Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 19, 2021

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low rate

Sounds ridiculous, right?  Well, maybe not.  In the online age, we now have access to millions of websites that tell us we can get the lowest insurance rate possible.  In fact, you may already think you have the lowest car insurance rate possible.

But are you sure?  And how do you really know?  Just because your agent told you so doesn’t make it true.

Did your agent show you an insurance quote from all the insurers he or she represents?  The odds are they didn’t.

My experience in the industry tells me you probably didn’t ask to see the comparison quotes, and instead told the agent you wanted the lowest rate with the best coverage, which is clearly subjective.  Even if you did look at the quotes, did you understand everything you were looking at, or did you just look at the price.  If the price was higher, was the difference explained to you?

Unfortunately, insurance is just like any other business in the world.  There are people you can trust and people you cannot.

Trouble is, with our lack of understanding, it’s hard to tell the difference.  It shouldn’t shock you when I say there are insurance agents out there who look for the highest price they can find for your policy.  Why?  It’s simple math, their commission, or how they get paid, is a percentage of the policy premium.  It only makes sense to some agents to earn as much money as possible from selling you insurance.

Let’s look at an example of how this may play out with an agent who quotes your policy with two different insurers who pay a 15% commission with the same exact coverage offered by both:

Insurer A:
Offered rate: $1,400.00
Agent commission: ($1,400 x 15%) = $210.00

Insurer B:
Offered rate: $1,250.00
Agent commission: ($1,250 x 15%) = $187.50

The agent may sell you a policy from insurer A to collect an additional $22.50, at an additional cost of $150.00 to you.  You may doubt that an agent would bother selling a more expensive policy for a mere $22.50, but when you consider the volume of every policy sold, you could be looking at a difference of several thousand dollars a year in additional income for the agency.

The very fact that we find this sort of practice hard to believe is the main reason it takes place so often.  The best way to guarantee you get the lowest rate available for your insurance policy is to ask to see all the quotes and demand your agent walk you through each policy to explain anything you don’t understand.  The savings are often in the small details.

So, is your insurance agent working for their commission or your best interests?