California Property & Casualty Broker-AgentGeneral InsuranceMedium
A policyholder's home is damaged by a fire. The policy states that the insurer will pay for the loss, but only if the fire was not intentionally set by the insured. This stipulation is an example of which insurance contract characteristic?
- AConditional contract
- BUnilateral contract
- CContract of adhesion
- DAleatory contract
Show answer & explanationAnswer & explanation
Correct answer: A. Conditional contract
An insurance policy is a conditional contract because the insurer's obligation to pay a claim depends on the fulfillment of certain conditions by the insured, such as the loss not being intentional or the premium being paid.
Why the other options are wrong
- B. A unilateral contract means only one party makes an enforceable promise (the insurer).
- C. A contract of adhesion means the insured must accept the contract as written, with no negotiation.
- D. An aleatory contract means unequal values are exchanged, depending on an uncertain event.
Conditional Contract
An insurance contract is conditional because the insurer's promise to pay benefits is contingent upon the occurrence of a covered event and the fulfillment of certain conditions by the insured.
- Insurer's obligation is not absolute.
- Insured must meet conditions (e.g., pay premium, report loss promptly, avoid intentional damage).
- Failure to meet conditions can relieve the insurer of its obligations.
Memory trick: P-U-C-A: Personal, Unilateral, Conditional, Adhesion.