Legal Service


The legal obligations of an insurance agent are the laws and regulations they must adhere to in their practice. Otherwise, they are subject to legal punishment, which may include a fine or imprisonment. The laws regulating insurance vary from state to state; therefore, an insurance agent is subject to the laws in the state under which they are licensed to operate. All in all, they are expected to work ethically and responsibly.

All the insurance agents are under federal law, common law, state law, and contract law. Although the federal government does not regulate insurance as much, agents must abide by any federal insurance law required. The common law requires insurance agents to practice in good faith, act reasonably and diligently carry out the client’s instructions. The state insurance laws are very strict as they determine the insurance requirements that insurance agents practicing there must meet. State legislators enact the insurance laws, and state insurance departments enforce them.

Insurance agent licensing

All states require professional insurance agents to acquire state licensing to operate or run an insurance company in the state. The state insurance department issues a licensing exam to the potential candidates to ascertain if they are ready to undertake the state’s insurance practice. The type of insurance the agent gets depends on the type of insurance they intend to sell. For instance, a property and casualty insurance license allows an insurance agent to sell homeowner’s insurance, commercial property insurance, car insurance, and professional liability insurance.

In many states, the aspiring insurance agent must complete a specific number of hours of prelicensing education to sit for the licensing exam. The insurance license is valid for two years, and the agent may be required to undertake continuing education imposed by the state licensing department before renewing their license. That also provides a way for clients to verify licensed insurance agents.

How do insurance agents’ legal obligations work?

Insurance agents’ obligations may vary from one state to another. But in most states, insurance agents must comply with their client’s wishes and provide the coverage the client requests. The agent must be diligent and inform the client if they cant obtain the coverage. Otherwise, the client has a right to sue them for damages caused.

For example, suppose a company that has just acquired a new warehouse in a new physical location and requests commercial property insurance, including building ordinance coverage. In that case, the insurance agent should provide the coverage the company requests, and if they can’t fulfill that, they should inform them. The company may emphasize the need for building ordinance coverage because building codes are subject to change in the specific area. The agent obtains their insurance policy.

After some time, the warehouse catches fire, and the company files for a property claim, but the insuring company pays very little amount than expected. They realize that the insurance agent did not include the building ordinance coverage in the policy. In such a case, the company can sue the insurance agent for negligence, and the agent may be fined the amount they should have collected on the coverage.


Insurance agents must adhere to the legal obligations in their state. They should fulfill the wishes of the client or communicate if they can’t do so.

Pedro Aylin
the authorPedro Aylin