<P> The insurance contract or agreement is a contract whereby the insurer promises to pay benefits to the insured or on their behalf to a third party if certain defined events occur . Subject to the "fortuity principle", the event must be uncertain . The uncertainty can be either as to when the event will happen (e.g. in a life insurance policy, the time of the insured's death is uncertain) or as to if it will happen at all (e.g. in a fire insurance policy, whether or not a fire will occur at all). </P> <Ul> <Li> Insurance contracts are generally considered contracts of adhesion because the insurer draws up the contract and the insured has little or no ability to make material changes to it . This is interpreted to mean that the insurer bears the burden if there is any ambiguity in any terms of the contract . Insurance policies are sold without the policyholder even seeing a copy of the contract . In 1970 Robert Keeton suggested that many courts were actually applying' reasonable expectations' rather than interpreting ambiguities, which he called the' reasonable expectations doctrine' . This doctrine has been controversial, with some courts adopting it and others explicitly rejecting it . In several jurisdictions, including California, Wyoming, and Pennsylvania, the insured is bound by clear and conspicuous terms in the contract even if the evidence suggests that the insured did not read or understand them . </Li> <Li> Insurance contracts are aleatory in that the amounts exchanged by the insured and insurer are unequal and depend upon uncertain future events . In contrast, ordinary non-insurance contracts are commutative in that the amounts (or values) exchanged are usually intended by the parties to be roughly equal . This distinction is particularly important in the context of exotic products like finite risk insurance which contain "commutation" provisions . </Li> <Li> Insurance contracts are unilateral, meaning that only the insurer makes legally enforceable promises in the contract . The insured is not required to pay the premiums, but the insurer is required to pay the benefits under the contract if the insured has paid the premiums and met certain other basic provisions . </Li> <Li> Insurance contracts are governed by the principle of utmost good faith (uberrima fides) which requires both parties of the insurance contract to deal in good faith and in particular it imparts on the insured a duty to disclose all material facts which relate to the risk to be covered . This contrasts with the legal doctrine that covers most other types of contracts, caveat emptor (let the buyer beware). In the United States, the insured can sue an insurer in tort for acting in bad faith . </Li> </Ul> <Li> Insurance contracts are generally considered contracts of adhesion because the insurer draws up the contract and the insured has little or no ability to make material changes to it . This is interpreted to mean that the insurer bears the burden if there is any ambiguity in any terms of the contract . Insurance policies are sold without the policyholder even seeing a copy of the contract . In 1970 Robert Keeton suggested that many courts were actually applying' reasonable expectations' rather than interpreting ambiguities, which he called the' reasonable expectations doctrine' . This doctrine has been controversial, with some courts adopting it and others explicitly rejecting it . In several jurisdictions, including California, Wyoming, and Pennsylvania, the insured is bound by clear and conspicuous terms in the contract even if the evidence suggests that the insured did not read or understand them . </Li> <Li> Insurance contracts are aleatory in that the amounts exchanged by the insured and insurer are unequal and depend upon uncertain future events . In contrast, ordinary non-insurance contracts are commutative in that the amounts (or values) exchanged are usually intended by the parties to be roughly equal . This distinction is particularly important in the context of exotic products like finite risk insurance which contain "commutation" provisions . </Li>

Insurance policies may be classified as contracts of