Marcus, a local hardware store owner, finalizes an application for a commercial property policy and hands it to his insurance producer. For this insurance contract to be legally binding, it must contain four essential elements, one of which is consideration. Which of the following accurately describes the mutual consideration that must be exchanged between Marcus and the insurer?
- Marcus provides the initial premium payment and truthful representations on the application, while the insurer provides a legally enforceable promise to pay for covered future losses.Answer
- BMarcus provides the initial premium payment, while the insurer provides the physical delivery of the printed policy document to his business address.
- CMarcus provides an absolute warranty that no future hazards will occur on the property, while the insurer provides an immediate waiver of the underwriting process.
- DMarcus provides a signed application acknowledging the terms, while the producer provides express authority to unilaterally alter the policy conditions.
Answer
The mutual consideration consists of the applicant providing the initial premium and application representations, and the insurer providing a promise to pay for covered future losses.
In insurance contract law, consideration refers to the binding value exchanged between the parties. The insured's consideration is the payment of the premium and the representations made in the application. The insurer's consideration is the contractual promise to indemnify the insured in the event of a covered loss.
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Key Concept
Consideration in Insurance Contracts