South Carolina Life Insurance Practice Exam

According to the Law of Agency, a principal is represented by whom?

1. Insurance Agents

2. Public Adjusters

3. Insurance Brokers

4. Government Officials

The correct answer is: Insurance Agents

The correct choice identifies that a principal is represented by insurance agents. In the context of agency law, the principal is the individual or entity that grants another person, known as the agent, the authority to act on their behalf. This relationship is foundational in the insurance industry, where agents represent the insurer (the principal) and have the power to negotiate contracts and bind the insurer to agreements with clients. Insurance agents typically have a contractual relationship with the insurer, allowing them to sell policies, collect premiums, and serve as the point of contact for policyholders. They have a fiduciary duty to act in the best interest of the principal, ensuring that the principal's goals and responsibilities are met while conducting business on their behalf. Public adjusters, insurance brokers, and government officials do play important roles in the insurance landscape, but they do not have the same representation role as agents do in the principal-agent relationship defined by the Law of Agency. Public adjusters represent policyholders when filing claims and negotiating settlements, while insurance brokers serve as intermediaries who represent buyers looking for the best insurance deals across multiple carriers. Government officials may regulate or oversee the insurance industry but do not represent insured parties or insurers in agency arrangements.