Nebraska Life and Health Insurance Practice Exam 2025 - Free Insurance Practice Questions and Study Guide

An insurance policy is classified as a contract of adhesion. This type of contract is characterized by a significant imbalance in bargaining power between the parties involved. In the case of insurance, the insurer typically drafts the policy terms, while the insured has little to no ability to negotiate the terms and must accept them as presented.

This can lead to the insured being bound by the terms of the contract without being fully aware of all implications, as they do not have the opportunity to modify the contract. The principle of adhesion underscores that any ambiguities in the contract will generally be interpreted in favor of the insured, as they are at a disadvantage in the agreement process.

In contrast, other types of contracts listed, like bilateral contracts, involve mutual obligations that require both parties to perform certain actions. A verbal contract refers to an agreement made through spoken words rather than written documentation, which is not typical in insurance practices where formalized written agreements are standard. Lastly, conditional contracts are defined by specific conditions that must be met for the contract to be enforced, which is a characteristic shared with insurance policies but does not fully encapsulate the unique aspects of adhesion.