Insurance policy can be classified

An insurance policy can be classified as a unilateral, a contract. It is ‘unilateral’ in that only one party (the insurer) makes a promise; the other party (the insured) makes that promise a binding legal duty by performing an act, the payment of a premium. In other words, the insured never makes an enforceable promise to pay the premium; he either pays it or he does not. If he does not pay it, there are no legal consequences, but if he does pay, the insurer has an obligation to perform. The contract is ‘aleatory’ because the insurer promises only to do something upon the happening of an uncertain or fortuitous event; if the event never takes place, the insurer does not have to do anything in return for the premium.

For there to be a legally binding insurance contract, the following events must all take place. First, there must be an offer, usually an application prepared by or on behalf of the potential insured. Second, the offer must be accepted by the insurer or its representative. For property and casualty policies, a general insurance agent usually has authority to accept on behalf of the company, but for life insurance policies, acceptance takes place only at the home office. Third, the acceptance must be delivered to the offer or, either directly or through a designated intermediary. Fourth, and finally, the insured must pay the first premium.