Georgia Property & Casualty Practice Exam

In an insurance contract, which party makes a legally enforceable promise?

1. The insurer makes a promise to pay covered claims.

2. The policyholder makes a promise to pay premiums.

3. Both the insurer and policyholder make enforceable promises.

4. Neither party makes an enforceable promise.

The correct answer is: The insurer makes a promise to pay covered claims.

In an insurance contract, the insurer makes a legally enforceable promise to pay covered claims. This means that the insurer is obligated to provide financial protection for certain risks as outlined in the insurance policy. The enforceable promise arises from the principle of indemnity in insurance, which holds that the insurer agrees to compensate the policyholder for losses covered under the terms of the contract. This promise is supported by the premiums paid by the policyholder, which create a contractual relationship between the two parties. However, the primary enforceable obligation rests with the insurer to fulfill its duty to cover specified losses when claims are made. While policyholders also have obligations, such as paying premiums or providing accurate information, the question specifically focuses on the enforceability of promises, highlighting that the insurer’s commitment to pay out claims is the critical enforceable promise in the context of an insurance contract. Hence, the correct understanding is that it is primarily the insurer's promise that is legally binding within the contractual framework of insurance.