What defines a unilateral contract in the context of insurance?

A unilateral contract in the context of insurance is defined by the characteristic that only one party, typically the insurer, makes a legally enforceable promise. In these contracts, the insurer agrees to pay a specific amount in the event of a covered loss, while the policyholder is not required to make any promise in return. The policyholder fulfills their part of the agreement by paying premiums, but the insurer's obligations arise solely from their promise to provide coverage. This structure distinguishes unilateral contracts from bilateral contracts, where both parties make mutual promises.

The focus on the insurer’s promise showcases a key aspect of insurance agreements: the risk transfer mechanism where the insurer takes on the risk in exchange for the premium, while the insured has the option to claim benefits only when a covered event occurs. Thus, understanding this definition is crucial for anyone preparing for an examination or working within the insurance industry in Louisiana.