Colorado Life Producer License Practice Test

Which statement best defines an aleatory contract?

1. A contract with equal value exchange

2. An agreement based on future conditions

3. A contract involving the exchange of unequal values

4. A contract that can be revoked at any time

The correct answer is: A contract involving the exchange of unequal values

An aleatory contract is characterized by the exchange of unequal values, where one party may receive a benefit that far exceeds what they have paid or given in return. In the context of insurance, for example, a policyholder pays a relatively small premium but stands to receive a significant payout in the event of a covered loss. This fundamental characteristic differentiates aleatory contracts from other types of contracts, such as those involving reciprocal exchange at equal value. The other choices do not accurately capture the essence of aleatory contracts. For instance, a contract with equal value exchange does not fit the aleatory nature since it implies balanced give-and-take, which isn't a defining feature of these contracts. Similarly, while an agreement based on future conditions may relate to many types of contracts, it doesn't specifically denote the unequal value aspect inherent in aleatory contracts. Lastly, the notion of a contract that can be revoked at any time does not pertain to the definition of an aleatory contract, as revocability is not a defining feature of this type of agreement. Thus, the defining characteristic of an aleatory contract is indeed the exchange of unequal values.