What does the term "unilateral contract" signify in insurance policies?

In the context of insurance policies, the term "unilateral contract" signifies that only one party has an obligation to perform. In most insurance contracts, the insurer is the party that is obligated to pay claims or provide coverage when specific conditions are met. For example, once the insured submits their premium payment, the insurer is required to fulfill its promise of coverage, while the insured does not have a corresponding obligation to provide anything beyond the payment of the premiums.

This characteristic of unilateral contracts is crucial because it establishes the nature of the relationship between the insurer and the insured. While the insured may have certain responsibilities, such as maintaining the property or complying with policy conditions, the fundamental obligation of compensation lies solely with the insurance company once the contract is in effect. Understanding this concept is essential for those pursuing licensure as it highlights the basis of coverage and claims under insurance policies.