But then, what makes an insurance policy a unilateral contract? This may be because it will serve as a bind between the insurer and the insured. Maybe more to this? Let’s dig in.
An insurance policy is a unilateral contract for the most part because only the insurer, the insurance company, is bound by a legally enforceable contract.
The insured, the policyholder, is not obligated to make a claim, and, on the other hand, the insurance company is obligated to pay benefits if a loss covered by the policy takes place and the policyholder is in compliance with the policy’s terms.
Why is a Contract Unilateral?
A unilateral contract is a contract created by an offer that is acceptable only through performance. In a unilateral contract, there is the express indication that payment is being made only through the performance of a party.
It is the insurance company only that is under legal obligation to pay the benefits if the covered loss is suffered and the terms of the policy are met.
There is no obligation on the policyholder to make a claim, and the agreement is one-sided. Also, the obligation of the insurer to pay is conditional upon the performance of the policyholder (payment of premium, compliance with policy terms, etc.).
The insurer has to pay a benefit on the occurrence of an insured event, yet the policyholder does not have a duty to accept the benefit.
What is the Default Rule of Unilateral Contract?
Unilateral contracts consist of one-sided promises. You, the offeror, are legally bound. You’re promising to do something (e.g., provide a service or pay) if the other party does a specific thing. The other party isn’t legally required to do the thing, though.
Consideration in a unilateral contract is only made after a particular act has actually been performed. So, the obligation of the promisor to perform, one instance of which is paying a reward-is only initiated after the performance required has been rendered.
If the party fails to do what was committed, he/she would be in breach of the unilateral contract. For instance, you do the dinner preparation, and after preparing the dinner, your friend is bound to compensate you for the job well done. If your friend fails to compensate you, your friend will be in breach of the contract.
In insurance, “aleatory” is used to define a contract where the obligation of either or both of the parties is dependent upon a future uncertain event.
This means the value that is being transferred between the insurer and insured may be unequal depending on whether the trigger occurrence or non-event takes place.
The characterizing feature of an aleatory contract is that it is founded on an event that might or might not occur, e.g., fire, death, or injury.
The exchange values of the two parties can be far apart. The insured will make premium payments over the years but never file a claim, while the insurer will make a payment in a lump sum on a single claim.
What is Aleatory in Insurance?
Aleatory contracts allow both parties to shift risk. The insured transfers the risk of an uncertain event to the insurer, who spreads the risk across many policyholders.
Insurance contracts (e.g., life, health, and property insurance) are some of the finest examples of aleatory contracts.
In a unilateral insurance contract, from whom does the legally binding promise come? Not only does the insurer promise to pay benefits if a loss covered by the policy is incurred, but the policyholder’s promise to pay premiums is not an enforceable promise.
This means that the policyholder may decline to pay premiums at any time, and the insurer may not force them to continue making premium payments. The only enforceable promise of the insurer is to pay.
Final Words
The party unilaterally terminating the contract shall notify the termination of the contract to the other party without delay and shall make restitution if notice of termination inflicts injury.
Where a contract is terminated unilaterally, the contract is dissolved from the time when notice of termination is given to the other party.
Unilateral contract change refers to the changing of contractual terms by one party without engaging the other contract parties. This is fairly common, especially for service agreement renewals or terms and conditions.
