West Virginia State Life Insurance Practice Exam

Which of the following is NOT a typical characteristic of an insurance contract?

1. Bilateral

2. Aleatory

3. Unilateral

4. Conditional

The correct answer is: Bilateral

An insurance contract is a specialized agreement that contains distinct characteristics, and in this context, the correct answer is that "bilateral" is not a typical characteristic of an insurance contract. Insurance contracts are generally unilateral in nature, meaning that they involve a promise made by one party (the insurer) to pay a benefit upon the occurrence of a specified event, as long as the premiums are paid. The insured pays the premium but does not make a reciprocal promise to perform or pay a benefit, thus creating a one-sided obligation. The terms aleatory and conditional are indeed typical of insurance contracts. Aleatory means that the outcomes are dependent on uncertain events—insurance involves the payment of premiums in exchange for a benefit that may or may not be paid depending on whether a covered event occurs, which introduces an element of chance. Conditional means that the insurer's obligation to pay is dependent on the occurrence of certain conditions, such as the event described in the policy. In summary, the key point here is that a significant characteristic of insurance contracts is that they are predominantly unilateral, as the insurer has the primary obligation to provide coverage, while the insured’s commitment is primarily in the form of premium payments.