During the formation of a property insurance contract, a valid exchange of value must exist between the parties. While the applicant's consideration includes the initial premium and truthful application statements, which of the following identifies the insurance company's consideration?
- The promise to pay for covered losses that may occur in the future.Answer
- BThe actual payment of a financial settlement after a covered loss occurs.
- CAn absolute guarantee that all application statements are entirely true.
- DThe express authority granted to the agent to negotiate the contract terms.
Answer
The promise to pay for covered losses that may occur in the future.
In an insurance contract, consideration is the exchange of value. The applicant provides the application representations and the initial premium, while the insurance company provides the legal promise to pay for future covered losses.
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Key Concept
Consideration in Insurance Contracts