Why are insurance policies categorized as conditional contracts?

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Study for the Ohio Insurance Test. Prepare with flashcards and multiple choice questions, each question accompanied by hints and explanations. Excel in your exam!

Insurance policies are categorized as conditional contracts because they require specific conditions to be met in order for them to be enforceable. This means that both the insurer and the insured have obligations that need to be fulfilled for the contract to be valid. For example, the insured must pay premiums on time, report losses in a certain manner, or take reasonable care to prevent potential damages. If these conditions are not satisfied, the insurer may refuse to pay a claim, underscoring the concept that the contract's enforceability hinges on these stipulated conditions.

The other choices do not accurately represent the nature of insurance contracts. Policies do not guarantee coverage for all losses, as there are exclusions and limits in every contract. They also do not only cover damages from natural disasters; many policies cover a wide range of risks. Lastly, while insurers have the right to terminate policies under certain circumstances, they cannot do so arbitrarily or at any time.

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