What characterizes an aleatory contract in insurance?

An aleatory contract in insurance is characterized by its dependence on an uncertain event. This means that the contract's performance is contingent upon an event that may or may not happen, such as the occurrence of a loss or claim. In insurance, for example, policyholders pay premiums with the expectation that if a covered event occurs, they will receive a benefit or payment. However, the insurance company takes on financial risk, as it does not know in advance whether it will have to pay out claims or not, making the contract inherently unequal in terms of the values exchanged.

Unlike standard contracts that often promise equal benefits and obligations, an aleatory contract can result in one party receiving significantly more than what they put in, depending on whether the insured event occurs. This unique nature of uncertainty and risk is the key aspect that defines an aleatory contract in the insurance context.