Which statement concerning contracts of adhesion and life insurance contracts is correct?

• A. As a party to the contract, a prospective policyowner has the right to reject the contract.
• B. State laws invalidate insurance contracts that are contracts of adhesion.
• C. Both parties to the contract have a specified period of time to alter the terms of the contract.
• D. Both parties to the contract are required to draft the contract together.

Answer: (A)

Contracts of adhesion involve standardized terms set by one party—the insurer—while the other party, the prospective policyowner, has little or no ability to negotiate. The key takeaway is that the policyowner can choose not to enter into the contract if the terms don’t meet their needs. Accepting the contract is a matter of signing and allowing the policy to be issued; rejecting it means no binding agreement exists. This reflects the take-it-or-leave-it nature of adhesion contracts in life insurance.

Laws do not invalidate adhesion contracts; they are generally enforceable but subject to consumer protections and reasonable interpretations. There isn’t a universal period for both parties to alter terms in a standard life insurance contract, as changes typically require mutual agreement through riders or endorsements, not a shared drafting of the original terms. Moreover, in adhesion contracts the insurer drafts the terms, not both parties drafting them together, so the notion that both must draft the contract together isn’t accurate.