In order for there to be a valid contract, which of the following must exist?

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

Answer: (C)

To form a valid contract there must be mutual assent, shown by two elements: an offer and an acceptance. An offer is a definite proposal to enter into the agreement on specific terms. Acceptance is the clear agreement to those terms, communicated to the offeror. When both exist and the acceptance mirrors the terms of the offer, a contract is formed. Without an offer, there are no terms to agree to; without acceptance, there is no agreement at all. In many life insurance contexts, the insurer’s offer to issue coverage and the applicant’s acceptance (often evidenced by signing and paying consideration) complete the formation. Note that even with an offer and acceptance, other requirements like consideration, capacity, and legality must also be present for enforceability, but the presence of both offer and acceptance is the fundamental formation step.