Which statement best describes consideration in an insurance contract?

• A. The premium and the applicant's statements in the application
• B. The insurer's promise to indemnify
• C. The beneficiary's designation
• D. The policy's issue date

Answer: (A)

Consideration is the value exchanged to form a contract. In an insurance contract, the insured provides value by paying the premium and by giving truthful information on the application. In return, the insurer provides value by promising to pay benefits if a covered loss occurs. The statement that best describes consideration, from the insured’s side, is the premium and the applicant’s statements in the application. The other elements—who is designated as beneficiary, or the policy’s issue date—are important features of the contract but do not define the exchange of value that constitutes consideration. While the insurer’s promise to indemnify is indeed part of the contract, the key concept of consideration centers on what the insured gives in exchange: the premium and the information supplied in the application.