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Question

Difficulty: EasyElements of a Legal Contract

David receives his new auto insurance policy in the mail. For this agreement to be legally valid, his insurance provider must offer consideration. What specifically represents the provider's consideration in this contract?

  1. The pledge to provide financial compensation for covered claims.Answer
  2. B
    The completed application form along with the initial premium payment.
  3. C
    An absolute guarantee that the policy conditions will remain permanently unchanged.
  4. D
    The voluntary surrender of the right to investigate future claims.

Answer

The pledge to provide financial compensation for covered claims.
In an insurance contract, consideration refers to the binding exchange of value between parties. The insurance company's value (consideration) is their contractual promise to pay for future covered losses, whereas the insured's consideration consists of the premium payment and truthful application statements.

Step-by-Step Solution

1
Identify the legal element being tested.
The question asks for the insurance company's specific 'consideration' in the contract.
Consideration is the required exchange of value between parties to make a contract legally binding.
2
Distinguish between the two parties in the insurance contract.
The applicant gives the premium and application statements; the insurer gives a promise to pay.
Each party must provide something of value. The insurer's value is their future financial commitment.

Key Concept

Insurer's Consideration
Estimated Time:45s
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Topics

Elements of a Legal Contract

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