Home Insurance Broker

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.

What Is a Home Insurance Broker?

A home insurance broker, also called a homeowners insurance broker, is an individual or company that acts as an intermediary between homebuyers or homeowners 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.

What Is the Difference Between an Independent Insurance Agent and an Insurance Broker?

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.

Who Needs a Home Insurance Broker?  

A homebuyer or homeowner 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 that 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 otherwise would be wasted in applying to the wrong companies.

What a Home Insurance Broker Will Want to Know

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.

Policy Basics

The typical homeowners 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, unlisted 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 that 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.

Levels of Coverage

Note as well that you may have a choice of different levels of coverage:

• Actual value coverage will pay to repair or replace your home and possessions, but only after accounting for their depreciation over time.
• Replacement cost coverage will pay to repair or replace them without deducting for depreciation.
• Guaranteed replacement cost coverage will pay to repair or replace them even if the insurer has to pay out more than the coverage limits on your policy.
• Extended replacement cost coverage will pay up to a certain percentage (such as 20% or 25%) over the coverage limits.

Understanding Deductibles

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 that they pay you when they settle your claim.

Homeowners insurance deductibles are often quoted either as a dollar amount, such as $500 or $1,000, or as a percentage of the home’s insured value. For an example of the latter, if you have $100,000 in insurance and a 2% deductible, you would 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 rather than by a fire. This should all be detailed in the policy, and your insurance broker should be able to address any questions you have.

The Bottom Line

A home insurance broker is a sort of intermediary between you as a homebuyer 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.