Unilateral Contract

Definition - What does Unilateral Contract mean?

Unilateral contract refers to a promise of one party to another that is legally binding. The other party doesn't have the same legal restrictions under the contract. An insurance contract is a unilateral contract because the insurer promises coverage to the insured when the former recognizes the latter as an official policyholder.

Insuranceopedia explains Unilateral Contract

When someone engages in a unilateral contract, one party is legally obliged to fulfill the promise in that contract. The other party isn't. If a person subscribes to a TV cable service, the cable service provider is obliged to give that person access to content that the person is expected to watch on his or her TV set. The subscriber, however, is entitled to cancel his or her subscription.

The same goes with an insurance contract. When a policyholder makes a claim, the insurance company is bound to honor that claim and provide the amount or the service corresponding the claim. The policyholder can, of course, stop paying and cancel his or her policy.

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