Arizona Adjuster Practice Exam

In an insurance contract, what type of contract is created since only the insurer makes a legally enforceable promise?

1. Mutual contract

2. Bilateral contract

3. Unilateral contract

4. Reciprocal contract

The correct answer is: Unilateral contract

In an insurance contract, the type of contract created is a unilateral contract because only the insurer makes a legally enforceable promise. In this scenario, the insurer promises to pay for covered losses or provide a benefit, while the insured does not make a similar promise; instead, their part involves paying premiums. The essence of a unilateral contract lies in the fact that one party assumes the obligation and the other party receives the benefits of that promise upon fulfilling certain requirements, such as paying premiums and making a claim. This distinguishes unilateral contracts from bilateral contracts, where both parties exchange mutual promises. In the context of insurance, the insurer's promise to indemnify or provide coverage creates the unilateral nature of the agreement. Mutual and reciprocal contracts typically involve mutual obligations between both parties, which does not align with how insurance contracts operate. Thus, the unique characteristic of insurance contracts, where the promise is solely from the insurer upon payment of the premium, confirms that it is indeed a unilateral contract.