PSI Ohio Insurance Practice Exam

Which three elements are necessary for a valid contract?

1. Offer, binding, enforcement

2. Offer, acceptance, consideration

3. Acceptance, obligation, terms

4. Negotiation, acceptance, signature

The correct answer is: Offer, acceptance, consideration

A valid contract requires three essential elements: offer, acceptance, and consideration. The offer is the initial expression of willingness to enter into an agreement, detailing the terms that one party is proposing. Acceptance occurs when the other party agrees to the terms of the offer, demonstrating their consent to the contract. This step can occur verbally, in writing, or through conduct that clearly indicates acceptance of the terms. Consideration is the third element and refers to something of value that is exchanged between the parties. This could be money, services, or any other form of value that is acknowledged by both parties as part of the agreement. The presence of consideration ensures that there is a valid exchange, making the contract enforceable in a legal context. Without all three of these elements, a contract may be deemed incomplete or invalid. Therefore, understanding these components is crucial for recognizing and formulating valid agreements within the insurance industry and beyond.