Aleatory Contract

An insurance contract is described as ALEATORY. This means that:

1. A.Only one party makes a legally enforceable promiseThat is a UNILATERAL contract. It is also true of insurance, but it is a different characteristic.
2. B.One party writes the contract and the other must take it or leave itThat is a contract of ADHESION, which is why ambiguities are read against the drafting insurer.
3. C.The insured must be restored to the same financial position as before the lossThat is INDEMNITY, which describes property insurance. Life insurance is a valued contract instead.
4. D.The dollar amounts exchanged by the two parties may be very unequal, depending on whether a covered event occursCorrect. Aleatory describes the chance-based, unequal exchange of value that is at the heart of insurance.

Why: Aleatory comes from the idea of chance. The dollar amounts the two sides exchange may be wildly unequal and depend on whether the insured event happens: a person may pay one $400 premium and the insurer may pay a $500,000 death benefit, or the person may pay premiums for 40 years and the policy may lapse with nothing paid out. Review: distinguishing characteristics of insurance contracts.

An insurance contract is 'aleatory,' which means:

1. A.Only one party makes an enforceable promiseWrong. That describes the UNILATERAL nature of insurance, a different characteristic.
2. B.Both parties must exchange exactly equal valuesWrong. Equal exchange describes commutative contracts, the opposite idea.
3. C.The contract terms were drafted by one partyWrong. One-party drafting is the contract of ADHESION concept.
4. D.The amounts exchanged may be unequal and depend on an uncertain eventCorrect. That is the definition of an aleatory contract.

Why: An aleatory contract is one in which the values exchanged are unequal and depend on an uncertain event; the insured may pay little and collect much, or pay for years and collect nothing. Citation: contract law classification of insurance agreements. Takeaway: aleatory = uneven exchange driven by chance.