Bilateral Contract

What Does Bilateral Contract Mean?

A bilateral contract is one in which both parties make promises to fulfill certain obligations. It is the most common type of contract.

Insuranceopedia Explains Bilateral Contract

A bilateral contract is essentially an agreement between two or more parties, binding all parties to reciprocal obligations. Each party in a bilateral contract is both an obligor (owing another party the performance of an act) and an obligee (owed the performance of an act by another party). One insurance product that fits this structure is an annuity, where the insurer agrees to make future payments and the contract holder agrees to fund those payments through premiums.

Most insurance contracts, however, are unilateral rather than bilateral, as only the insurer makes a legally binding promise to the insured. For a closer look at how a typical insurance contract is laid out, the homeowners insurance basics guide breaks down what each section of a policy actually means.