Written By Caitlin See
If you’re on the hunt for affordable disability insurance, you have a variety of coverage options to choose from. For example, you might have access to group coverage with your employer, guaranteed coverage through your residency, or individual disability insurance policies that can be tailored to your needs. Each policy option has its own nuances, which can make comparison shopping even more challenging. That’s where a good disability insurance broker can save you time and money.
How much does a disability insurance broker charge for their services? Since disability insurance brokers act as an intermediary, connecting their clients with insurance carriers, their commission is built into the policy itself — creating an indirect fee that you can’t avoid even if you purchase directly with the insurance carrier. Here’s what you need to know about disability insurance broker fees, including how to choose a broker when there isn’t much cost competition.
What does a disability insurance broker do?
Disability insurance brokers work with individuals to find the best disability insurance coverage that fits their needs and budget. This includes discussing needs based on profession, income, financial responsibilities and overall risk tolerance.
A knowledgeable disability insurance broker will research and compare available insurance plans, including costs, definition of disability and optional riders that can enhance your coverage.
They should be able to explain how own-occupation coverage works and be willing to walk you through scenarios where certain policy provisions could benefit you versus unnecessarily inflating your insurance premiums.
Disability insurance brokers work on behalf of their clients, not a specific insurance company. So, their goal is to present you with coverage options from multiple insurance providers in order to find the right fit.
What’s the difference between a disability insurance agent and a broker?
You can buy a disability insurance policy via an insurance agent or a broker.
A disability insurance broker will be able to offer policies from different companies, usually “the Big 5.” Whereas an insurance agent might work for an agency or brokerage or be a captive employee who’s only allowed to sell you policies from their company.
Since the difference isn’t always clear, it’s best to ask the insurance professional you’re interested in working with, “Are you able to offer me disability insurance policies from multiple companies or just one?”
Potential conflicts of interest with disability insurance agents
Disability insurance agents who work for insurance agencies/brokers still have conflicts of interest. As a hypothetical example, an agent might want you to buy a policy through them at a higher cost instead of using a Guaranteed Standard Issue (GSI) policy available through your residency program.
Hence, just because an agent offers you policies from multiple carriers, it doesn’t necessarily mean they’re acting in your best interest.
Of course, disability insurance agents who work directly for one particular insurance company ultimately represent the insurance provider they work for. So, there’s an even greater conflict of interest for an employed insurance agent working at a specific insurance company.
In contrast, a disability insurance agency/broker is independent of any insurance carrier..
Regardless of whether you use an agency/broker or an employed agent, just ask the insurance professional what his or her conflicts of interest are. Most will gladly tell you. But it’s important to know that there’s no such thing as having no conflicts at all. It’s how you disclose and manage those conflicts, such as how SLP Insurance sends a client to another broker if that broker has a better discount that we’re aware of.
Related: International Disability Insurance: What to Expect From Your Coverage While Abroad
Disability insurance broker fees: How much do they charge?
Disability insurance agents typically earn a commission based on a percentage of the policy’s total annual premium. For disability insurance, that percentage generally ranges anywhere from 40% to 80% of the first year’s premium, followed by 10% to 30% of the policy premiums for the first five to 10 years after. But clients don’t pay this commission as a direct fee.
Instead, disability insurance broker fees are baked into the price of the policy itself. Therefore, it often comes across as a hidden fee that can go unnoticed by the policyholder.
For those who realize there’s a large commission involved, there’s not much that can realistically be done. Unfortunately, there’s no way to get a cheaper price by buying direct from the insurance carrier.
How price competition for disability insurance quotes is banned by law in most states
Student Loan Planner has long tried to bring bonuses, rebates, and transparency to financial services and commissions, especially those that disproportionately affect those with lots of education and professional knowledge.
When we first started advertising student loan refinancing, we started rebating much of the advertising commission we earned as bonuses to borrowers.
When we started offering disability insurance quotes through SLP Insurance, we looked into offering reduced commissions so customers could get a better price. But we discovered that price competition is banned by law in most states.
State insurance regulators do not want to allow insurance agents to offer inappropriate incentives to buy policies that customers do not understand. But unfortunately, what these laws have also done is prohibit competition on price for disability insurance commissions.
Since you’re going to pay similar costs, you might as well get the maximum value by using a disability insurance broker’s knowledge and insight to find the best coverage.
How to choose the right disability insurance broker
When it comes to choosing a disability insurance broker, you won’t find much price competition to help win your business. Anti-rebating laws prevent the insurance industry from offering “rebates”, such as returning a portion of your premium, to secure a sale. So, you’re going to pay roughly the same regardless of who you work with.
Instead, focus on what the disability insurance broker has to offer in terms of their expertise. Here are some questions to explore when choosing a disability insurance broker:
Will the insurance broker send you the best policy even if they don’t earn a commission?
If you’re a resident or fellow, you might be eligible for guaranteed coverage through your program. GSI policies can greatly benefit individuals with a pre-existing condition that might affect coverage options elsewhere. But they’re only available via select residency and fellowship programs, and many brokers will overlook them because they don’t come with a commission.
You want to choose a broker who will evaluate all of your insurance options, not just present the policies that’ll earn them a commission.
What expertise does the insurance broker demonstrate about optional policy provisions?
Optional policy add-ons can significantly change your level of coverage. For example, a future purchase option (FPO) rider will allow you to increase your coverage without undergoing additional medical underwriting in the future. Whereas a residual disability rider will pay you disability benefits if you’re partially disabled but still able to work with reduced hours or duties.
You want a disability insurance broker who’ll candidly discuss which add-ons are important for your situation and which are usually a waste of money.
Will the insurance broker help you scale back or cancel your policy altogether?
If your financial situation changes, you might want to reduce costs by altering your disability coverage. This might include dropping policy riders or adjusting your benefit amount. Once you reach financial independence, you’ll be self-insured and no longer in need of a disability policy.
You want a broker that’ll work with you to customize your policy throughout all stages of your career.
Work with SLP Insurance to find affordable own-occupation coverage
SLP Insurance earns indirect disability insurance broker fees just like any other insurance brokerage. But here’s where we’re different…
If we’re aware of a better deal for the coverage you need, we’ll send you to another broker. We’ll also compare GSI opportunities to ensure you’re getting the best long-term disability insurance policy, even if it means we won’t earn a commission. In most cases though, we have the best deals as our partnerships with insurance companies allow us to offer discounts up to 30%.
Finally, we’re ready to walk you through nuanced policy decisions based on your profession and individual needs.
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