Aleatory Contract

AAA

DEFINITION of 'Aleatory Contract'

A contract type in which the parties involved do not have to perform a particular action until a specific event occurs. Events are those which cannot be controlled by either party, such as natural disasters and death. Aleatory contracts are commonly used in insurance policies. The insurer does not have to pay the insured until an event, such as a fire, results in property loss.

INVESTOPEDIA EXPLAINS 'Aleatory Contract'

Aleatory contracts are historically related to gambling, and appeared in Roman law as contracts related to chance events. In the insurance example, this is because the payouts to the insured are unbalanced. Until the insurance policy results in a payout, the insured pays premiums without receiving anything in return besides coverage. When the payouts do occur, they can far outweigh the sum of premiums paid to the insurer.

RELATED TERMS
  1. Insurance Proceeds

    The benefit proceeds paid out by any type of insurance policy ...
  2. Insurance

    A contract (policy) in which an individual or entity receives ...
  3. Actuarial Risk

    The risk that the assumptions that actuaries implement into a ...
  4. Insurance Claim

    A formal request to an insurance company asking for a payment ...
  5. Homeowners Insurance

    A form of property insurance designed to protect an individual's ...
  6. Life Insurance

    A protection against the loss of income that would result if ...
Related Articles
  1. The Beginner's Guide To Homeowners' ...
    Home & Auto

    The Beginner's Guide To Homeowners' ...

  2. 15 Insurance Policies You Don't Need
    Insurance

    15 Insurance Policies You Don't Need

  3. Understanding Lender-Required Flood ...
    Home & Auto

    Understanding Lender-Required Flood ...

  4. Life Insurance: Putting A Price On Peace ...
    Insurance

    Life Insurance: Putting A Price On Peace ...

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center