Which statement best defines a unilateral contract in insurance?

Which statement best defines a unilateral contract in insurance?

• A. Neither party makes a promise; performance is contingent.
• B. Only the insurer has promised future performance after the premium is paid.
• C. Both parties are bound to perform once the premium is paid.
• D. The insured must perform all duties to keep the contract.

Answer: (B)

A unilateral contract is a type of agreement where only one party makes a promise that the other party can accept by performing a specific act. In insurance, the insurer promises to pay benefits if a covered loss occurs, in exchange for the insured paying the premium. The insured isn’t promising to perform a future act beyond paying the premium and cooperating as needed; the insurer’s promise to pay is the binding commitment. That’s why this is best described as only the insurer promising future performance after the premium is paid. The other statements would imply both sides are obligated to perform or that the insured must do all duties, which isn’t how a unilateral insurance contract is structured.

A unilateral contract is a type of agreement where only one party makes a promise that the other party can accept by performing a specific act. In insurance, the insurer promises to pay benefits if a covered loss occurs, in exchange for the insured paying the premium. The insured isn’t promising to perform a future act beyond paying the premium and cooperating as needed; the insurer’s promise to pay is the binding commitment. That’s why this is best described as only the insurer promising future performance after the premium is paid. The other statements would imply both sides are obligated to perform or that the insured must do all duties, which isn’t how a unilateral insurance contract is structured.