Life & Health Insurance Exam (National Portion)General InsuranceEasy
A life insurance policy states that upon the death of the insured, the beneficiary will receive a specified sum, provided all premiums have been paid and the policy is in force. This promise by the insurer to pay a death benefit is considered which element of an insurance contract?
- AAleatory
- BOffer and Acceptance
- CConsideration
- DLegal Purpose
Show answer & explanationAnswer & explanation
Correct answer: C. Consideration
In an insurance contract, the insurer's promise to pay benefits constitutes its consideration. The policyowner's consideration is the premium payment and the truthfulness of statements in the application.
Why the other options are wrong
- A. Aleatory is a characteristic of an insurance contract (unequal exchange of value), not an element of a valid contract.
- B. Offer and acceptance refer to the agreement to form the contract, not the promise within it.
- D. Legal purpose means the contract must not be for an illegal or immoral act.
Consideration (Insurance)
In an insurance contract, consideration refers to the exchange of value. The insured's consideration is the premium payment and statements in the application, while the insurer's consideration is its promise to pay covered benefits.
- Insured's consideration: premium payment and application statements.
- Insurer's consideration: promise to pay benefits.
- Must be present for a contract to be legally binding.
Memory trick: CALC: Competent, Agreement, Legal, Consideration.