Insurance contracts possess unique characteristics that set them apart from typical contracts. Two significant legal characteristics are:
A. Aleatory Contract
An aleatory contract is one where the performance of one party depends on the occurrence of an uncertain event. In the context of insurance, the insurer agrees to provide compensation for a loss, but only if that loss occurs. This means that the insured pays a premium, but the actual payout from the insurer is contingent on an unpredictable event, such as a car accident or a house fire. The risk and benefits are not evenly distributed; one party (the insurer) might end up paying a large amount only if certain events happen, while the other party (the insured) pays a small amount as a premium regardless of whether a claim is ever made.
B. Unilateral Contract
A unilateral contract is defined as one where only one party makes a promise or an obligation. In insurance, only the insurer is bound to the terms of the contract once the premium has been paid. The insured does not have an obligation to file a claim or to continue to pay premiums in the future. This characteristic means that the insurer must fulfill its promises as long as the insured complies with the terms of the policy, while the insured’s obligations are contingent on their own discretion and circumstances.
In summary, the aleatory nature of insurance contracts emphasizes the risk-sharing aspect, while the unilateral characteristic highlights the one-sided nature of the insurer’s commitments. Together, these features underscore how insurance contracts function differently from ordinary contracts.