PSI Life Exam Practice Test

What kind of contract obligates the company to perform legally?

1. Unconditional

2. Conditional

3. Revocable

4. Nonforfeiture

The correct answer is: Conditional

The correct choice indicates a contract that obligates the company to perform legally when certain specified conditions are met. A conditional contract includes specific terms that must be satisfied for the parties to perform their respective obligations. For instance, in an insurance context, a policy may be contingent upon certain conditions like paying a premium or undergoing a medical examination, thus binding the company to perform only if those predetermined conditions are fulfilled. Unconditional contracts, by contrast, require performance without any conditions. Revocable contracts allow one party to withdraw from the agreement under certain circumstances, rather than establishing a legal obligation for performance. Nonforfeiture provisions usually pertain to life insurance and guarantee certain benefits cannot be lost, but they don't address the initial obligation to perform in the sense that conditional contracts do. Thus, the understanding of how specific conditions bind a company clearly aligns with the nature of a conditional contract.