Consideration In The Insurance Contract

No contract is valid and enforceable unless each party has given or is promised something of value in exchange for a similar action or promise by the other party. Thus, an insurer cannot be bound to a policy it has sent to an applicant until the applicant has paid something (e.g., the premium) for the service offered by the insurer. Paying the premium and providing answers to questions asked by the insurer in the application constitute consideration by the applicant. The insurer’s consideration is the promise to perform some act in the future, that act being defined by the insurance contract.