Aleatory contract

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An aleatory contract is a contract where the exchange is uneven. The most common type of aleatory contract is an insurance policy.[1][2] Such an insurance contract may be a boon to one party but create a major loss for the other, as more in benefits may be paid out than actual premiums received, or vice versa.[3] For instance: You pay up $1,000 in premiums for an insurance policy and then you have a loss and the policy pays you $100,000 in return then the benefit is uneven. The insurance company collected $1,000 from you and paid you $100,000 in return. This can also end up the other way where you pay the insurance company without making any collection at all.

The term was a classification developed in later medieval Roman law to cover all contracts whose fulfilment depended on chance, including gambling, insurance, speculative investment and life annuities.[4] Many modern forms of derivatives and options may in some cases also be considered aleatory contracts. For example, the French civil code contains a chapter on aleatory contracts, with specific provisions for gaming (gambling) and life annuities.[5]

References[edit]

  1. ^ Thomson-Gale Encyclopedia of American Law, courtesy of Jrank
  2. ^ Black's Law Dictionary, 7th ed. 1999
  3. ^ Barron's Dictionary of Insurance Terms, courtesy of Answers.com
  4. ^ J. Franklin, The Science of Conjecture: Evidence and Probability Before Pascal (Baltimore: Johns Hopkins University Press, 2001), ch. 11.
  5. ^ Text of French Civil Code (in English) Archived 2008-06-29 at the Wayback Machine.