Tennessee Life Producer Practice Exam

Which of these insurance contracts binds only one party to perform?

1. Bilateral contract

2. Unilateral contract

3. Implied contract

4. Conditional contract

The correct answer is: Unilateral contract

A unilateral contract is characterized by a commitment made by only one party, meaning that one side holds an obligation to perform while the other does not. This type of contract is commonly found in insurance agreements. For instance, in a life insurance policy, the insurer promises to pay a death benefit upon the insured's death, but the policyholder is not obligated to pay premiums throughout the policy life in the same rigid manner. Outlined in this way, the insurer is the only party that has a legal obligation to fulfill its promise, reinforcing the essence of a unilateral contract. In contrast, a bilateral contract involves mutual obligations, where both parties commit to perform their respective duties. Implied contracts are understood through actions rather than explicitly stated terms, while conditional contracts are dependent on specified conditions being met. Understanding these distinctions highlights the unique nature of a unilateral contract within the realm of insurance.