Why is an insurance policy considered a unilateral contract?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A unilateral contract is one in which only one party makes an enforceable promise. In insurance, the insurer promises to pay covered claims, while the insured's payment of premium is treated as a condition that must be satisfied before coverage operates rather than as a binding promise to pay. If the insured stops paying premiums, coverage lapses, but the insured is not generally sued for breaching a promise to pay. This contrasts with bilateral contracts, where both parties exchange enforceable promises, and it is one of the recognized characteristics of the insurance contract.
Why the other options are wrong
- B) If both parties made enforceable promises, the contract would be bilateral; insurance is unilateral because only the insurer promises.
- C) The insured makes no promise to refrain from claims; submitting covered claims is the very purpose of the policy.
- D) The insurer does make a binding promise to pay covered losses, so the contract is not promise-free.
Memory hook
Unilateral = the insurer promises; the insured pays as a condition. One promise, one password.