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Difficulty: EasyElements of a Legal Contract

Marcus completes an application for a life insurance policy and submits the first monthly premium. In this scenario, what represents the insurance company's consideration to make the contract legally binding?

  1. A
    The submitted premium payment along with the answers provided on the application
  2. B
    The principle that any ambiguous contract language will be interpreted in favor of the insured
  3. The promise to pay a specified benefit in the event of a covered lossAnswer
  4. D
    The absolute guarantee that all statements made during the underwriting process are entirely factual

Answer

The promise to pay a specified benefit in the event of a covered loss
In any legal contract, consideration refers to the binding exchange of value between the parties. In an insurance contract, the insurance company's consideration is its promise to pay a specified benefit in the event of a covered loss. In return, the applicant's consideration consists of the premium payment and the truthful representations made on the application.

Step-by-Step Solution

1
Identify the specific contract element being tested.
The question asks for the insurance company's 'consideration'.
Consideration is the required exchange of value that makes a contract legally binding.
2
Distinguish between the two parties in the insurance contract.
The two parties are the applicant (Marcus) and the insurance company.
Each party must provide something of value to satisfy the element of consideration.
3
Determine what value the insurance company provides.
The insurer provides a promise to pay a death benefit if the covered event occurs.
While the applicant brings money and information, the insurer brings a future financial promise.
4
Select the option that correctly describes the insurer's promise.
The option stating the promise to pay a specified benefit in the event of a covered loss is chosen.
This directly defines the insurer's consideration.

Key Concept

Insurer's Consideration
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Topics

Elements of a Legal Contract

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