General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An applicant submits an application for a policy with a $50,000 benefit, and the insurer issues a policy with a $40,000 benefit and a higher premium. In contract terms, the insurer's response is best characterized as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The application is generally the applicant's offer; the insurer may accept it, reject it, or respond with different terms. When the insurer issues a policy that differs from the application — a lower benefit, a higher premium — it is making a counteroffer rather than accepting the original offer. No binding contract forms on those terms until the applicant accepts the counteroffer (for example, by receiving the policy without objection and paying the premium). Acceptance must mirror the offer.
Why the other options are wrong
- B) Acceptance requires conformity to the original offer's terms; changing the benefit and premium is not acceptance.
- C) A counteroffer may effectively reject the original offer, but the insurer's act is best described as proposing new terms, not merely revoking.
- D) The agreement element is never waived; a modified agreement still requires the applicant's assent.
Memory hook
Different terms = a counteroffer. The deal completes only when the applicant says yes to the new terms.