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Difficulty: EasyElements of a Legal Contract

Marcus has just been issued a new life insurance policy. For the contract to be legally binding, a mutual exchange of value must occur between Marcus and the insurance company. Which of the following specifically represents the insurance company's consideration in this legal agreement?

  1. A
    The submission of the initial premium payment and the completed application
  2. B
    The absolute guarantee that all information provided during underwriting is entirely true
  3. The promise to pay the designated death benefit in the event of a covered lossAnswer
  4. D
    The express written authority granted to the producer to issue the contract

Answer

The promise to pay the designated death benefit in the event of a covered loss
In an insurance contract, consideration must be a mutual exchange of value. The applicant's consideration consists of the premium payment and the representations made in the application. The insurance company's consideration is their legally binding promise to pay covered claims (such as a death benefit) in the future.

Step-by-Step Solution

1
Identify the specific legal element being asked about in the scenario.
The question asks for the insurance company's 'consideration'.
Consideration is a required element of a legal contract representing the mutual exchange of value.
2
Determine what value the insurance company brings to the contract.
The insurer's value is their commitment to pay future claims.
Differentiating between the applicant's consideration (premium and application) and the insurer's consideration (promise to pay) is necessary to find the correct answer.

Key Concept

Insurer Consideration
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Topics

Elements of a Legal Contract

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