Question

Insurance, as a contract, is adhesive, meaning: (5-7)

Group of answer choices
a. The insured had no opportunities to negotiate terms.
b. The coverage is conditioned upon the payment of premiums.
c. What is paid by the insured and paid out by the insurer may not be equal amounts.
d. Only the insurer is making a promise.

Answer 1

In insurance, 'adhesive' refers to contracts where terms are not negotiable by the insured. Premiums are paid regularly by policyholders, and the insurance entity compensates those who suffer losses from covered events. The premiums are calculated based on the probability of events within a group, with the understanding that payment balances can differ among members.

Step-by-step explanation:

When an insurance contract is described as adhesive, it means that the insured party had little to no opportunity to negotiate the terms of the agreement. This is a common characteristic of insurance policies, as they are typically offered on a 'take it or leave it' basis by insurance companies. The policyholder agrees to make regular payments, known as premiums, to the insurance provider. In return, the insurance firm commits to compensate members who suffer losses due to the covered events specified in the policy.

The pricing of these premiums is calculated based on the likelihood of certain events happening within a pooled group of policyholders. This form of risk sharing is essential for an insurance method to function effectively. While some individuals may pay more in premiums than they receive in benefits, others may receive more than they pay. This is a fundamental aspect of how insurance balances risk among a collective group.