In an insurance contract, the value exchanged to form the agreement is called?

• A. Consideration
• B. Premium
• C. Risk
• D. Indemnity

Answer: (A)

Consideration is the value exchanged to form a contract. It’s the mutual give-and-take that binds the agreement, something of legal value that motivates both parties to enter into the contract. In an insurance policy, the insured provides consideration by paying the premium, and in return the insurer promises to provide coverage and pay claims. The premium itself is a specific form of consideration, but the term that describes the overall exchange that creates the contract is consideration. Indemnity is the purpose of the insurance—restoring the insured after a loss—while risk is the chance of loss itself, not the contract’s formative exchange.