A life insurance policy is which of the following?

• A. I only
• B. II only
• C. Both I and II
• D. Neither I nor II

Answer: (B)

A life insurance policy is a unilateral contract: only the insurer makes a binding promise—to pay a specified death benefit when the insured dies, in exchange for premium payments. This means the policyowner’s primary obligation is to pay the premium, while the insurer is obligated to pay the death benefit if the insured passes away and conditions of the policy are met.

If the second statement describes the policy in terms that align with this unilateral contractual nature (the insurer's promise to pay upon a set event in exchange for consideration), that statement is the correct one. Statements that describe life insurance as an indemnity contract or as a guaranteed investment/savings vehicle don’t fit its legal form or purpose, so they’re not accurate descriptions.