Course:  Insurance Planning
Lesson 2: Fundamentals of Insurance

Student Question:

Regarding the Bilateral Contact section, how is an insurance contract not a bilateral contract? If I’m reading correctly, it states that a bilateral contract is one in which both parties have responsibilities.  In an insurance contract, the insurer has to provide insurance and the insured pays the premium.  So, I’m not sure why that’s not a bilateral contract.



Instructor Response:

Great question.  While it’s true that the insured needs to make premium payments, they are not actually obligated to do so.  Yes, of course, the insurance company would no longer provide coverage if the insured stops making premium payments.  But the insured has that option to stop making premium payments at any time.

On the other hand, the insurance company is absolutely obligated to continue to provide coverage as long as those premium payments are being made.  The insurance company cannot simply decide to stop providing coverage.