare and how they get paid.

Commissions: how most insurance brokers get paid

When you buy group health insurance, dental, life insurance or disability coverage through a broker, the insurance company pays the broker a commission. There are two common ways insurance commissions are calculated:

• A percentage of the premium. The broker earns a commission rate on the annual premium. Rates differ by type of insurance and by carrier.
• A flat amount per employee per month. Common in group health insurance, where the broker earns a set amount for each enrolled employee.

New business vs. renewal commissions

Many brokers earn a commission when a policy is first placed and a renewal commission each year it stays in force. Renewal commissions are what pay for the ongoing service you should expect: help with claims, answering employee questions, and shopping your plan at renewal.

Does the commission raise my premium?

Generally, no. The insurance premium is usually the same whether you buy through a broker or go directly to the insurance company, because the commission is part of the carrier's pricing. In other words, you get a broker's comparison shopping, advice and service without paying more for the same plan.

Broker fees: the alternative model

Some insurance brokers and consultants charge a broker fee instead of, or on top of, commissions. A fee-based model is more common when:

• The employer is larger or has a self-funded plan
• The business wants consulting, compliance or HR support beyond placing coverage
• The employer prefers a flat, transparent cost instead of commissions built into the premium

Some states limit when a broker can charge fees on top of commissions, so a reputable broker will explain their fee in writing before you agree to it.

Bonuses and other compensation

Some insurance companies pay brokers bonuses for hitting sales volume or retention targets. These are sometimes called contingent commissions or overrides, Bonuses aren't bad in themselves, but you should know about them, because they can influence which carrier a broker recommends.

Are insurance brokers required to disclose how they get paid?

Yes, for group health plans. Since the Consolidated Appropriations Act of 2021, brokers and consultants serving group health plans must disclose the direct and indirect compensation they expect to receive, generally when it's $1,000 or more. If a broker can't clearly explain how they get paid, that's a red flag.

How much do insurance brokers make on each policy?

It depends on the type of insurance, the carrier and the size of the group, Commission rates for employee benefits are often a modest percentage of the annual premium, or a flat per-employee amount for group health insurance. Because every carrier sets its own rates, the only reliable answer for your plan is to ask your broker directly.

Is it cheaper to go through an insurance broker?

Often it's no more expensive, and it can be cheaper. Because the commission is built into the premium either way, you typically pay the same price for the same plan. A broker can also save you money by comparing multiple insurance companies and plan designs you might not find on your own.

What's the downside of using an insurance broker?

The biggest risk is a conflict of interest, A broker paid by commission could be tempted to steer you toward a carrier that pays more. Some brokers also compare only a few carriers. You can protect yourself by asking how they're paid and how many carriers they'll quote.

Questions to ask any insurance broker

• How do you get paid on my plan: commission, broker fee, or both?
• Do you receive bonuses from any insurance company you're recommending?
• How many carriers will you compare for me?
• What service do I get after enrollment: claims help, renewals, employee questions?
• Who do my employees call when they have a problem?

How Benefits On Us gets paid

Benefits On Us is paid by the insurance carriers we place coverage with, so there's no separate fee for our quotes, plan comparisons or enrollment support, We compare multiple insurance companies side by side and will always tell you how we're paid on any plan we recommend.

Book a free 15-minute Discovery Call and ask us anything, including how we get paid.