What characterizes an insurance policy as a unilateral contract?

A unilateral contract in the context of an insurance policy is characterized by the fact that only one party, the insurer, is legally bound to uphold the terms of the contract. The insurer promises to pay for covered losses or provide benefits, while the insured party has obligations like paying premiums but these do not create a binding commitment upon the insurer to provide coverage unless the terms of the policy are met.

In this type of contract, the insured’s promise to pay premiums is unconditional; however, the insurer’s obligation to pay claims arises only after the occurrence of a covered event. This element of unidirectional obligation distinguishes unilateral contracts from bilateral contracts, where both sides have binding commitments. Therefore, the defining characteristic in an insurance policy being unilateral is that the insurer holds the obligation to perform based on the contract.