Unilateral Contracts: The Fine Print That Binds You

Unilateral Insurance Contracts Explained

In a typical bilateral insurance contract, both parties have reciprocal obligations. For example, the policyholder agrees to pay premiums in exchange for the insurer’s promise of coverage. In a unilateral contract, only the insurer is bound while the policyholder can choose whether or not to perform any obligations.

Some key aspects of unilateral insurance contracts:

• They constitute a one-sided promise from the insurer to provide coverage if certain conditions are satisfied
• The policyholder is not required to pay premiums or maintain the policy
• Cancellation clauses allow the insurer to terminate unilaterally

When Unilateral Insurance Contracts Apply

There are a few situations where a unilateral agreement may come into play for insurance:

Insurance Provided as an Employment Benefit

Sometimes insurance is offered as a benefit to employees without requiring them to contribute to premiums. Because the employee does not have to pay or formally agree to anything, this constitutes a unilateral contract.

“Free Look” Periods

Many insurance policies allow a 10- to 30-day “free look” period where you can evaluate the policy on a unilateral basis. During this time you have no obligation to continue the coverage, while the insurer is bound to provide it.

Prize Indemnification

When large prizes, sweepstakes or contest winnings include insurance coverage, this also falls under a unilateral structure. As the prize recipient, you do nothing while the sponsoring company purchases insurance on your behalf.

The Nature of Unilateral Insurance Agreements

Unilateral insurance contracts contain an element of unilateral offer and acceptance. The policy terms constitute an “offer” from the insurer, which the policyholder “accepts” by meeting the conditions rather than signing an agreement.

Because only the insurance company bears legal responsibilities initially, unilateral agreements favor the policyholder. However, the insurer retains the power to cancel coverage at any time per the contract terms.

Benefits for Policyholders

• Increased flexibility and cancellation options
• No obligation to maintain coverage or pay premiums

Drawbacks and Risks

• Insurer can unilaterally change or cancel the policy
• Possibility of gaps in coverage if policy is cancelled
• Unclear coverage if breach of contract arguments arise

The Bottom Line

Unilateral contracts give policyholders flexibility but insurers control over termination. Understanding the implications allows both parties to enjoy the main benefit – tailored, mutually beneficial insurance coverage.