Tennessee Life Producer Practice Exam

What characteristic is true of a unilateral insurance policy?

1. Both parties make enforceable promises

2. Only the insurer makes legally enforceable promises

3. The policyholder can unilaterally change the terms

4. It is mutual in agreement

The correct answer is: Only the insurer makes legally enforceable promises

A unilateral insurance policy is characterized by the fact that only the insurer makes legally enforceable promises. In this type of contract, the insurer is obligated to perform certain actions, such as paying claims or providing coverage, under the terms of the policy once the policyholder has paid the necessary premiums. The policyholder does not have any such enforceable obligations beyond the payment of premiums, meaning the insurer holds the unilateral duty to fulfill its promises. This characteristic distinguishes unilateral policies from bilateral contracts, where both parties make binding promises. In the context of insurance, the policyholder's primary responsibility is to pay the premium, while the insurer's responsibilities become active upon the fulfillment of that condition. Thus, the correct understanding of unilateral policies clarifies that the insurer is the party that has ongoing obligations defined by the contract. The idea that both parties make enforceable promises would be accurate for bilateral contracts, not unilateral ones. Options suggesting the policyholder can change the terms or indicating mutual agreement are also not reflective of unilateral characteristics, as changes to the policy typically require mutual consent and adherence to the policy terms set forth by the insurer.