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How Should You Get Coverage: On Your Own Or Through A Broker?

You have a few options for how to purchase insurance. You can purchase your coverage from…

  • An insurance company.
  • An insurance broker.

What's the difference? A broker works semi-independently and sells insurance policies on behalf of an insurance company or a group of insurance companies. While you may think that cutting out the middleman and going directly to an insurance company will save you money, that's not necessarily true.

Businesses like kayak.com and orbitz.com help consumers save money by being the middleman. Insurance brokers can work the same way.

A broker lays out your options, soliciting various plans from different top-rated insurance companies. Brokers let you compare policies and find one that fits your budget and your coverage needs. They can make the purchasing process easier and faster, and help you know you're finding coverage at a reasonable price.

Brokers are sometimes able to get lower premiums from insurance companies because they work with the same group of insurance companies every day, know their price points, and know how to find Errors and Omissions Insurance for less and ways to save on other policies. Many brokers are also adept at cutting unnecessary coverage and tailoring business insurance to match a small business's needs.

They're also familiar with the standard inclusions and exclusions in various carriers' policies and can help you determine which policy offers coverage for the kind of work you do.

Purchasing insurance directly from an insurance company is more labor-intensive. If you go this route, be sure to…

  • Check the insurer's rating. Insurance companies work like banks, with ratings that measure their credit and financial standing. Each year, companies are rated on the long-term outlook of their financials and how likely they are to have money to pay customer claims. These ratings are done by A.M. Best. The top-rated companies all have "A" ratings. Here's the scale that they use:

[http://www.ambest.com/ratings/guide.asp]

You'll want to know that the insurance company that you're purchasing E&O Insurance from will still be able to pay for a lawsuit in five years. Remember that your E&O Insurance is a long commitment, so it's important to know that the insurer is financially stable.

  • Soliciting quotes from various companies. You can easily spend an entire day on the phone getting quotes from various companies. Each time you call an insurance company, you'll have to give them the same information about the size of your business, your contracts, your property, etc. And each time, you'll have to haggle with their representative to see if they can reduce the initial quote that they throw at you. (Note: if you work with an agent, they'll do this for you.)
  • Comparing quotes. This is more complicated than it would seem because some insurance policies may offer different types of coverage and may structure their policies differently. You may find yourself asking questions like, "How does an open perils Property Insurance policy compare to a named perils policy?" For many small-business owners, these are exactly the kinds of questions they hate: complicated, nit-picky questions that depend on how fluent you are in legalese. Nonetheless, your coverage depends on these issues. Two property Insurance policies could both "insure" your commercial property for $100,000 worth of damage but offer completely different coverage. On your own, you may be less certain to know what you're getting.

Next: What Isn't Covered By Business Insurance?

70% of businesses raise prices or cut hiring when sued