What term describes an insurance contract that relies on an uncertain event for its effectiveness?

The term "aleatory" perfectly describes an insurance contract that is based on an uncertain event for its effectiveness. In the context of insurance, this means that the terms of the contract depend on a specific event occurring, such as an accident or a natural disaster. One party (the insurer) agrees to provide a benefit (such as paying a claim) only if the uncertain event (like a loss) happens.

Aleatory contracts inherently involve an element of chance, which differentiates them from other types of agreements. The promise of payment from the insurer is contingent upon the occurrence of a defined event that may or may not happen, leading to an imbalance in the exchange between the parties involved. This characteristic underscores the nature of risk transfer that is essential to insurance.

In contrast, a conditional contract is one where certain conditions must be met before obligations arise, but it does not inherently include the element of chance. A contingent contract usually refers to a broader category of agreements in which the outcome depends on future events, but again, it lacks the specific probabilistic nature of aleatory contracts. Reciprocal contracts typically involve mutual agreements among parties to insure each other, which does not focus on the uncertain event aspect as clearly as aleatory does.