Four Characteristics Unique to Insurance Contracts

Instructor: LeRon Haire
The lesson will introduce, define, and describe four unique characteristics to insurance contracts, which are conditional, unilateral, adhesion, and aleatory.

Welcome to the Wonderful World of Insurance Contracts

Unlike a typical contract agreed upon with a handshake, insurance contracts are uniquely different.
handshake

Due to the high number of changes, the insurance industry is often one that can be easily misunderstood. The attention to detail along with terminology that is foreign to most makes the insurance industry quite intimidating. When attempting to get a better understanding of insurance, there are four unique characteristics that need to be done and they are conditional, unilateral, adhesion, and aleatory. Let's take a closer look at each of these unique characteristics as well as the traits that define them.

Conditional Insurance

Although most contracts share the same concepts and philosophies, insurance contracts can differ significantly. One of the unique characteristics of insurance contracts is known as conditional. Conditional insurance contracts can be defined as those insurances that have a provision in an agreement or contract which have the ability to limit specific things in the contract. For example, a beneficiary will receive a benefit from a trust or will upon the condition that the insured passes away. The condition must first be satisfied before the beneficiary is able to receive any type of benefit from the will or trust.

Another type of conditional insurance is a suicide clause, which typically specifies that a payment upon death is not authorized if the insured dies in a manner of suicide. A suicide clause is a type of subsequent condition, which is an act that occurs which terminates a contract. In contrast, a precedent condition is an act that has to occur first in order for the contract to be honored. An example of a precedent contract would be an agreement between a home buyer and seller that says an inspection must first be provided before a transaction can take place.

Unilateral Insurance

Another unique characteristic of insurance contracts is unilateral insurance. A unilateral insurance contract is based on the premise that a particular party makes a promise and in exchange will receive a specific act from another party. This is the opposite of a bilateral insurance contract, which is where each specific party will trade promises. When it comes to insurance contracts, which are unilateral, a policyholder is responsible for paying the premiums while the company is responsible for paying back the policyholder for any covered losses that happen. With a unilateral contract, the policyholder has no additional requirements to fulfill on their end once they have paid the premium on the policy.

Adhesion Insurance

Adhesion is a third characteristic of insurance contracts and it may also sound foreign to many people. An insurance contract that has an adhesion contract clause can be described as one in which an individual or party creates a contract from beginning to end and presents it to another party on the premise that they must take it or leave it as it is. It is important to note that the receiving individual does not have the right or the option to change or edit the contract in any manner.

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