What type of contract ensures that certain conditions must occur before a claim is paid?

A conditional contract is one that stipulates certain conditions must be met before a claim can be paid or benefits provided. In the context of insurance, this means that the insured party must fulfill specific obligations or meet certain criteria for the insurer to be liable for payment. For example, in credit insurance, the policy may only pay out if particular circumstances arise, such as the insured borrower defaulting on their loan. This framework helps protect the insurer from having to pay claims that arise from situations not outlined in the contract.

Understanding conditional contracts is vital, as they establish the rules and guidelines that govern the insurance relationship. It differentiates them from unconditional contracts, where no such conditions exist, and payments are usually made without the necessity of certain circumstances. This fundamental concept is crucial for anyone working in credit insurance, ensuring they can effectively navigate and explain the terms of different insurance contracts.