A local hardware store owner meets with an agent to secure a commercial auto policy for a new delivery van. The owner answers all application questions to the best of their knowledge and hands the agent a check for the first month's premium. The insurance company subsequently approves the risk and issues the policy. Which of the following statements correctly identifies the exchange of consideration that makes this insurance contract legally binding?
- The applicant's consideration consists of the premium payment and the representations made on the application, while the insurer's consideration is the promise to pay for covered future losses.Answer
- BThe applicant's consideration is restricted entirely to the monetary payment of the initial premium, while the insurer's consideration is the delivery of the physical policy document.
- CThe applicant's consideration is the agreement to accept the contract on a take-it-or-leave-it basis, while the insurer's consideration is drafting the unambiguous terms of the policy.
- DThe applicant's consideration is the absolute warranty that all statements on the application are factually perfect, while the insurer's consideration is the issuance of a conditional receipt.
Answer
The correct statement identifies that the applicant's consideration includes both the premium payment and the representations made on the application, while the insurer provides a promise to pay future claims.
In an insurance contract, consideration refers to the value exchanged between the two parties. The applicant gives consideration by paying the premium and providing truthful representations on the application. The insurer gives consideration by promising to pay for covered losses in the future.
Step-by-Step Solution
Key Concept
Consideration in Insurance Contracts
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