What makes an insurance policy a unilateral contract?

• A. Both parties are legally bound
• B. Not binding at all
• C. Only the insurer is legally bound
• D. The insured is bound only

Answer: (C)

A unilateral contract is one where only one party makes a binding promise. In a life or health policy, the insurer promises to pay benefits if a covered event occurs, and that promise is enforceable once the policy is in force. The insured’s role is to pay premiums and maintain the policy; paying premiums is a condition to keep the coverage, not a separate binding promise by the insured to guarantee payment of benefits. Because the insurer’s promise to pay is the enforceable commitment and the insured is not guaranteeing anything beyond continuing premium payments, the contract is considered unilateral. If premiums lapse, the insurer isn’t obligated to pay, which fits the unilateral structure rather than a mutual (bilateral) one where both sides would have binding promises.