What type of insurance contract involves a promise made by only one party?

What type of insurance contract involves a promise made by only one party?

• A. Unilateral
• B. Bilateral
• C. Multilateral
• D. Collective

Answer: (A)

The correct answer is unilateral. A unilateral insurance contract is characterized by the fact that only one party—the insurance company—makes a promise to pay for covered losses in exchange for the insured party’s payment of premiums. In this context, the insurer is bound by its promise to provide coverage when a covered event occurs, while the insured is not legally obligated to continue paying premiums or to follow through on any specific promise. This nature of a unilateral contract means that the insurer assumes the risk and the obligations under the contract upon acceptance of the premium, whereas the insured's role is more about compliance with the terms of the policy, rather than a reciprocal promise. This distinguishes it from bilateral contracts, where both parties involved exchange promises, creating mutual obligations. In addition, the terms multilateral and collective don't correctly define standard insurance contract types in this context. Multilateral would refer to agreements involving multiple parties, while collective might imply a group insurance situation but does not specifically refer to the nature of the promise involved. Thus, the defining characteristic of a unilateral contract aligns perfectly with the type of promise made in this scenario.

The correct answer is unilateral. A unilateral insurance contract is characterized by the fact that only one party—the insurance company—makes a promise to pay for covered losses in exchange for the insured party’s payment of premiums. In this context, the insurer is bound by its promise to provide coverage when a covered event occurs, while the insured is not legally obligated to continue paying premiums or to follow through on any specific promise.

This nature of a unilateral contract means that the insurer assumes the risk and the obligations under the contract upon acceptance of the premium, whereas the insured's role is more about compliance with the terms of the policy, rather than a reciprocal promise. This distinguishes it from bilateral contracts, where both parties involved exchange promises, creating mutual obligations.

In addition, the terms multilateral and collective don't correctly define standard insurance contract types in this context. Multilateral would refer to agreements involving multiple parties, while collective might imply a group insurance situation but does not specifically refer to the nature of the promise involved. Thus, the defining characteristic of a unilateral contract aligns perfectly with the type of promise made in this scenario.