Aleatory Contract

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.

BREAKING DOWN '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.

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