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A unilateral contract is one in which only one party — the insurer — makes an enforceable promise. It usually involves the conduct of an insurer or its sales representative, which intentionally relinquishes a defense against a claim. In an insurance contract, only the insurer makes a legally enforceable promise: the promise to pay a covered claim. The policy owner does not promise to pay premiums; they simply have the option to do so. However, if the policy owner stops paying premiums, the insurer can cancel the policy. Payment of premiums is a necessary condition for keeping the insurer's promise in force, but it is not itself an enforceable promise by the policy owner.
An insurance contract is also a conditional contract because the insurer's promise to pay is dependent on the occurrence of a covered event. The insured must follow all policy requirements, provide proof of loss, and meet all conditions before the insurer's promise to pay becomes enforceable. For example, timely premium payment and prompt notification of a loss are necessary conditions that the policy owner must satisfy before the insurer is obligated to pay a claim.
Insurance insures the person or owner, not the property itself. Most insurance policies cannot be transferred to a new owner — for example, if a policyholder sells their house or car, the new owner cannot simply keep using the seller's policy. Life insurance is the exception to this rule. Life insurance is NOT considered a personal contract in the same way other insurance policies are, because it can be assigned or transferred to someone else through written notice to the insurer. This is also why the owner of a life insurance policy is called a "policy owner" rather than a "policyholder" — ownership itself can change hands.
| Special Feature | Description | Key Points |
|---|---|---|
| Aleatory contract | An unequal exchange is possible; benefits are based on an uncertain event. | Example: paying $1,200/year for $500,000 of coverage. |
| Contract of adhesion | Written by the insurer only, on a take-it-or-leave-it basis. | Ambiguities in the policy favor the insured. |
| Unilateral contract | Only the insurer makes an enforceable promise. | Policy owners don't promise to pay premiums, but the insurer can cancel the policy if premiums go unpaid. |
| Personal contract | A contract between the insurer and a specific person. | Generally cannot be transferred to another person; life insurance is the exception and allows assignment. |
| Conditional contract | The insurer's benefits depend on specific conditions being met. | Example conditions: timely premium payment and proof of loss. |