PSI Ohio Insurance Practice Exam

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

1. Mutual

2. Bilateral

3. Unilateral

4. Collective

The correct answer is: Unilateral

The type of insurance contract that involves a promise made only by one party is a unilateral contract. In a unilateral contract, one party makes a promise, and the other party does not have to make a promise in return. This is a common structure for most insurance policies, where the insurer promises to pay claims or provide benefits in exchange for the insured paying premiums but does not require the insured to make any corresponding promises beyond maintaining the policy. In the context of insurance, the insurer is typically the only party making a legally enforceable promise. The insured's part is fulfilled by paying the premiums rather than making a promise to perform some duty. Therefore, the focus is on the insurer’s obligation to pay benefits when certain conditions are met. In contrast, mutual and bilateral contracts involve promises exchanged between the parties. In collective contracts, there is often a group of policyholders involved, which does not fit the definition of a contract focused solely on one party's promise. Understanding the nature of unilateral contracts is crucial in the realm of insurance, as it reveals the foundational structure of contractual obligations in this industry.