Insurance is a business that is based on the law of agency. Thus the basics of this branch of the law are critical to understanding the insurance business.

Insurance companies conduct their business through two types of agents: employees and salespersons (or producers). The insurers are the principals for whom these two types of agents work and to whom they must account. Employees are accountable only to their employers, but as you will see, sometimes the insurance producer is also an agent of the insured.

The Latin term that is used in the law to explain the concept of agency is "Qui facit per alium facit per se." The translation: "He who acts through another acts for himself." Consequently one should be very careful when selecting an agent. Whatever that agent does in the performance of the duties delegated to him or her will be deemed to be the act of the principal, and the principal will be bound thereby.