Legal Aspect Of Life Insurance Practice Test

Which statement about adhesion contracts is true?

They are always negotiated. They are negotiable. Ambiguities are interpreted in favor of the drafting party. They are non-negotiated contracts that must be accepted as written.

Correct Answer:

They are non-negotiated contracts that must be accepted as written.

Explanation:

Adhesion contracts are standard-form agreements drafted by one party with much stronger bargaining power and presented to the other on a take-it-or-leave-it basis. In life insurance practice, the insurer prepares the policy terms, and the insured typically accepts the policy as issued, possibly with riders, but without bargaining over the core terms. Because of this structure, the true statement is that adhesion contracts are non-negotiated and must be accepted as written. This doesn’t fit the other options: they are not normally negotiated, so saying they are always negotiated or negotiable is incorrect. Regarding ambiguities, the general rule is that such ambiguities are interpreted against the drafter, not in favor of the party who drafted the contract.

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