Washington Life Producer Practice Exam

In an insurance contract, what is the term that indicates each party is providing something of value?

1. Indemnity

2. Consideration

3. Acceptance

4. Reciprocity

The correct answer is: Consideration

In an insurance contract, the term that indicates each party is providing something of value is "consideration." This concept is fundamental to the validity of a contract. In the context of insurance, consideration is represented by the premium that the policyholder pays to the insurer in exchange for the coverage provided by the policy. The insurer, in turn, offers a promise to pay for covered losses as specified in the policy. This mutual exchange—where one party offers payment and the other provides a service or protection—establishes the legal basis for the contract. Without consideration, a contract may be deemed unenforceable because there is no exchange of value. Understanding this term is crucial for recognizing how insurance agreements function and the obligations of both parties involved.