PSI Ohio Insurance Practice Exam

Which of the following is true about an insurance contract?

1. It is a unilateral agreement

2. It is a bilateral agreement

3. It requires mutual consent

4. It is only binding if both parties sign

The correct answer is: It is a unilateral agreement

An insurance contract is classified as a unilateral agreement, which means that only one party, typically the insurer, is obligated to perform under the terms of the contract. The insurer promises to pay for covered losses or provide specified benefits in exchange for premiums paid by the insured. The insured, on the other hand, is not compelled to perform any action beyond the payment of premiums; they may choose to file a claim or not. This characteristic of unilaterality is fundamental to insurance contracts, as it highlights the nature of the insurer's promise to cover risks. The insured does not provide a promise or a guarantee to the insurer in return—rather, they can choose to utilize the coverage as needed, making the contract binding primarily on the insurer's side. Understanding this concept is essential, as it helps differentiate insurance agreements from other types of contracts that require mutual obligations from both parties, which would categorize them as bilateral agreements. The other options, while they incorporate elements of contract theory, do not accurately describe the nature of insurance contracts in this context.