Home Insurance Broker: What It Is, How It Works

A home insurance broker serves as an intermediary between a homeowner and various insurance companies. An insurance broker might help you find a homeowners insurance policy that fits a particular property or the cheapest available one. This article explains how home insurance brokers work and when you might want to use one.

What Is a Home Insurance Broker?

If you’re looking to buy a homeowners insurance policy, you have several options. You can buy directly from an insurance company or through an agent who works for one particular company. an independent agent who works with multiple companies, or 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.

Independent Insurance Agent vs. 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 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 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 spent searching for an insurance provider.

What a Home Insurance Broker Will Want to Know

A home insurance broker should ask you many of the same questions as an insurance agent 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 unlisted perils, such as flooding or earthquakes, you’ll need separate coverage. Your broker may be able to arrange for that insurance as well. If you have a mortgage loan, your mortgage lender will likely require you to 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 coverage amount depends on the level of coverage on the structure. For example, your coverage 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 ensure you have enough coverage.

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, 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 you the actual cash value to repair or replace your home and possessions, but only after accounting for depreciation or wear and tear.
• Replacement cost coverage pays to repair or replace them without deducting for depreciation, meaning you get paid the current dollar value of a new item.
• Guaranteed replacement cost coverage will pay to repair or replace your possessions 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.

Deductible

The policy's deductible is the portion of a claim that you must pay out of pocket. Homeowners insurance deductibles are often quoted either as a dollar amount or as a percentage of the home’s insured value.

On a policy with $100,000 in insurance and a $1,000 deductible, if $10,000 worth of covered damages occurred to your property, you would pay $1,000 out of pocket, and the insurance company would pay the remaining $9,000 of the claim.

Or, let's say you have $100,000 in insurance and a 2% deductible or $2,000. If $10,000 worth of covered damages occurred to your property, you would be responsible for paying $2,000 out of pocket, and the insurance company would pay the remaining $8,000 of the claim.

The size of your deductible will depend on how much you can afford to pay after an incident.

The higher your deductible, the lower your insurance monthly premium. Conversely, a lower deductible tends to result in higher premiums. If you can afford a higher out-of-pocket expense, you can choose the higher deductible and use the savings from the lower premiums to buy additional coverages, such as flood insurance.

Special Considerations for Deductibles

Unfortunately, some policies in certain states complicate matters by offering 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 a hurricane rather than a fire.

Also, if you buy additional disaster coverage not found in a standard policy, such as for earthquakes, the add-on policy may come with a special deductible for that disaster. The deductibles should be outlined in the policy, and your insurance broker can address any of your questions.

Frequently Asked Questions (FAQs)

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 get you a better price or save you time when shopping for a policy on your own.