Rhode Island Life Insurance Practice Exam

Which of the following is NOT a type of agent authority?

1. Implied authority

2. Express authority

3. Apparent authority

4. Principal authority

The correct answer is: Principal authority

The concept of agent authority in insurance primarily refers to the permissions and limitations placed on an agent by their principal, typically the insurance company. Implied authority, express authority, and apparent authority are all recognized types of authority that agents possess in their professional dealings. Implied authority allows agents to perform actions that are not explicitly stated but are necessary for carrying out their duties. For instance, if an agent is tasked with selling a policy, they have the implied authority to negotiate terms and provide information about that policy. Express authority refers to the specific powers granted to an agent through written or verbal agreements. An example would be a broker who has a formal contract outlining the scope of transactions they can execute on behalf of the insurer. Apparent authority arises when a third party reasonably believes the agent has authority based on the actions or communications of the principal, even if that authority was not formally granted. This can happen when a principal allows an agent to act in a certain manner, leading others to assume the agent has that authority, which can create binding agreements. On the other hand, principal authority, as a term, does not accurately reflect the established categories of authority within the agency relationship. It's the principal, not the agent, who provides the authority and establishes