CARD T033
Contract of Adhesion
A contract largely drafted by one party for the other to accept or reject. Insurance applicants usually do not negotiate every policy clause.
How it works
The insurer normally prepares the policy wording. An applicant selects coverage but does not bargain over every sentence. A genuinely ambiguous provision is generally construed against the drafter, commonly the insurer. This rule does not mean that every disputed or unfavorable provision is ambiguous, or that clear exclusions disappear. [1] [2]
Two reasonable readings remain after a policy provision is examined in context. The rule against the drafter can favor the insured’s reasonable reading. Simply disliking an unambiguous exclusion is different.
Adhesion concerns who drafted the wording. Aleatory concerns the uncertain values exchanged.
CARD T034
Aleatory Contract
A contract whose exchanged values depend on an uncertain event. A small premium may be followed by a much larger covered claim.
How it works
The premium is known, but whether a covered loss occurs and how much performance is owed can be uncertain. The parties need not exchange equal dollar amounts. This differs from a contract in which each side’s promised economic value is fixed and equivalent. [2]
An insured pays one monthly premium and then dies from a covered cause while coverage is in force. The insurer owes the contractual death benefit, not merely a refund equal to that premium.
An aleatory contract can produce unequal values; it is not a guarantee of investment profit.
CARD T035
Unilateral Contract
A contract in which only one party makes an enforceable promise. In insurance, the insurer promises performance when policy conditions are satisfied.
How it works
In the standard exam description, the insurer makes the enforceable promise to pay covered benefits. The policyowner generally may stop paying future life premiums rather than being compelled to keep purchasing coverage. Nonpayment can end coverage after applicable protections; it does not make coverage free. [2]
An owner stops paying a term policy. The insurer generally cannot compel continued purchases, but the policy may lapse after the grace period.
Unilateral does not mean that only one person participates, or that the applicant has no duties.
CARD T036
Conditional Contract
A contract requiring specified conditions to be met before performance is owed. Claim duties are examples of insurance conditions.
How it works
The insurer’s obligation operates within policy requirements, such as paying required premiums, keeping coverage in force, and providing required proof of a covered loss. A condition concerns what must occur or be done; an exclusion identifies a loss the policy does not cover. Legal protections may limit the effect of a procedural failure. [2]
A beneficiary submits the required proof of death so the insurer can evaluate the claim. That is a claim condition, not a new premium or an investment choice.
A conditional contract is a general characteristic. A conditional receipt is a particular temporary-coverage document.
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Practice questions
Select an answer, then check it to see why each option is right or wrong.
T033 · Contract of Adhesion
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T034 · Aleatory Contract
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T035 · Unilateral Contract
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T036 · Conditional Contract
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Sources & further reading
Original explanations and practice scenarios informed by the following regulatory, legal, and product resources. State examples are not presented as nationwide deadlines or requirements.