West Virginia State Life Insurance Practice Exam

What type of contract is primarily between two parties where one makes a promise to pay upon a certain event?

1. Bilateral

2. Unilateral

3. Conditional

4. Personal

The correct answer is: Unilateral

The correct answer is the type of contract known as a unilateral contract. In a unilateral contract, one party makes a promise in exchange for an act or a condition being fulfilled by the other party. This promise becomes enforceable when the other party completes the specified act or condition. In the context of life insurance, when an insurer agrees to pay a beneficiary a sum of money upon the death of the insured, this is a unilateral contract. The insurer makes a promise to pay, and that promise is contingent on the occurrence of the insured’s death, which is the event triggering the payment. The policyholder does not have to take any action to cause the insurer's obligation to arise other than maintaining the policy. While bilateral contracts involve mutual promises where both parties are bound to fulfill their obligations (such as a sales contract), a unilateral contract is distinct because only one party is bound by the promise until the other party fulfills the required condition. In contrast, conditional contracts are focused on obligations dependent on specific conditions being met but do not necessarily fit the definition of unilateral. Personal contracts refer to the specific nature of agreements made between individuals and do not specifically capture the essence of the promise given in a unilateral arrangement. Thus, the emphasis in your question on the