January 11, 2022

Guide to Auto Insurance Agents

What they do, what they sell, and how they make money

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If you’re looking to buy auto insurance, you’ll most likely have to work with an insurance agent, unless you complete the entire process online. Agents represent either a single insurance provider or multiple insurance providers, helping you compare quotes to find the best rates. They also serve as advisors, listening to your specific needs and making recommendations.

In this guide, we’ll explain exactly what insurance agents do and why they’re important in finding the right policy for your vehicle.

Insurance Agents

While much of our lives occur online, dealing with algorithms instead of people, real-life insurance agents are often still an essential part of the auto insurance-buying process. To purchase insurance, you’ll likely need to speak to an agent either in person or over the phone.

What Is an Insurance Agent?

An insurance agent is someone licensed to sell insurance, auto insurance in this case. There are two types of insurance agents:

  • Captive agents: Captive agents work with one insurance carrier exclusively. An example would be a State Farm agent.
  • Independent agents: In contrast to captive agents, independent agents represent multiple carriers, allowing clients to shop multiple companies and compare rates.

What Do Agents Do?

Agents work for the insurance carrier or carriers that they are connected to, handling insurance transactions from start to finish. Learn more about what insurance agents do.

How Do Agents Make Money?

Agents make money by earning commissions on the policies they sell. If you pay for a policy, they’ll get a percentage, with more rewards if you renew your policy. The size of the commision is based on the size of the policy, incentivizing agents to sell policies with high premiums.

Agents vs. Brokers

What is the difference between insurance agents and brokers? While both agents and brokers sell insurance, where their loyalty lies is different, among other factors listed below.

Differences

Here’s how agents and brokers are different:

  • Loyalty: While agents are loyal to an insurance carrier or carriers, brokers are loyal only to the client.
  • Binding coverage: Agents can bind coverage, meaning complete a policy from start to finish. Brokers, on the other hand, can’t bind coverage; rather, they serve as a middleman between the client and the insurance provider, connecting the two.
  • Commissions vs. fees: While agents get paid by commission only, brokers work on both commission and broker fees, which come from the client directly.

Similarities

But many people think agents and brokers are the same thing, and for good reason. Both do the following:

  • Sell insurance: Both agents and brokers sell insurance to clients.
  • Advise clients: Both agents and brokers can be insurance experts, advising clients on which type of policy suits them best.

Car Insurance Coverage

Now that you know what agents are and how they make money, let’s talk about what they’re selling in the first place. All insurance agents are selling insurance coverage, both the minimum coverage required in your state along with supplemental coverage. You can read our auto insurance guide to see exactly how requirements vary by state, but keep reading below to learn what the different types of coverage actually mean.

Insurance Policy

There are different types of car insurance coverage.

Minimum Coverage

In order to comply with your state’s laws, it’s important to get the minimum coverage both in terms of types of liability and limits, or how much the provider will pay after you reach your deductible:

  • Property damage liability: Every state except New Hampshire and Virginia requires property damage liability, which will reimburse the driver not at fault for damages another driver caused to their vehicle or property.
  • Bodily injury liability: All states except New Hampshire, Virginia, Florida, and New Jersey require bodily injury liability for those that cause injuries or death to others while driving their cars.
  • Medical payments/personal injury protection (PIP): Only Delaware, Florida, Hawaii, Massachusetts, New Jersey, Pennsylvania, and Utah require medical payments coverage, which reimburses you for medical expenses and lost wages regardless of who is at fault for the accident.
  • Uninsured motorist coverage: Finally, Connecticut; Washington, D.C.; Idaho; Illinois; Kansas; Maine; Maryland; Massachusetts; Minnesota; Missouri; Nebraska; New York; North Carolina; North Dakota; Oregon; South Carolina; South Dakota; Vermont; West Virginia; and Wisconsin require uninsured motorist coverage. This will make sure that you’re covered in accidents with uninsured or underinsured motorists, which includes hit-and-runs. Although every state except New Hampshire and Virginia require auto insurance, not everyone complies, so it’s important to get their coverage to protect yourself.

NOTE

In lieu of auto insurance, Virginia requires that you pay a $500 uninsured motor vehicle fee in addition to registration fees. The fee is valid for a year.1

Supplemental Coverage

Once you’ve got your state’s minimum requirements covered, you can choose to add on additional coverage. We recommend collision and comprehensive coverage at the very least, but here are all of your options:

  • Collision coverage: Collision insurance reimburses you for damage caused by collisions with another vehicle or object when you’re at fault. This includes damage from potholes, auto vandalism, etc.
  • Comprehensive coverage: Comprehensive coverage includes theft and damage from incidents other than collisions, like fires or floods.
  • Glass coverage: Glass coverage, otherwise known as windshield coverage, covers the windshield, side windows, rear window, and moonroof (if applicable).
  • Gap coverage: Gap coverage makes sure that if your car depreciates since you purchased it (which happens as soon as you leave the lot), you can get paid the difference between your collision/comprehensive coverage and what you paid for your car. This comes in handy if your car is totaled or stolen and you don’t get reimbursed for the full amount you paid for the car.
  • Towing/labor: Otherwise known as emergency road service, auto insurance providers can send help if you’re stranded or need a tow, battery jump, or locksmith.
  • Accidental death and dismemberment coverage (AD&D): While bodily injury and medical payments coverage can cover some medical costs, this might not be sufficient if you have a permanent impairment or die. AD&D provides more extensive coverage for these tragic events.2
  • Classic car insurance: Since vintage and classic cars are rare and expensive to repair, they require a special type of auto insurance coverage.
  • Rental reimbursement: If your car is being repaired under a covered claim, rental reimbursement will get your rented car paid for.
  • Ridesharing coverage: Personal auto insurance policies don’t cover commercial driving, so if you use your car for both personal and ridesharing reasons through platforms like Uber, you’ll need additional ridesharing coverage.
  • Mechanical breakdown insurance: If you have a new car with low mileage and your new-car warranty has run out, you can get mechanical breakdown insurance to cover all repairs to mechanical parts of a car after you’ve paid your deductible.

FYI

Mechanical breakdown insurance does not cover maintenance and wear and tear.3

  • New-car replacement coverage: Got a new car that needs to be completely replaced? New-car replacement coverage will make sure you get back the amount you paid for your car, so long as it’s new with low mileage, collision and comprehensive insurance, and no previous owners.4
  • Optional basic economic loss (OBEL): OBEL adds on $25,000 to $50,000 in basic economic loss, meaning you can decide where the money is applied. Choose between rehab, physical therapy, and income loss if you get into an accident.
  • Custom equipment coverage: Many people add aftermarket products to their cars, whether it’s sound systems, video surveillance, or personal electronics. You can protect these products with custom equipment coverage in case they’re stolen or damaged.
  • Transportation/travel expense coverage: Last but not least, if you can’t drive your car and you’re over 50 miles away from home, travel expense coverage will cover meals, loding, and transportation, including the return trip to pick up your car. But it won’t cover security deposits, gas, or mileage, unfortunately.

Car Insurance Discounts

While you can choose your supplemental coverages, your auto insurance premiums may still be more than you’d like to pay. To lower your auto insurance cost, use auto insurance discounts. Not every provider has every discount, but below, you can see a general overview of the available discounts.

Types

You can get discounts based on your vehicle usage, its equipment, and your education:

  • Usage-based: You can get discounts for being accident free, having low mileage, or driving safely with a clean driving record.
  • Payment-based: You can also get discounts by paying annually, getting an early quote, paying on time, or enrolling in paperless/automatic billing.
  • Education-based: If you take a defensive driving class or a driving training course, you’ll get discounts on your premiums, as you’ll be less likely to file claims.
  • Policy-based: Auto insurers provide discounts for continuous insurance, early signing, and policies with multiple people or vehicles. You can also get a discount if you bundle your auto insurance with another type of insurance, like renters insurance.
  • Vehicle-based: Some providers offer discounts for hybrid vehicles, electric vehicles, or new cars.
  • Insured-based: Many providers discount premiums for federal employees, college students with good grades, homeowners, employees of the provider, those serving in the military, veterans, students away from home, and young drivers.
  • Equipment-based: Finally, you can get discounts for teen driver monitoring in the form of GPS navigation, vehicle storage, and other safety equipment.

Ask your agent which discounts you are eligible for before you choose a policy.

Car Insurance: Pros and Cons

With car insurance, the pros outweigh the cons, especially if you get into an accident. Between medical fees, property damage, and lost wages, buying insurance from an agent can save you thousands of dollars. Regardless, you might not be sure if you can trust an agent, given their incentive to upsell, so we’ve outlined the basic pros and cons of auto insurance below.

  • Required in most states: Every state except New Hampshire and Virginia requires auto insurance, so in order to comply with the law, you must get the minimum coverage your state requires.

  • Protects you against high costs: Although it won’t cover all claims you submit, your policy could help you pay for repairs, medical costs, and other costs stemming from a car accident, vandalism, or theft.

  • Provides helpful services: Aside from reimbursements, some auto insurance policies include useful services like roadside assistance, if your car becomes immobilized and you need help.

  • Can be expensive: The cost of auto insurance depends on many factors, like the state you live in, your credit score (except in the states of Massachusetts, Hawaii, Michigan or California), and how many miles you drive per year. However, it’s not cheap, usually. The average annual expenditure in the U.S. for auto insurance was $1,057 in 2020,5 so unless you get $1,057 worth of coverage and the cost of your deductible, buying auto insurance will typically make you lose money. However, you’ll lose even more money if you don’t buy auto insurance and get into an expensive accident; better safe than sorry!

  • Won’t cover all submitted claims: Not every claim you submit will be covered. For example, if you don’t have comprehensive coverage, auto vandalism isn’t covered. When agents suggest you buy additional coverage, they’re not just thinking of their commission; the more coverage you have, the more likely it is you’ll be compensated for vehicle incidents.

Recap

When you work with an agent, you can think of it as placing a bet. You’re betting the agent that you will get into an accident, while your agent is betting that you won’t.

The best-case scenario is actually for you not to get into an accident, meaning the insurance company has no claims to cover. However, if you do get into an accident, that’s where auto insurance kicks in. Essentially, auto insurance is something useful that you hope you never have to use.

Confused? Talk to your agent about the necessary coverage you’ll need and how you can mitigate costs. This is the advantage of buying insurance from an actual agent rather than completing the entire process online. You can benefit from their expertise and find a policy that’s right for your vehicle and family.

To learn more, keep reading our auto insurance FAQs below.

FAQs

Learn more about auto insurance agents in our frequently asked questions, which come straight from readers like you.

Is auto insurance cheaper through an agent?

Auto insurance isn’t necessarily cheaper through an agent. Buying auto insurance from agents or online can garner you the same rates and discounts, which vary depending on the provider. But while auto insurance premiums aren’t cheaper through an agent, buying insurance from an agent is free, unlike buying insurance from a broker.

What does a car insurance agent do?

A car insurance agent sells insurance to clients and advises them on the proper policies. Car insurance agents also serve as a point of contact for clients, helping them with claims and upgrades to their policies.

Is it worth it to use a car insurance broker?

It may or may not be worth it to use a car insurance broker, but if you want to shop a wide variety of policies or buy hard-to-place policies for something like long-haul trucking, it may be worthwhile. However, if you want to avoid paying a broker’s fee, which could be around $250, then you should use an insurance agent instead.

Does it cost more to go through an insurance agent?

No, it doesn’t. Insurance agents get commissions from the insurance provider you go with. Insurance brokers, on the other hand, cost more than agents, as they require broker’s fees.

Citations

  1. Uninsured Motor Vehicle Fee. Virginia Department of Motor Vehicles. (2021).
    https://www.dmv.virginia.gov/vehicles/#uninsured_fee.asp

  2. AD&D and Accident Insurance. University of Wisconsin System. (2022).
    https://www.wisconsin.edu/ohrwd/benefits/accident/

  3. Car Insurance Coverage: Auto Coverage Types & More. Geico. (2022).
    https://www.geico.com/information/aboutinsurance/auto/

  4. What is New Car Replacement™? Liberty Mutual Insurance. (2022).
    https://www.libertymutual.com/vehicle/auto-insurance/coverage/new-car-replacement-insurance

  5. How Much Does it Really Cost to Own a New Car? AAA Newsroom. (2020).
    https://newsroom.aaa.com/wp-content/uploads/2020/12/2020-Your-Driving-Costs-Brochure-Interactive-FINAL-12-9-20.pdf