West Virginia State Life Insurance Practice Exam

In a unilateral contract, who makes the legally enforceable promises?

1. The policyholder

2. The underwriter

3. The insurance company

4. The state authority

The correct answer is: The insurance company

In a unilateral contract, the legally enforceable promises are made solely by one party, which in the context of an insurance policy is the insurance company. This means that the insurance company promises to provide coverage and pay benefits upon the occurrence of certain events, such as the policyholder's death or the occurrence of a loss covered by the policy. The policyholder, on the other hand, does not make a promise that can be enforced in the same way; they simply pay premiums in exchange for the coverage. The nature of a unilateral contract highlights how the insurance company assumes all of the obligations and risks once the policy is issued. This one-sided structure is fundamental to insurance, as it obligates the insurer to fulfill its promise when the conditions of the contract are met, while the policyholder's acceptance of the contract is implied through their payment of premiums rather than a direct promise to perform an action in return. This distinction is critical in understanding the dynamics of insurance contracts and their enforceability within the legal framework.