A certain amount of risk is always involved when advising others on financial matters, and the same holds true for insurance brokers. Because brokers advise people during difficult times, many states have strict licensing requirements to be met by applicants prior to conducting business as a broker. Several states will not issue an insurance broker license until the broker obtains a surety bond guaranteeing to the state that money is available to reimburse anyone who suffers loss at the hands of a broker. The process of obtaining an insurance broker bond can seem daunting simply because many are unfamiliar with surety bonds. However, by educating oneself about insurance broker bonds, many will find that getting one is one of the easiest parts of the licensing process.
What does an insurance broker do?
An insurance broker specializes in insurance and helps clients manage financial risk. Brokers are tasked with being especially knowledgeable about the insurance industry to give the best advice to clients purchasing insurance policies. This individual works on behalf of clients and they provide financial advice that serves the benefit of the client.
Often times, a broker analyzes individual and/or business risks and helps the client determine how to manage these risks. The insurance broker can help clients identify potential risks in their personal life or business that should be covered by insurance and then can work to find clients the best premium on an insurance policy.
Because advising on insurance coverage is central to the broker-client relationship, the client must be able to trust an insurance broker with sensitive financial details.
How to get an insurance broker license?
While the exact process to become an insurance broker varies from state to state, as each state establishes its own laws and regulations pertaining to becoming a broker, there are some common steps most states require to receive a license. Once a license is obtained, it is good for life and can be received in three different types of insurance: personal lines, property, and casualty. Licensed insurance brokers are required to at least have a high school diploma—although a bachelor’s degree is recommended.
Many states also require brokers to pass standardized exams prior to issuing a license. Courses exist that can help prepare an individual for the exam. Resources such as the Agent Broker Training Center and Pearson VUE offer a wealth of information on the types of exams insurance brokers need to pass in each state.
What is an insurance broker surety bond?
An insurance broker surety bond functions as a safety net in the relationship between broker and client. Many states have legal requirements for licensees to be bonded, which provides the guarantee that money is available in the event the broker fails to adhere to all applicable rules and regulations established by state and federal law.
What is the difference between an insurance agent and an insurance broker?
An insurance agent is typically aligned with just one insurance company and thus will only try to sell that company’s policies, while an insurance broker works with multiple companies, giving them the flexibility to offer the best rate available between those companies. An insurance agent typically makes a fixed salary with the possibility of a bonus based on commission, while an insurance broker’s compensation is almost entirely commission-based.
Brokers should try to work with a wide network of insurance companies to ensure the customer is receiving the best premium on policies purchased. This can help attract customers as the clients understand the broker has the ability to find them the best premium on the insurance policies they need compared to a broker simply trying to make a commission by working with one or two companies.
Who should buy an insurance broker bond?
Insurance brokers looking to operate within a state that requires them to be bonded will need to purchase a surety bond from an insurance company prior to receiving a license. Because laws vary from one state to another, the applicant should become familiar with what is required of them prior to beginning the licensing process.
Where can insurance brokers buy a surety bond?
Insurance brokers can buy a surety bond from an insurance agent. However, they may find the bond for a lower rate by reaching out to a brokerage who works with multiple surety companies, meaning they will ask for quotes from multiple companies until they believe they have found the best rate.
How much does an insurance broker bond cost?
The cost of an insurance broker bond varies depending on the amount the state licensing authority requires. States that require insurance brokers to post surety bonds determine the amount– typically between $10,000 and $20,000. Because the required amount of the surety bond is minimal and insurance broker bonds are generally seen as low-risk, they can often be purchased instantly for between 1-3% of the total amount of the bond. For example, a $10,000 insurance broker bond will typically cost between $100 & $300, depending on the surety company backing the bond.
If you’re in the market for an insurance broker bond or have additional questions about bonding requirements in your state, feel free to visit SuretyBonds.com.