Should You Buy Insurance from Your Bank?

Since the passage of the Gramm-Leach-Bliley Act in 1999, most consumers and business owners have been able to buy a wide range of insurance products from their banks, for everything from life and health insurance to auto, property, and business coverage. But this opportunity raises an interesting question: Are you better off buying insurance from your bank, or from an independent insurance broker?

Previously, the Glass-Steagall Act of 1933 had restricted who could sell financial services products in the marketplace, to keep banks, insurance companies, and securities firms from encroaching on each other’s territory. But now with banks as an option, it is best to consider the benefits and drawbacks before making a decision.

Benefits

Probably the biggest benefit of buying insurance from your bank is convenience. Put simply, consolidating all of your financial services products in one institution can help simplify your financial life. For example, you may already have checking and savings accounts (both personal and business), credit cards, and perhaps a mortgage with a single bank. If you purchase insurance through your bank as well, you may be able to access all of your financial products via a single online portal and receive consolidated statements reflecting activities and details on all of them.

Taking maximum advantage of relationship and private banking privileges is another potential benefit. Most banks provide exclusive private banking services to customers who meet a minimum net-worth standard or maintain minimum deposit balances in certain kinds of accounts, including access to their own private banker. This highly trained financial professional can offer expert advice and guidance on your specific insurance needs, within the context of your overall financial picture.

Drawbacks

The benefit of consolidating all your financial services in one bank can also be considered a drawback. Some professionals and business owners prefer diversity and would rather spread their financial business among several different service providers to reduce risk and obtain a broader perspective. Also, banks may not provide as wide a variety of options as an independent insurance broker. Most banks offer policies from a limited number of insurance companies that they have agreed to represent. An independent insurance agent or broker, on the other hand, can usually offer policies from a much wider range of different insurance providers.

There’s no general rule of thumb when it comes to the level of service and expertise you will receive from a bank vs. an insurance agent or broker or the cost of the insurance. Many different variables go into both service and cost, so your best bet may be to talk to both your bank and an independent insurance broker and compare cost and service. Then factor convenience, diversification, and any potential relationship benefits into the equation to decide which option is best for you.