Unique Features of Insurance Contracts
MR. WATSON: Now we are going to talk about characteristics that are found ONLY in insurance contracts. Very important! Know these, know which ones are unique to insurance contracts. Make flash cards.
Unilateral *** (unique to insurance)
- Unilateral means only one side has promises enforceable by law.
MR. WATSON: If you enter into a contract with an insurance company? Does the law require you to do anything? Think about it. What do you have to do?
STUDENTS: Pay your premiums.
MR. WATSON: Can they make you pay your premiums?
WOMAN: No. But they can cancel your policy.
MR. WATSON: If you don't pay it, what's the worst thing that will happen?
WOMAN: They cancel your policy.
MR. WATSON: Will you go to jail? Will it hurt your credit? No. You can get out of it anytime you want to. How? Not pay the premiums.
MR. WATSON: Can the insurance company get out of it anytime they want to? No. They are locked in.
MR. WATSON: So unilateral means only one side has promises enforceable by law. Think about it. Only insurance contracts have that characteristic.
MR. WATSON: If you and I enter into a contract, other than insurance, it is a bilateral contract. You and I each, by law, have to do certain things. That's bilateral, both sides have promises enforceable by law. If you buy a piece of real estate for a certain price, must you pay for it, monthly or however, if you borrow money from a bank?
STUDENTS: Yes.
MR. WATSON: Yeah, and they have to provide the goods. If I hire The Rolling Stones to come Saturday night and play at Ray Jay, do they have to show up?
STUDENTS: Yes.
MR. WATSON: Do I have to pay them?
STUDENTS: Yes.
MR. WATSON: That's a bilateral contract. But insurance contracts are unilateral.
Aleatory ***(unique to insurance)
- The values exchanged are unequal, and
- There is an element of chance.
MR. WATSON: Aleatory means unequal. It may or may not happen. The inured might get sick or die, they might not. There is an element of chance. The values exchanged are unequal. You might pay in $500 per month in premiums, and the company might pay $500,000 in benefits. It's unequal.
MR. WATSON: The opposite of an aleatory contract is a commutative contract. Commutative means equal, the values exchanged are equal. There is no element of chance. Most contracts, other than insurance contracts are commutative contracts.
MR. WATSON: Aleatory contract. It is unique to insurance.