Which statement about the creation of a life insurance contract is correct?

Which statement about the creation of a life insurance contract is correct?

• A. There must always be a manifestation of mutual assent before a life insurance contract is created.
• B. The insurer (or its agent) does not make an offer.
• C. Payment of the first premium is part of the policyowner's offer.
• D. When a policyowner is given a 10-day free look after delivery, the contract generally is ineffective until after the 10-day period.

Answer: (A)

Mutual assent—that is, a meeting of the minds between the applicant and the insurer—is what creates a life insurance contract. The applicant makes an offer by applying and agreeing to pay for coverage, and the insurer accepts by issuing the policy (or otherwise binding the coverage after underwriting). The contract comes into existence when that acceptance occurs, typically evidenced by the policy being issued and delivered. The statement that the insurer does not make an offer isn’t accurate, because the insurer or its agent can present policy terms and thus initiate the agreement process, with acceptance completing the contract when the policy is issued. The idea that the first premium is part of the policyowner’s offer is also not correct; the premium is consideration for the contract, but the offer itself is the applicant’s promise to pay and the insurer’s promise to provide coverage upon acceptance. Finally, the free-look period after delivery allows cancellation with a refund of premiums but does not render the contract ineffective during that period.

Mutual assent—that is, a meeting of the minds between the applicant and the insurer—is what creates a life insurance contract. The applicant makes an offer by applying and agreeing to pay for coverage, and the insurer accepts by issuing the policy (or otherwise binding the coverage after underwriting). The contract comes into existence when that acceptance occurs, typically evidenced by the policy being issued and delivered.

The statement that the insurer does not make an offer isn’t accurate, because the insurer or its agent can present policy terms and thus initiate the agreement process, with acceptance completing the contract when the policy is issued. The idea that the first premium is part of the policyowner’s offer is also not correct; the premium is consideration for the contract, but the offer itself is the applicant’s promise to pay and the insurer’s promise to provide coverage upon acceptance. Finally, the free-look period after delivery allows cancellation with a refund of premiums but does not render the contract ineffective during that period.