Examkin

Question

Difficulty: MediumCharacteristics of Insurance Contracts

An applicant purchases a term life insurance policy with a 500,000deathbenefitandpaysthefirstannualpremiumof500,000 death benefit and pays the first annual premium of 1,200. Three months later, the insured passes away, and the insurer pays the full $500,000 to the beneficiary. Throughout the policy's brief term, the insured was never legally forced to pay the next premium, but the insurer was legally obligated to pay the death benefit once the covered event occurred. Which of the following legal characteristics accurately describe this insurance contract? (Select all that apply)

  1. Aleatory contractAnswer
  2. B
    Bilateral contract
  3. Unilateral contractAnswer
  4. D
    Contract of warranty

Answer

The contract is both an aleatory contract and a unilateral contract.
An insurance contract is aleatory because there is an unequal exchange of value (a small premium in exchange for a large death benefit). It is also unilateral because only the insurer makes a legally enforceable promise to pay a claim, whereas the insured can stop paying premiums at any time without committing a breach of contract.

Step-by-Step Solution

1
Analyze the financial exchange described in the scenario.
The insured paid 1,200andtheinsurerpaid1,200 and the insurer paid 500,000, representing an unequal exchange of value.
An unequal exchange of value defines an aleatory contract.
2
Analyze the legal obligations of both parties.
The insurer was legally bound to pay the claim, but the insured was not legally forced to continue paying premiums.
When only one party makes a legally enforceable promise, the contract is unilateral.

Key Concept

Characteristics of Insurance Contracts
Rate this question

Topics

Characteristics of Insurance Contracts

More questions from this topic