Tennessee Life Producer Practice Exam

Life and health insurance policies are classified as which type of contract?

1. Bilateral contracts

2. Unilateral contracts

3. Conditional contracts

4. Adhesion contracts

The correct answer is: Unilateral contracts

Life and health insurance policies are classified as unilateral contracts because they involve a promise made by one party, typically the insurer, to pay a benefit upon the occurrence of a specified event, such as the death of the insured or the diagnosis of a serious illness. In these contracts, the insurer is bound to fulfill their promise as long as the insured pays the premium, while the insured does not have any corresponding obligation beyond the payment of premiums, which distinguishes it from bilateral contracts where both parties make mutual promises. In unilateral contracts, the obligations of the insurer become active only when the insured complies with the terms of the policy, such as filing a claim or maintaining premium payments. This characteristic reinforces the idea that the insurer is the only party that has made an enforceable promise in the contract. Contextually, other classifications of contracts include bilateral contracts, which entail mutual obligations for both parties; conditional contracts, which require certain conditions to be met for obligation fulfillment, and adhesion contracts that are typically drafted by one party and signed by another, leaving little room for negotiation. While life and health insurance policies may contain elements of some of these classifications, the primary feature that defines them is the unilateral nature of the promises made by the insurer.