PSI Ohio Insurance Practice Exam

What essential element must all life and health insurance contracts include for them to be valid?

1. Underwriting

2. Consent

3. Consideration

4. Disclosure

The correct answer is: Consideration

For a life and health insurance contract to be considered valid, it must include consideration. This refers to something of value that is exchanged between the parties involved in the contract. In the context of insurance, consideration typically takes the form of the premium paid by the policyholder in exchange for the insurer's promise to provide coverage and pay claims as stipulated in the policy. Both parties must provide something of value for the contract to be enforceable under the law. Without consideration, there is no legal basis for the contract, as one party cannot simply offer a promise without receiving something in return. This principle is fundamental in contract law, ensuring that agreements are fair and binding. Although elements like consent and disclosure are important in the formulation and execution of insurance contracts, consideration is the essential building block that validates the agreement.