In insurance contracts, what does the term unilateral mean?

In the context of insurance contracts, the term "unilateral" refers to a situation in which only one party is obligated to perform their part of the agreement. In insurance, this typically means that the insurer is the party that makes a promise to pay for covered losses, while the insured pays premiums in exchange for that coverage. The insurer's obligation to pay claims is unconditional, as long as the insured fulfills their requirements, such as paying premiums and providing necessary information.

Unilateral contracts are characterized by the fact that the insured does not have to perform any actions beyond those specified in the contract to receive benefits from the insurer. This means that only the insurer is bound by the contract to act (i.e., to compensate for losses as defined in the policy), while the insured does not give any reciprocal promise that guarantees payment or benefits in return, aside from adhering to the terms of the insurance policy.

This understanding of unilateral contracts is crucial for those studying insurance practices, as it underlines the fundamental nature of the contractual relationship between the insurer and the insured.