The Benefits and Costs of Having an Insurance Agent

by Kevin on March 6, 2009

A few days ago I told you to ignore car insurance marketing pitches. One reader, Finance Nerd, commented:

The benefit of an agent is not that they know your situation inside and out, it is that they are more likely to have your back if the insurance company denies your claim, or tries to lowball you. At least that is a common argument, but I have no idea whether it is true.

For example, if you use GEICO and have a questionable claim, you don’t really know anyone who you can ask to make an exception, or give you a break.

But, if you have an agent, he may value your business enough that he will go to bat for you with the carrier.

According to this argument, cutting out the middleman may be cheaper up front, but may cost you more if you ever have a claim.

First, I wanted to thank Mr. Nerd for the great comment. I need readers like him to come and continue the discussion based on the posts I write. So thanks!

Second, I thought this was a great comment to base an article off of. Simply put I disagree with agents being this huge benefit. I’ll try to remain unbiased as this gets fleshed out.

I will also focus on car insurance for a few reasons:

  • Everyone who has a car has car insurance (or should since it is a law in most states)
  • There are more car owners than home owners
  • I have more experience with car insurance than homeowners or renters insurance (and I want to keep it that way!)

The Benefits of Having a Car Insurance Agent

As Finance Nerd noted there are some benefits of having an insurance agent.

  • The agent gets to know you and your family really well. She can get to know your personal situation really well to make sure you have the correct coverage.
  • The agent can go to bat for you if you have a problem with the company. Claim not moving fast enough? The agent can step in and make a call for you to a claim center supervisor.
  • You have someone to call that can provide you professional advice on the topics that agent is specialized in. Don’t understand investing, liability limits, or annuities? The agent can answer those questions for you.

While all these seem well and good, I respectably disagree.

The Costs Associated with Having an Agent

To the above benefit points…

The Agent is Paid By You

The agent wants to get to know you as well as possible to develop a rapport with you. He may be a perfectly nice person, but at the end of the day his paycheck comes from your pocket. Read that again. The agent is paid out of your pocket. The agent is a cost to you. His office. His furniture. His assistant. His utility bills. All of these come out of your premium payments.

Thus, he wants to get to know you so he can sell you additional products. Those products provide more income for his firm, and more income for him. Out of your pocket.

This goes with the first and third benefit points above. Additionally that expertise, while nice, is eventually going to result in you buying additional products from that agent.

Can Your Agent Really Help You?

To the second point, I offer some of my meager professional experience. I used to work at a car rental company. The biggest one. I’ve seen more than my fair share of customers whose cars were in the shop due to a wreck (in fact a majority of our business was insurance business).

You can imagine the number of very unhappy customers we encountered. Many of them had to come to us because other people hit them and they were having to deal with that person’s insurance company. In these instances, your insurance company (agent included) isn’t of much use to you. Sure, you could have a complex issue and your carrier might call the other carrier to get the ball rolling for you. But I highly doubt your agent would make the call. Likely it would be someone from the claims center.

But what if you hit someone else? That goes on your insurance. Surely your agent can help you then. Right?

In my experience, not really. There are exceptions to every rule, but I rarely heard of someone storming off to their agent and the agent making the claim move really quickly. The fact of the matter is sometimes you simply can’t make the claim move faster. Sometimes parts get delayed. Sometimes shops run behind. In these cases an agent might be beneficial… but I just don’t buy it.

Readers… agree? Disagree? Comment.

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