For most kinds of insurance, you have an option of buying through a broker or insurance agent, or buying directly from an insurance carrier. Younger, tech-savvy purchasers have been attracted to the convenience of direct online insurance shopping, but there is still room in the market for your friendly local insurance agent.
If you are trying to decide which method to use, consider the following pluses and minuses of direct purchase of common types of insurance:
- Auto Insurance – The direct purchase market is crowded in auto insurance, from larger companies such as Esurance, Geico and Progressive to a number of smaller specialized insurance firms that handle niche markets.
Pluses of direct purchase auto insurance are the convenience of purchasing, especially online, and generally lower prices through limited overhead and the lack of sales commissions. Agents from larger companies can blunt the effect of lower prices through multi-policy or targeted discounts, but direct insurance quotes are often lower.
Minuses are the lack of personalized service (especially if you need to file a claim), lack of knowledge of the specific risks where you live as compared to a local agent, and difficulties in comparison-shopping between companies. Independent agents will have more offerings from which to choose.
Regardless of how or where you buy your auto insurance, you want to investigate the company's performance with claims. Theoretically, this is where agents are superior, but do your research to verify that. Give more weight to the service on local claims, not national statistics. Your state insurance commission website should have a means of checking claims records and disciplinary actions, as well as verifying that the insurer is licensed in your state. Your nearest local BBB (Better Business Bureau) chapter should also have complaint information on agencies in your area.
- Life Insurance – The pluses and minuses are very similar to that of auto insurance. In this case, the personal service aspect is more related to making sure your life insurance meets your needs as you progress through life.
An added minus to direct purchasing of life insurance is support in explaining different policies. Insurance jargon can be confusing if you are not familiar with the terms, and very few websites explain them in plain language.
- Health Insurance – The Affordable Care Act has turned this market on its head a bit with the creation of federal and state exchanges, but you do not have to go through an exchange. Direct purchasing is still an option.
Currently, a major plus of dealing directly with a health insurance carrier is bypassing the issues with the websites and exchanges, especially with the payment end. It will improve over time, but as of February 2014, it is extremely important to double check with your carrier to verify that you are enrolled and your payment has been received. In addition, contrary to life insurance, dealing directly with a carrier may get you a better explanation of the types of plans that carrier supplies (HMO, PPO, etc.).
The huge minus is missing out on the government subsidies provided exclusively through the exchanges. Health care plans must "qualify" under ACA by covering a list of minimum defined healthcare benefits – thus the cheap simple plan is history. Prices are likely to rise collectively as a result, so if you qualify for a subsidy, it is going to be hard to avoid using them. If you don't qualify for subsidies, a direct carrier may be a better choice.
Another minus of direct health insurance is difficulty in comparison-shopping. The federal website does a fine job in that regard.
There are variations, as discussed above – but in general, purchasing insurance directly from carriers is for those who prefer the convenience, are comfortable researching options themselves, can understand the jargon, and value a lower price over personal service.