Georgia Property & Casualty Practice Exam

In an auto insurance policy, what is the legally defined promise from the insurer to pay for covered losses?

1. An offer.

2. Acceptance.

3. Consideration.

4. Legal purpose.

The correct answer is: Consideration.

In the context of an auto insurance policy, the legally defined promise from the insurer to pay for covered losses is considered consideration. In insurance contracts, consideration refers to the exchange of value between the insurer and the insured. The insurer provides coverage and promises to pay for certain losses, while the insured pays premiums in exchange for that coverage. This mutual exchange is fundamental to most contracts and is essential for the validity of the agreement. The other concepts, such as an offer, acceptance, and legal purpose, play important roles in contract formation but do not specifically capture the promise to cover losses. An offer refers to the proposal made by one party to another, acceptance indicates that one party agrees to the terms of the offer, and legal purpose ensures that the contract is for a lawful objective. While each of these is necessary for a contract to exist, consideration is the term that directly captures the insurer's commitment to provide financial protection against specified risks.