AD Banker Comprehensive Practice Exam

An insurance contract is an aleatory contract. This means:

1. Equal value is not given by both parties to the contract

2. The contract must be for a legal purpose

3. Parties to the contract must have the legal capacity to enter into the contract

4. Statements made in the application are guaranteed to be true in all respects

The correct answer is: Equal value is not given by both parties to the contract

An insurance contract being classified as an aleatory contract signifies that the agreement is contingent on uncertain events and that the exchange between the parties is not equivalent. In an aleatory contract, one party may pay a relatively small premium while the other party (the insurer) has the potential to pay out a large sum in the event of a covered loss. This intrinsic imbalance is fundamental to the nature of insurance, where one party (the insured) assumes the risk in exchange for the insurer's promise to cover potential future losses. The other options do touch upon valid aspects of contracts in general but do not specifically define the aleatory nature that characterizes insurance agreements. While legality and mutual consent are essential elements of all contracts, they do not capture the essence of an aleatory contract. Similarly, while an application may require truthful information to establish trust and prevent fraud, the accuracy of the statements made does not define the aleatory relationship inherent in insurance contracts.