Life & Health Insurance Practice Exam

What is the term used for the authority that can arise from a customer's assumptions about an agent's capabilities?

1. Express authority

2. Implied authority

3. Regulatory authority

4. Apparent authority

The correct answer is: Apparent authority

The term that describes the authority stemming from a customer's assumptions about an agent's capabilities is known as "apparent authority." This concept is based on the perception that the agent has the authority to act on behalf of the insurer, even if no formal agreement or explicit authority exists. This perception is shaped by the interactions between the agent and the customer, as well as the overall presentation of the agent's role. Apparent authority often arises when an agent has engaged in activities or communications that lead customers to reasonably believe they have authority. For example, if an agent consistently presents themselves as someone who can make decisions or offer certain types of coverage, customers may assume that those statements reflect actual authority. In contrast, express authority refers to the specific powers granted to an agent through written agreements or verbal instructions from the insurer. Implied authority pertains to the powers that are not formally documented but are necessary for the agent to effectively perform their duties. Regulatory authority involves powers granted by governmental bodies to regulate and oversee insurance practices. Each of these terms speaks to different aspects of authority in the context of insurance, but they do not capture the nuanced relationship between an agent's perceived capabilities and a customer's assumptions as effectively as apparent authority does.