Aleatory contract

Aleatory contract,

Definition of Aleatory contract:

  1. An aleatory contract is an agreement whereby the parties involved do not have to perform a particular action until a specific, triggering event occurs. Events are those that cannot be controlled by either party, such as natural disasters and death. Aleatory contracts are commonly used in insurance policies. For example, the insurer does not have to pay the insured until an event, such as a fire that results in property loss. Aleatory contracts–also called aleatory insurance–are helpful because they typically help the purchaser reduce financial risk.

  2. Aleatory contracts are historically related to gambling and appeared in Roman law as contracts related to chance events. In insurance, an aleatory contract refers to an insurance arrangement in which the payouts to the insured are unbalanced. Until the insurance policy results in a payout, the insured pays premiums without receiving anything in return besides coverage. When the payouts do occur, they can far outweigh the sum of premiums paid to the insurer. If the event does not occur, the promise outlined in the contract will not be performed.

  3. Type of contract (1) whose execution or performance depends on a contingency or an uncertain (random) event beyond the control of either party, and/or (2) under which the sums paid by the parties to each other are unequal. Most insurance policies are aleatory contracts because the insured may collect a large amount or nothing in return for the premiums paid. From French alea, a game of dice. See also unilateral contract.

How to use Aleatory contract in a sentence?

  1. An aleatory contract is an agreement whereby the parties involved do not have to perform a particular action until a specific event occurs.
  2. Insurance policies use aleatory contracts whereby the insurer doesn't have to pay the insured until an event, such as a fire resulting in property loss.
  3. The trigger events aleatory contracts are those that cannot be controlled by either party, such as natural disasters or death.

Meaning of Aleatory contract & Aleatory contract Definition