Rhode Island Life Insurance Practice Exam

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

1. Bilateral

2. Conditional

3. Personal

4. Unilateral

The correct answer is: Bilateral

An insurance contract is defined by specific characteristics that set it apart from other types of agreements. These characteristics include being unilateral, conditional, and personal. When considering the correct answer, "bilateral" describes a type of contract in which both parties make promises to each other; however, insurance contracts are primarily unilateral in nature. In a unilateral contract, only one party—the insurer—makes a legally binding promise to pay benefits upon the occurrence of specific events, like the policyholder's death in the case of life insurance. The insured does not make a reciprocal promise to provide payment; they simply pay premiums in exchange for the insurer’s promise of future benefits. The conditional nature of insurance contracts means that the insurer's obligation to pay benefits relies on certain conditions being met, such as the occurrence of a covered event. Additionally, the personal characteristic indicates that insurance contracts are tailored to individual policyholders based on their unique circumstances, reflecting their specific risks and needs. This understanding highlights why "bilateral" does not apply in this context, as insurance contracts do not fulfill the criteria of mutual promises made by both parties.