Alabama Property and Casualty Practice Exam

Which of the following is NOT true regarding a Property and Casualty policy?

1. Part of the insured's consideration is the premium

2. Parts of the insured's consideration are the statements on the application

3. Parts of the company's consideration are the promises in the policy

4. Part of the company's consideration is the payment of the claim

The correct answer is: Part of the company's consideration is the payment of the claim

The correct answer highlights that part of the company's consideration is not the payment of the claim. In the context of a Property and Casualty insurance policy, consideration refers to the elements involved in the contract that each party agrees to provide. The insured provides premium payments and truthful statements in the application, forming part of their consideration. Similarly, the insurance company provides coverage through the promises made in the policy, which constitutes its consideration. The payment of claims is an obligation of the insurer after a loss occurs, but it is not considered a part of the original consideration made for the policy contract. Instead, the payment of claims is an action that follows the fulfillment of the contractual terms once the insured event occurs. Thus, while payment of the claim is a crucial function of the insurance contract, it does not constitute part of the consideration exchanged when the contract is created.