South Carolina Life Insurance Practice Exam

The authority granted to an agent through the agent's contract is referred to as?

1. Implied Authority

2. Express Authority

3. Apparent Authority

4. Restricted Authority

The correct answer is: Express Authority

The authority granted to an agent through the agent's contract is referred to as express authority. This type of authority is specifically delineated within the agent's contract with the principal, clearly defining what actions the agent is permitted to take on behalf of the principal. For example, if the contract states that the agent can sell life insurance policies, then this is an expression of the authority granted to the agent in that contractual relationship. Express authority is essential in agency relationships because it provides a clear understanding of the scope of the agent’s powers, ensuring that both the principal and the agent have a mutual understanding of the agent's responsibilities and limitations. This clarity helps to establish trust and accountability between the parties involved. In contrast, implied authority is derived from the agent’s role and is not explicitly stated in the contract but is understood to be necessary to perform the duties that are expressly authorized. Apparent authority occurs when a principal’s actions lead a third party to reasonably believe that the agent has authority to act, even if that authority is not granted explicitly. Restricted authority would be less commonly referenced and does not capture the standard terminology used in agency relationships.