PAYMENT

OF MONETRAY CONSIDERATIONS or
DELIVERY OF OTHER BENEFITS at the time of ACTUAL
INSURANCE NEED or AGREED MATURITY DATE, as specified
therein, IN EXCHANGE FOR CASH OR INSTALLMENT
I. GENERAL CONCEPTS AMOUNTS with or without interest or insurance
coverage and includes LIFE, PENSION, EDUCATION,
CONTRACT OF INSURANCE INTERMENT and other plans, instruments, contracts
(Sec.2(1), Insurance Code) or deeds as may be determined by Insurance Code.
-it is an agreement whereby ONE UNDERTAKES
for a consideration to INDEMNIFY another against
LOSS, DAMAGE or LIABILITY arising from an VARIABLE CONTRACT
UNKNOWN or CONTINGENT EVENT. - any policy or contract on either a GROUP or an
INDIVIDUAL BASIS issued by an insurance company
providing for BENEFITS or other CONTRACTUAL
TEST PAYMENTS or values.
-determine its
>PURPOSE
>EFFECT “DOING AN INSURANCE BUSINESS”
>CONTENTS -Sec. 2(2) of the Insurance Code
>IMPORT (a) making or proposing to make, as insurer, any
(NOT NECESSARILY BY THE TERMINOLOGY USED) insurance contract;
(b) making or proposing to make, as surety, any
NOTES: *A contract may be considered an contract of suretyship as a vocation and not as
insurance even if it is referred to a HEALTH PLAN merely incidental to any other legitimate business or
(Philamcare v. CA) activity of the surety;
(c) doing any kind of business, including a
*A health plan is NOT ONE OF THE reinsurance business, specifically recognized as
PRE-NEED PLANS expressly recognized constituting the doing of an insurance business
under the Pre-Need Code and its IRR. within the meaning of this Code;
(d) doing or proposing to do any business in
*A Pre-Need company may be substance equivalent to any of the foregoing in a
authorized to issue plans if it is any or all of manner designed to evade the provisions of this
the ff. Types of plan: Code.
-EDUCATIONAL PLAN In the application of the provisions of this Code
-PENSION PLAN the fact that NO PROFIT IS DERIVED FROM the
-LIFE/MEMORIAL PLAN making of insurance contracts, agreements or
transactions or that NO SEPARATE OR DIRECT
CONSIDERATION IS RECEIVED THEREFORE, shall not
CONTRACT OF SURETYSHIP be deemed conclusive to show that the making
(Sec.2(1), Insurance Code) thereof does not constitute the doing or transacting
-it shall be deemed to be an insurance contract of an insurance business.
within the meaning of the Insuracnce Code WHEN
MADE BY A SURETY WHO OR WHICH IS DOING AN
INSURANCE BUSINESS. BANCASSURANCE
-it is an agreement whereby one binds himself -the PRESENTATION and SALE to BANK
SOLIDARILY with the pricipal debtor. CUSTOMERS by an insurance company of its
insurance producsts w/in the the premises of the
head office of such banks duly licensed by the BSP or
PRE-NEED PLANS any of its branches by some rules an regulations
- these are CONTRACTS, AGREEMENTS, DEED OR which the commisioner and the BSP may
PLANS for the BENEFIT OF PLANHOLDERS which promulgate.
provide for the performance of FUTURE SERVICES,

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 1

MUTUAL INSURANCE COMPANIES unknown or contingent event. THE LOSS MAY OR
-entities that are “doing an insurance business” MAY NOT HAPPEN.
-a company OWNED BY POLICYHOLDERS *in the case of LIFE INSURANCE, the
-designed to PROMOTE THE WELFARE OF ITS uncertaity is with respect to the time death will
MEMBERS and the money collected from among occur.
them is solely for their own protection.
-the member is BOTH the INSURED and the REQUIREMENTS OF INSURABLE RISK:
INSURED. 1. There must be a large number of
-it has NO CAPITAL STOCK. homogeneous exposure units.
-the PREMIUMS or contributions of the 2. The loss must be accidental and
members are the ONLY SOURCES OF FUNDS TO unintentional.
MEET LOSSES AND EXPENSES. 3. The loss must be determinable and
measurable
4. The loss should not be catastrophic.
APPLICABLE LAWS 5. The chance of loss must be calculable.
- Insurance Code 6. The premium must be economically
-Civil Code feasible.
-Corporation Code

DISTINCTIONS:
RIGHT OF SUBROGATION
(Article 2207, New Civil Code)
-If the plaintiff's PROPERTY has been INSURED, PURE RISK SPECULATIVE RISK
and HE HAS RECEIVED INDEMNITY FROM THE -A situation where -results in either
INSURANCE COMPANY for the INJURY OR LOSS the possibility is loss or gain. (ex:
arising out of the WRONG OR BREACH OF CONTRACT either the person gambling).
COMPLAINED OF, the insurance company shall be involved will suffer a
SUBROGATED TO THE RIGHTS OF THE INSURED loss or not.
against the WRONGDOER or the person who has -results in either loss
violated the contract. IF the AMOUNDT PAID by the or no loss.
insurance company DOES NOT FULLY COVER THE PERIL
INJURY OR LOSS, the aggrieved party shall be -uncertainty that the -specific CAUSE of
entitled to RECOVER the deficiency FROM THE property or person loss
PERSON CAUSING THE LOSS OR INJURY. insured will be lost
or damaged by
reason of the
ELEMENTS designated or some
1. The insured has an INSURABLE INTEREST other peril.
2. The insured is SUBJECT TO A RISK OF LOSS by
the happening of the DESIGNATED PERIL
3. The insurer ASSUMES THE RISK PAST EVENT - It is peculiar to Marine
4. Such assumption of risk is part of the Insurance. For example, in a arine insurance
GENERAL SCHEME TO DISTRIBUTE ACTUAL LOSSES policy. At the time the policy was taken, the
AMONG A LARGE GROUP OF PERSONS BEARING A parties are not aware is the ship is already lost.
SIMILAR RISK; and THE INSURER WILL PAY EVEN IF THE SHIP TURNS
5. In consideration of the insurer’s promise, the OUT TO BE ALREADY LOST AT THE TIME THE
INSURED PAYS A PREMIUM POLICY WAS TAKEN.


RISK - uncertainty is a feature of insurance
business because it requires the presence of an

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 2

 DISTINCTIONS: NATURE AND PURPOSE
-a plan for dealing with the risk of economic loss.
The insured sacrifices a present monetary loss in the
FORTUITOUS form of premium payment in order to avoid a
RISK
EVENT greater loss in the future.
-not the equivalent
of condition under
the NCC. HOW PEOPLE DEAL WITH RISK
RISK HAZARD a. Risk avoidance
-Circumstances or conditions that b. Risk retention
create or increase the risk of loss. c. Risk transfer
-Hazards may either be: d. Loss control
1. PHYSICAL- refers to the physical e. Insurance
condition of the thing or the
person that increases the chance
of loss. HOW INSURANCE DEALS WITH RISK
2. MORAL- involves dishonesty or
character defects in the individual A. RISK DISTRIBUTING DEVICE- the risk of loss is
that increase the chance of loss. not actually transferred to the insurer but a number
3. MORALE- includes carelessness of people constituting the clients of the insurer
or indifference to a loss because of contribute to a common fund by paying premiums.
the existence of the insurance. B. LAW OF LARGE NUMBERS- the greater the
LOSS number of exposures, the more closely will the
-end result of the risk insured actual results approach the probable results that are
against. expected from an infinite number of exposures.
-involves diminution of value or
disappearance of value resulting
from a risk. CHARACTERISTICS

A. ALEATORY
ASSUMPTION OF RISK - the insurer -Article 2010, NCC
promises to pay the insured if the risk insured -It is in the sense that, what the
against occurred. insured will pay in pesos is not equal to
what he will receive in case of loss.
Note: The promise of the insurer MAY
INVOLVE THE PROMISE TO DELIVER THE B.UNILATERAL
EQUIVALENT OF THE PROPERTY THAT WAS -upon payment of the premium, there
LOST. is only one party who has the obligation,
that is, the insurer’s obligation to pay the
OPTION TO REBUILD CLAUSE - it is proceeds of the insurance in case of loss.
allowed under Section 174 of the Insurance
Code. (Example: Fire Insurance Policy- C. PERSONAL
where the beneficiary is not automatically -because the contract is entered into
entitled to cash but there is an option to with due consideration to the
rebuild clause under which the parties circumstances of the parties.
stipulate the repairing, rebuilding or
replacing of buildings or structures wholly D. CONSENSUAL
or partially damaged or destroyed.) -perfected by mere consent without
the need of delivery or any formality.

E. UBBERIMAE FIDAE

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 -It is one of perfect good faith. Parties -Prof. Vance: A mere delay by the
must avoid material concealment or insurer, although unreasonable, in acting
misrepresentations. upon the application raises no implication
of acceptance nor does it estop the insurer
F. EXECUTORY AND CONDITIONAL to deny the existence of the contract.
-ACCEPTANCE OF AN OFFER CAN BE
IMPLIED. However, Implied Acceptance can
SOCIAL VALUE be established only if there are other
-far outweighs its social costs. circumstances that will indicate such
acceptance other than inaction or delay.

GENERAL BENEFITS OF INSURANCE
1. It gives peace of mind KINDS OF INSURANCE
2. It keeps families and businesses together 1. PRIVATE INSURANCE
3. It increases marginal utility if assets* 2. GOVERNMENT INSURANCE
4. It facilitates credit transactions
5. It stimulates savings Note: Government Insurance includes
6. It provides investment capital the insurance coverage provided by the SSS
7. It provides incentive to business and to employees of the private sector and the
individuals insurance coverage under the GSIS which
8. It helps in loss prevention. extends to the employees in the
government service. Thse are called
“SOCIAL INSURANCE” Contracts.
PERFECTION
-(Article, 1319, NCC) CLASSIFICATION ACCORDING TO OBJECT:
Consent is manifested by the meeting of the -PRIVATE INSURANCE can either be:
offer and the acceptance upon the thing and the 1. Life or Health Insurance
cause which are to constitute the contract. The offer 2. Property Insurance
must be certain and the acceptance absolute. A 3. Liability Insurance
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not SPECIAL TYPES OF INSURANCE
bind the offerer except from the time it came to his 1. Marine Insurance
knowledge. The contract, in such a case, is presumed 2. Casualty Insurance
to have been entered into in the place where the 3. Fire Insurance
offer was made. 4. Life Insurance
5. Compulsory Third Party Liability
-Cognition Theory Insurance
-INSURED MAKES THE OFFER by submitting the 6. Microinsurance
application to the insurer or its authorized agent.
-It may be that the INSURER OFFERS a contract LIFE INSURANCE
which is accepted by the insured with or without -may be made:
writing; or the agent to whom the application for 1. According to the period when it
insurance is made may have authority to accept the is force
offer without reference, and this ACCEPTANCE may 2. According to its object
be WRITTEN or ORAL. 3. According to its special
-COURTS CANNOT IMPOSE A CONTRACT IN THE charactersistics.
ABSENCE OF A PERFECTED CONTRACT.
-may be classified into:
1. TERM INSURANCE- life is
EFFECT OF NON-ACCEPTANCE insured on a temporary basis or for a
-NO CONTRACT limited period.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 4

 2. WHOLE LIFE INSURANCE- a EXCEPTIONS:
person is insured during his entire 1. Life Insurance- because the amount to
lifetime. be paid by the insurer can never be equal to the
3. ENDOWMENT POLICY- the value of the life that is being insured.
insured is paid a certain amount or the 2. Valued Policies- the insurer will pay thr
face value of the policy if the insured value fixed in the policy regardless of the actual
survives a certain period and the cash value in case of total loss.
beneficiary will get the proceeds if the
insured does not survive. MANIFESTATIONS:
4. INDUSTRIAL LIFE- whic the 1. Insurable interest is indispensable
premiums are payable monthly or 2. The value of the interest destroyed or
oftener, IF the face amount is NOT damage is generally the measure of indemnity
MORE THAN FIVE HUNDRED TIMES (except in the cases above)
OF THE CURRENT STATUTORY 3. Co-insurance clause in marine insurance
MINIMUM DAILY WAGE IN THE CITY 4. Subrogation in property insurance.
OF MANILA, and IF THE WORDS
“INDUSTRIAL POLICY” ARE PRINTED
UPON THE POLICY AS PART OF THE
DESCRIPTIVE MATTER.

PROPERTY INSURANCE
-includes:
1. FIRE INSURANCE and ALLIED
INSURANCE
2. MARINE INSURANCE
3. CASUALTY INSURANCE

MICROINSURANCE
-Section 187, Insurance Code
Microinsurance is a FINANCIAL
PRODUCT or SERVICE that meets the risk
protection needs of the poor where:
"(a) The AMOUNT of contributions,
premiums, fees or charges, computed on a
daily basis, DOES NOT EXCEED 7.5% of the
current daily minimum wage rate for
non-agricultural workers in Metro Manila;
and
"(b) The maximum sum of guaranteed
benefits is NOT MORE THAN 1,000 times of
the current daily minimum wage rate for
non-agricultural workers in Metro Manila.


PRINCIPLE OF INDEMNITY
-this means that the insured should not collect
more than the actual cash value of the loss.
-this meant to prevent the insured from
profiting from insurance and to reduce moral hazard.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 5

 II. THE PARTIES EXCEPTION:
A. If the property regime of
the spouses is ABSOLUTE
PARTIES COMMUNITY.
1. INSURER - Hence, the taking of
-the party who promises to pay in case loss the insurance policy should
results because the peril insured against occurred. be JOINTLY made by the
spouses.
2. INSURED -IN CASE OF
-the owner of the policy whose property or life DISAGREEMENT, it is the
is insured or who took out the insurance over the life husband that will
of persons in whom he has insurable interest. prevail.

3. BENEFICIARY (third person) Note: If a spouse takes an
-the person in whose favor the insurance was insurance policy on his own life and a
taken by the insured and who will receive the 3rd perso who is TOTALLY UNRELATED
proceeds of the insurance in case of loss. to them, is a made a beneficiary, then
-in strict legal sense, the beneficiary is not a it is believed that the taking of the
party to the contract unless he is the insured himself. insurance and payment of the
premium is in the nature of a
DONATION, that SHOULD BE
INSURED APPROVED by BOTH SPOUSES
-the person who applied for and to whom an pursuant to Section 98 of the Family
insurance policy is issued to cover his life, property Code.
or the life or property of other person/s in whose life
or property he has insurable interest or liability to
other persons. EFFECT OF DEATH OF OWNER
-Section 3(last par.), Insurance Code
ASSURED AND THE OWNER All rights, title and interest in the policy of
-in LIFE INSURANCE, if a person insures the insurance taken out by an original owner on the
LIFE OF ANOTHER, the person whose life is life or health of the person insured shall
insured is called the INSURED while the person automatically vest in the latter upon the death
who took out an insurance is called the of the original owner, unless otherwise provided
ASSURED. for in the policy.

CAPACITY -EXAMPLE: When the parents who
-an insurance contract is VOIDABLE if the insure the life of their minor child, will die,
INSURED is a minor, insane, or otherwise all the rights, title and interest in the policy
incapacitated. shall be automatically vested in the minor.

SPOUSES PUBLIC ENEMY
-MARRIED WOMEN CAN enter into -Section 7, Insurance Code
insurance contract WITHOUT THE CONSENT Anyone except a public enemy may be
of their husbands (vice versa). insured.
-Section 3(par. 2), Insurance Code:
The consent of the spouse is not EFFECT OF WAR
necessary for the validity of an insurance -if there is no war yet at the time
policy taken out by a married person on his of the taking of the policy but war
or her life or that of HIS OR HER CHILDREN. ensues between the Philippines and
-”HIS OR HER CHILDREN”- does not the COUNTRY OF THE INSURED, the
limit to an insurance taken on the common insurance policy is deemed
childen of the spouses. ABROGATED.

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 sum of money, irrespective of whether such aim
Filipinas Compania v. Christern or purpose is carried out by means of fixed dues
-the purpose of war is to cripple or assessments collected regularly from the
the power and exhaust the resources members, or of providing, by the issuance of
of the enemy, and it is inconsistent certificates of insurance, payment of its
that one country should destroy its members of accident or life insurance benefits
enemy’s property and repay in out of such fixed and regular dues or
insurance the value of what has been assessments, but in no case shall include any
so destroyed, or that it should in such society, association, or corporation with such
manner increase the resources of the mutual benefit features and which shall be
enemy, or render it aid, and the carried out purely from voluntary contributions
commencement of war determines, collected not regularly and/or no fixed amount
for like reasons, all trading intercourse from whomsoever may contribute”.
with the enemy, which prior thereto
may have been lawful.
MUTUAL INSURANCE COMPANIES
-Section 268, Insurance Code
INSURER Any domestic stock life insurance company
-Section 6, Insurance Code doing business in the Philippines may convert
Every corporation, partnership, or association, itself into an incorporated mutual life insurer.
duly authorized to transact insurance business as To that end it may provide and carry out a plan
elsewhere provided in this Code, may be an insurer. for the acquisition of the outstanding shares of
its capital stock for the benefit of its
-Insurer or Insurance company shall include all policyholders, or any class or classes of its
partnerships, associations, cooperatives, or policyholders, by complying with the
corporations, including GOCCs or entities, engaged requirements of this chapter.
as principals in the insurance business, EXCEPTING
MUTUAL BENEFIT ASSOCIATIONS.
CERTIFICATE OF AUTHORITY
-it is required for the insurance company to
PROFESSIONAL REINSURER transact any insurance business in the Philippines.
-Section 288, Insurance Code -required because contracts of insurance involve
public interest and regulation thereof by the State is
necessary.
DOMESTIC AND FOREIGN COMPANY
-Domestic company shall include
companies formed, organized or existing under BASIC QUALIFICATIONS:
the laws of the Philippines. -Section 192, Insurance Code
-Foreign company shall include companies No corporation, partnership, or association
formed, organized or existing under any laws of persons shall transact any insurance
other than those of the Philippines. business in the Philippines except as agent
of a corporation, partnership or association
authorized to do the business of insurance
MUTUAL BENEFIT ASSOCIATIONS in the Philippines, UNLESS
-Section 403, Insurance Code 1. possessed of the capital and assets
“Any society, association or corporation, required of an insurance corporation doing
WITHOUT CAPITAL STOCK, formed or organized the same kind of business in the Philippines
not for profit but mainly FOR THE PRUPOSE OF and invested in the same manner;
PAYING SICK BENEFITS TO MEMBERS, or of 2. the Commissioner shall have granted it a
FURNISHING FINANCIAL SUPPORT TO MEMBERS certificate to the effect that it has complied
WHILE OUT OF EMPLOYMENT, or of paying to with all the provisions of this Code.
relatives of deceased members of fixed or any

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TERM OF THE CERTIFICATE WHEN A BENEFICIARY IS DESIGNATED
-Section 193, Insurance Code -if designation is NOT INVALID, it is the
The certificate of authority issued by the designated beneficiary who is entitled to receive the
Commissioner shall *expire on the last day of proceed and NOT THE HEIRS OF THE INSURED.
December, *three (3) years following its date of
issuance, and *shall be renewable every three Note: NO OTHER PARTY can recover the
(3) years thereafter, proceeds other than the beneficiary.
subject to the company’s continuing
compliance with the provisions of this Code,
circulars, instructions, rulings or decisions of the THIRD PARTIES
Commission. -The insurer has NO OBLIGATION to turn over
the proceeds of the insurance to third persons even
GROUNDS FOR DISAPPROVAL OF APPLICATION if the third persons are immediate relatives IF THERE
-Section 193, Insurance Code IS A DESIGNATED BENEFICIARY.


PROHIBITED ACTS OF THE INSURER WHEN THERE IS NO BENEFICIARY
a. To transact in the PH both the business -(when there is no beneficiary or when the
of life and non-life insurance unless specifically designation is VOID), the LAWS OF SUCCESSION are
authorized to do so. applicable.
b. To have equity in an adjustment
company
c. To negotiate any contract of insurance EFFECT OF USE OF CONJUGAL FUNDS
other than is plainly expressed in the policy -if conjugal funds are used to pay for the
d. To directly or indirectly, pay or allow or premium, the proceeds of the policy constitute
offer to pay or allow to the insured or to any COMMUNITY PROPERTY if made payable to the
employee of such insured, either as an deceased’s estate. (One half of the proceeds belong
inducement to the making of such insurance or to the estate and the other half to the surviving
after such insurance has been effected, any spouse).
rebate from the premium or any special favor or
advantage in the dividends or other benefits to
accrue thereon. VESTED INTEREST OF BENEFICIARY
e. To give or offer to give any valuable -should be measured on its FULL FACE VALUE
consideration or inducement of any kind, and not on its cash surrender value.
directly or indirectly, which is not specified
f. To make any discrimination
g. To issue or circulate or cause or permit REVOCABILITY
to be issued or circulated….misrepresenting the -Section 11, Insurance Code
terms of policy -GENERAL RULE: the designation of the
h. Misrepresentation of the true nature of beneficiary is REVOCABLE
the policy -EXCEPTION: unless EXPRESSLY PROVIDED
i. To make any misleading -EXCEPTION TO THE EXCEPTION: If the insured
misrepresentation for the purpose of does not change the beneficiary during his lifetime,
inducement. the designation shall be DEEMED IRREVOCABLE
-EXCEPTION TO THE EXCEPTION OF THE
EXCEPTION: Article 64, of the Family Code provides
BENEFICIARY that after the finality of the DECREE OF LEGAL
-the beneficiary MAY BE A THIRD PERSON. SEPARATION, the INNOCENT SPOUSE may revoke the
-UNLESS, he is the insured himself, the designation even if such is stipulated to be
beneficiary is not one of the contracting parties. irrevocable.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 8

 FORFEITURE OF RIGHTS OF BENEFICIARY
-Section 12, Insurance Code Note: If the policy is SECURED FOR THE
The interest of a beneficiary in a life insurance BENEFIT OF A PARTNERSHIP, a change in the
policy shall be forfeited when the beneficiary is the name of the partnership DOES NOT AVOID the
PRINCIPAL, ACCOMPLICE, OR ACCESSORY in willfully policy.
bringing about the death of the insured. In such a
case,
1. the share forfeited shall pass on to the OTHER ASSIGNEE OF LIFE INSURANCE
BENEFICIARIES, unless otherwise disqualified. -A life or health insurance policy CAN BE
2. In the absence of other beneficiaries, the TRANSFERRED even WITHOUT THE CONSENT of the
proceeds shall be paid in accordance with the POLICY insurer.
CONTRACT. -Section 184, Insurance Code
3. If the policy contract is silent, the proceeds A policy of insurance upon life or health may
shall be paid to the STATE OF THE INSURED. pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and
such person may recover upon it whatever the
DISQUALIFICATION OF BENEFICIARY insured might have recovered.
-Article 2012, Article 739, New Civil Code

1. Those made between persons who were HOW TO TRANSFER
guilty of adultery or concubinage at the time of the -No formalities are required.
adoption. -Under the NCC, DELIVERY OF THE PROOF
2. Those made between persons found guilty of OR EVIDENCE OF THE RIGHT as one of the
the same criminal offense, in consideration thereof; modes of transferring ownership.
3. Those made to a public officer or his wife,
descendants and ascendants, by reason of his office. Note: While notice to the insurer is not
required, it is more advantageous to the
Notes: assignee to give notice to the insurer of such
-this provision would not certainly apply to transfer.
children borne out of wedlock. The illegitimate
children are not covered by the prohibition.
-CONVICTION IS NOT NECESSARY in order DOUBLE ASSIGNMENT
for one to be disqualified due to adultery or -ENGLISH RULE- the assignee WHO FIRST
concubinage. GIVES NOTICE is the one entitled to the
-while the concubine is disqualified, the proceeds if he has no notice of any prior
illegitimate children of the insured are not assignment.
disqualified.
-AMERICAN RULE- the assignee UNDER THE
FIRST ASSIGNMENT has the preferable claim.
TRUSTEE OR AGENT
-when an insurance contract is executed with an *The AMERICAN RULE applies in this
agent or trustee as the insured, the fact that his jurisdiction.
principal or beneficiary is the REAL PARTY IN (principle: prius tempore portior jure - first
INTEREST may be indicated by describing the insured in time, stronger in right)
as agent or trustee, or by other general words in the
policy.
ASSIGNEE OF PROPERTY INSURANCE
-Section 58, Insurance Code
PARTNER The mere transfer of a thing insured does not
-it is NECESSARY that the terms of the policy transfer the policy, but suspends it until the same
should be such as are applicable to the joint or person becomes the owner of both the policy and
common interest. the thing insured.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 9

 -the Contract of Agency
GENERAL RULE: The policy can be transferred so -the provisions of the NCC on
long as the TRANSFEREE HAS INSURABLE INTEREST in Agency.)
the thing insured. NEVERTHELESS, THE INSURER’S
ASSENT IS NECESSARY FOR THE TRANSFER.
COLLUSION BETWEEN THE INSURED AND
EXCEPTIONS:(Insurer’s consent is not necessary) THE AGENT
1. Transfer through will or succession -although the insurance agent
2. Other instances of transfer by operation represents the insurer, the insured cannot
of law escape the effect of the falsity that the
3. Transfer among partners agent committed with his complicity.

NOTE: The provisions in the policy that
INSURANCE AGENT specifies and limits the powers and duties of an
-Section 309, Insurance Code agent is binding on the insured.
Any person who for compensation solicits or
obtains insurance on behalf of any insurance
company or transmits for a person other than INSURANCE BROKER
himself an application for a policy or contract of -Section 310, Insurance Code
insurance to or from such company or offers or Any person who for any compensation,
assumes to act in the negotiating of such insurance. commission or other thing of value acts or aids in any
-shall thereby become liable to all the duties, manner in soliciting, negotiating or procuring the
requirements, liabilities and penalties to which an making of any insurance contract or in placing risk or
insurance agent is subject. taking out insurance, on behalf of an insured other
-REPRESENTS THE INSURER than himself.
-shall thereby become liable to all the duties,
-An insurance agent is an INDEPENDENT requirements, liabilities and penalties to which an
CONTRACTOR and NOT AN EMPLOYEE of the insurance broker is subject.
company represented. -ACTS FOR AND IN BEHALF OF THE INSURED

GENERAL AGENT
-must be empowered by a written POWER EFFECT OF RECEIPT OF PREMIUM
OF ATTORNEY duly executed by such insurance -the premium of or any portion thereof
company, and REGISTERED WITH THE collected from the insured which is to be paid to an
INSURANCE COMMISSIONER to receive notices, insurance company, shall be held by the agent or
summons and legal processes for and in behalf broker in a FIDUCIARY CAPACITY and SHALL NOT BE
of the insurance company concerned in MISAPPROPRIATED OR CONVERTED TO HIS OWN
connection with actions or other legal USE OR ILLEGALLY WITHHELD.
proceedings against said insurance company.
Note: agent or broker must be authorized
CLASSES OF AGENTS to collect to receive on its behalf payment of
1. SALARIED EMPLOYEES- those who keep any premium which is due on such policy or
definite hours and work under the control and contract.
supervision of the company.
(governing laws: NO JURISDICTION OVER INSURER-AGENT RELATIONSHIP
- the Contract of Employment - The power of the Commissioner does not
- the provisions of the Labor cover the relationship between the insurance
Code.) company and its agents/brokers.

2. INDEPENDENT CONTRACTOR- who work Note: The insurance agents/brokers are under
on a commission basis. the regulatory powers of the Insurance
(governing laws: Commissioner. Hence, the latter CAN REVOKE their

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 10

license in proper cases as well as imposition of III. INSURABLE INTEREST
administrative sanctions.

CONCEPT
-It may be stated, generally to be such an
interest arising from the relation of the party
obtaining insurance, either as creditor of or surety
for the assured, or from ties of blood or marriage to
him, as will justify a reasonable expectation of
advantage or benefit from the continuance of his
life.

Notes:
-In LIFE INSURANCE, Section 10 provides for
an exclusive list who may have insurable
interest in the life of another.
-In PROPERTY INSURANCE, the basic
concept of insurable interest is provided for in
Section 13.
-LACK OF INSURABLE INTEREST is a
DEFENSE for the benefit of society, not for the
benefit of any insurance company.


PURPOSES:
1. the presence of insurable interest reduces
moral hazard.
2. Insurable interest likewise helps in measuring
the loss of the insured.


NOTE:
-IF THE INSURED HAS NO INSURABLE INTEREST
OVER THE LIFE OR PROPERTY HE INSURES, the
insurance contract is considered UNENFORCEABLE.
-IF IT CAN BE ESTABLISHED THAT THE
CONTRACT IS REALLY A WAGER, THE SAME CAN BE
CONSIDERED VOID FOR BEING AGAINST PUBLIC
POLICY.
-Section 25, Insurance Code
Every stipulation in a policy of
insurance for the payment of loss whether
the person insured has or has not any
interest in the property insured, or that the
policy shall be received as proof of such
interest, and every policy executed by way
of gaming or wagering, is VOID.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 11

INSURABLE INTEREST IN LIFE INSURANCE CREDITOR
-Section 10, Insurance Code -Section 10( c), Insurance Code
Every person has an insurable interest in the life -A creditor SHALL HAVE insurable interest over
and health: the life of the debtor who msy hve obligated to
"(a) Of himself, of his spouse and of his children; deliver money or peroperty or to provide some
"(b) Of any person on whom he depends wholly service.
or in part for education or support, or in whom he -HOWEVER, THE DEBTOR CANNOT INSURE THE
has a pecuniary interest; LIFE OF THE CREDITOR, because he will not be
"(c) Of any person under a legal obligation to damnified by the loss of the creditor’s life.
him for the payment of money, or respecting
property or services, of which death or illness might
delay or prevent the performance; and
"(d) Of any person upon whose life any estate or MORTGAGE REDEMPTION INSURANCE
interest vested in him depends. -Debtors may be insured into GROUP LIFE
INSURANCE known as mortgage redemption
insurance.
CLASSES OF INSURABLE INTEREST IN LIFE INSURANCE -It is a device for the PROTECTION of both the
1. Insurable interest in the insured’s own life. mortgagee and the mortgagor.
2. Insurable interest in the life of another
person. -On the part of the MORTGAGEE, it has to enter
a) RELATIONSHIP BY BLOOD into some form of contract so that in the event of
-LIMITED to insurable interest the unexpected demise of the mortgagor during the
over the life of a SPOUSE or of one’s subsistence of the mortgage contract, the proceeds
children. from such insurance will be applied to the payment
*Blood relationship alone would of the mortgage debt.
not suffice in other cases.
-Where the NORTGAGOR PAYS THE INSURANCE
b) BUSINESS RELATIONSHIP PREMIUM under the policy, making the LOSS
-(Section 10(b),Insurance Code) PAYABLE TO THE MORTGAGEE, the insurance is on
-Education or Support the MORTGAGOR’S INTEREST AND THE MORTGAGOR
*the law does NOT REQUIRE hat CONTINUES TO BE A PARTY to the contract.
the person on whom he depends -Such loss payable clause does not make a
wholy or in part for education or mortgagee a party to the contract.
support is LEGALLY OBLIGATED to do -the mortgagee is simply an APPOINTEE of
so. the insurance fund.

c) OTHER PECUNIARY INTEREST
-Accordingly, one has insurable INSURABLE INTEREST IN PROPERTY INSURANCE
interest over the life of his partner or -Section 18, Insurance Code
his employee. No contract or policy of insurance on property
-In case of a partner, it is shall be enforceable except for the benefit of some
reasonable to conclude that the person having an insurable interest in the property
continuance of partnership and the life insured.
of of a partner furnished a reasonable
expectation of advantage to the other -See. Sections 13,14,16,17, Insurance Code
partners.
-The loss of the life of the
employee will result in economic loss TEST
on the part of the employer because of -Whether one will derive PECUNIARY BENEFIT
the deprivation of service. OR ADVANTAGE from its preservation, or will SUFFER
PECUNIARY LOSS OR DAMAGE from its destruction,

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 12

 termination, injury by the happening of the event -Cases where insurable interest in property
insured against. exists: (Harvardian Colleges of San Fernando
Pampanga v. CBIC)

KINDS OF INSURABLE INTEREST 1. When the insured possesses a legal title
-Section 13, Insurance Code to the property insured, whether vested or
1. existing interest contingent, defeasible or undefeasible.
2. Inchoated interest founded on an existing 2. When he has equitable title of whatever
interest character and in whatever manner acquired.
3. Expectancy, coupled with n existing interest 3. When he possesses a qualified property
out of which the expectancy arises. or possessory right in the subject.
4. When he has mere possession or right of
possession
EXISTING INTEREST 5. When he has neither possession nor any
-includes the interest of an owner. other legal interest BUT stands in such relation
HOWEVER, TITLE OR OWNERSHIP IS NOT that he may suffer from its destruction, loss of a
ESSENTIAL. legal right dependent upon its continued
existence.
-Following persons have insurable interest
over the property EVEN if they are not the
owner thereof: INCHOATE INTEREST
1. Lessee -MUST BE FOUNDED ON AN EXISTING
2. Depositary INTEREST, otherwise, the loss of the property
3. Usufructuary will not directly damnify the insured.
4. Borrower in commodatum

-a possessor who is holding the property EXPECTANCY
without consideration WITH THE CONSENT of -MUST BE COUPLED WITH AN EXISTING
the owner has insurable interest in the property INTEREST.
that he is occupying.

-In sale of goods, an UNPAID SELLER DISTINCTIONS:
RETAINS INSURABLE INTEREST over the goods
even if ownership had already been transferred INSURABLE INTEREST IN INSURABLE INTEREST IN
to the vendee upon delivery. PROPERTY LIFE
-reason: an unpaid seller has a AS TO THE EXTENT:
-Unlimited EXCEPT if
vendor’s lien and therefore he will be -Limited up to the value of
secured by the creditor.
damnified by the loss of the goods even if the property.
after delivery. TIME WHEN IT MUST EXIST:
-at the time of the
-at the time of the
-the vendee or BUYER HAS INSURABLE perfection of the insurance
perfection of the contract
INTEREST over the goods even while the goods contract.
and at the time of the loss.
are still in transit. NEED FOR LEGAL BASIS:
-The PERFECTED CONTRACT OF SALE -Expectation of benefit -need not
even without the delivery vests the vendee must have legal basis.
an EQUITABLE TITLE, an existing interest -if the insured took out the
over the goods sufficient to be the subject policy on his own life and
of insurance. BENEFICIARY’S INTEREST:
designated another, NOT
*The contract of shipment whether, -beneficiary must have
NECESSARY, UNLESS took
FOB,CIF,.. is IMMATERIAL. insurable interest.
out an insurance on the life
of another.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 13

INSURABLE INTEREST OF BAILEE WAYS WHERE THE MORTGAGEE MAY BE MADE
-Section 15, Insurance Code THE BENEFICIAL PAYEE:
A carrier or depository of any kind has an 1. With the consent of the insurer
insurable interest in a thing held by him as such, to 2. A mere pledgee without such consent, or
the extent of his liability but not to exceed the value the original policy may contain a mortgage
thereof. clause.
3. A rider making the policy payable to the
-Reason: the carrier may be damnified by the mortgagee “as his interest may appear” my be
loss of the goods because he may be obligated to attached
pay the shipper any damage to the property. 4. A “standard mortgage clause” may be
Similarly, a depositary is obligated to take care of the attached.
thing deposited, otherwise liable for the damage. 5. The policy, through by its terms payable
Thus both of them have insurable interest over the absolutely to the mortgagor…..
property. 6. The policy may provide for a loss payable
clause in favor of the mortgagee.

INSURABLE INTEREST OF THE MORTGAGOR AND THE
MORTGAGEE Note: A “loss payable clause” should be
-The mortgagor is the owner of the mortgaged distinguished from a “union mortgage clause” where
property, hence, he has an existing interest that may there is a transfer of an insurance from the
be the subject of the insurance. mortgagor to the mortgagee with the assent of
insurer.
-Section 8, Insurance Code
Unless the policy otherwise provides, where a
mortgagor of property effects insurance in his own -Sec. 9, Insurance Code
name providing that the loss shall be payable to the If an insurer assents to the transfer of an
mortgagee, or assigns a policy of insurance to a insurance from a mortgagor to a mortgagee, and, at
mortgagee, the insurance is deemed to be upon the the time of his assent, imposes further obligations on
interest of the mortgagor, who does not cease to be the assignee, making a new contract with him, the
a party to the original contract, and any act of his, acts of the mortgagor cannot affect the rights of said
prior to the loss, which would otherwise avoid the assignee.
insurance, will have the same effect, although the
property is in the hands of the mortgagee, but any UNION MORTGAGE
LOSS PAYABLE CLAUSE
act which, under the contract of insurance, is to be CLAUSE
(Sec. 9)
performed by the mortgagor, may be performed by (Sec. 8)
the mortgagee therein named, with the same effect -the mortgagee is made -creates collateral
as if it had been performed by the mortgagor. merely a beneficiary under independent contracts
the contract, recognized as between the insurer and
-the mortgagor and the mortgagee have such by the insurer BUT the mortgagee
each an independent insurable interest and NOT made a party to the
both may be covered by one policy or each may contract itself. -provide that the rights of
take out a separate policy. the mortgagee shall not be
-the MORTGAGOR’S insurable interest -any default on the part of defeated by the acts or
covers the FULL VALUE OF THE MORTGAGED the mortgagor, whch by default of the mortgagor.
PROPERTY, even the mortgage debt is the terms of the policy
equivalent to the full value of the property. defeat his rights, will also -GENERAL RULE:
-the MORTGAGEE’S insurable interest is to defeat all the rights of the mortgagee’s rights remain
the EXTENT OF THE DEBT, not exceeding the mortgagee, even though unaffected by any default
value of the property mortgaged. the latter may not have or breach of condition by
been in any fault. the mortgagor to which a
-USUAL PRACTICE: The mortgagor takes out an mortgagee is not a party.
insurance for the benefit of the mortgagee.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 14

INSURABLE INTEREST OF MORTGAGEE
-RULE: a mortgagee may, independently of -Section 20, Insurance Code
the mortgagor, insure the mortgaged property in his Except in the cases specified in
own name and for his own interest. the next four sections, and in the cases
of life, accident, and health insurance,
HOWEVER, the mortgagee is not a change of interest in any part of a
allowed to retain his claim against the thing insured unaccompanied by a
mortgagor, but it passes by subrogation to corresponding change of interest in
the insurer, to the extent of the insurance the insurance, suspends the insurance
money paid. to an equivalent extent, until the
interest in the thing and the interest in
the insurance are vested in the same
person.
WHEN MUST INSURABLE INTEREST EXIST
-Section 19, Insurance Code -Section 58, Insurance Code
An INTEREST IN PROPERTY INSURED must exist The mere transfer of a thing
when the insurance takes effect, and when the loss insured does not transfer the policy,
occurs, but need not exist in the meantime; and but suspends it until the same person
INTEREST IN THE LIFE AND HEALTH OF A PERSON becomes the owner of both the policy
INSURED must exist when the insurance takes effect, and the thing insured.
but need not exist thereafter or when the loss
occurs. -Transfer or change of interest in the
property with the consent of the insurer WILL
-In LIFE INSURANCE, all that is required is that NOT SUSPEND THE POLICY. In such a case, the
the insured has insurable interest over the life that is policy will inure to the benefit of anyone to
insured at the time the insurance takes effect. whom the property is insured.
-EXAMPLE: A spouse can insure the life of
the other spouse. The spouse who took out the -Section 57, Insurance Code
insurance can still recover IF at the time of the A policy may be so framed that it
death of the spouse whose life was insured, will inure to the benefit of
their marriage was already annulled. whomsoever, during the continuance
of the risk, may become the owner of
-In PROPERTY INSURANCE, the insured can the interest insured.
recover even if he lost his insurable interest AFTER
THE PERFECTION OF THE INSURANCE CONTRACT so
long as he recovers the same before the loss occurs. EXCEPTIONS TO SEC. 20 OF THE INSURANCE CODE,
-EXAMPLE: A, owner of the car, insured WHERE THE CHANGE OF INTEREST WILL NOT SUSPEND
with X Company. After the issuance of the policy, THE INSURANCE.
A sold and delivered the car to B. Later, A
re-acquired the car to B. It was after the -See. Sections 21-24, Insurance Code
re-acquisition, the car was destroyed.
- A can still recover even if there is Note: In Sec. 22, two or more properties are
a period between the time of the insured but they are insured separately. Thus, if two
taking of the insurance and the time of buildings are insured in one policy but they are
the loss that A had no insurable insured separately, the change of interest in one
interest over the car. building does not suspend the insurance as to the
-the insurance is SUSPENDED other building.
when B became the owner and
possessor of the car by virtue of WHEN TRANSFER OF THE PROPERTY INSURANCE POLICY
SECTION 58 of the Insurance Code. The IS MADE AFTER THE LOSS
insurance is automatically reinstated -Beneficiary’s insurable interest is no longer
when A re-acquires the property. necessary. (See. Sec. 85, Insurance Code)

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 15

 IV. PREMIUM IT IS ONLY THE INSURER THAT MAKES A LEGALLY
ENFORCEABLE PROMISE.
*(To give the insurer the right to
PREMIUM REQUIRED FOR POLICY TO BE BINDING sue the insured would be the height of
-Section 77, Insurance Code INJUSTICE AND UNFAIR dealings.)
An INSURER IS ENTITLED TO PAYMENT OF
PREMIUM as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any WEHN BINDING EVEN IF PREMIUM IS UNPAID
agreement to the contrary, no policy or contract of -(UCPB General Insurance Co., Inc. V. Masagana
insurance issued by an insurance company is valid Telemart, Inc.)
and binding unless and until the premium thereof
has been paid, EXCEPT IN THE CASE OF A LIFE OR AN -GENERAL RULE:
INDUSTRIAL LIFE POLICY, or WHENEVER UNDER THE The policy is NOT VALID AND BINDING
BROKER AND AGENCY AGREEMENTS WITH DULY unless the premiums have been paid.
LICENSED INTERMEDIARIES, a ninety (90)-day credit
extension is given. No credit extension to a duly -EXCEPTIONS:
licensed intermediary should exceed ninety (90) days 1. When the GRACE PEPRIOD applies in
from date of issuance of the policy. case of LIFE AND INDUSTRIAL LIFE POLICY.
2. When there is an ACKNOWLEDGEMENT
NOTES: in the policy or RECEIPT that the premium has
-Payment may be made to the insurer been paid.
himself or its agent having authority to receive 3. When there is an AGREEMENT that the
or collect. Such payment is equivalent to premium shall be PAYABLE ON INSTALLMENT.
payment to the principal himself. 4. When there is a CREDIT EXTENSION.
5. When EQUITTABLE DOCTRINE OF
-INDUSTRIAL LIFE POLICY- In this case, ESTOPPEL applies.
insurance shall not lapse for non-payment of
premium if such non-payment was due to the
failure of the company to send its agent to the GRACE PERIOD
insured at the latter’s residence or at some -The period after the date of the premium is due
other place indicated for the purpose of during which the premium can be paid with no
collecting such premium (Section 235, Insurance interest charged and the policy remaining in force.
Code).
*Such rule DOES NOT APPLY when the -Sec. 233(a), Insurance Code
premium remains unpaid for 3 mos. Or 12 In the case of individual life or endowment
weeks after the grace period has expired. insurance, the policy shall contain in substance the
following conditions:
"(a) A provision that the policyholder is entitled
EFFECT OF NON-PAYMENT to a grace period either of 3O DAYS or of 1 MONTH
-The obligation of the insurer will not become within which the payment of any premium after the
valid and binding, IF THE FIRST PREMIUM HAS NOT first may be made, subject AT THE OPTION OF THE
BEEN PAID. INSURER to an interest charge not in excess of six
-IF THE SUBSEQUENT PREMIUMS HAVE NOT percent (6%) per annum for the number of days of
BEEN PAID, The policies issued will be deemed to grace elapsing before the payment of the premium,
have lapsed. during which period of grace the policy shall
continue in full force, but in case the policy becomes
NOTES: a claim during the said period of grace before the
-The insured CANNOT BE SUED for overdue premium is paid, the amount of such
non-payment of the premium. The only effect of premium with interest may be deducted from the
non-payment being that the POLICY WILL NOT amount payable under the policy in settlement.
GO INTO FORCE. AFTER THE INSURANCE COMES
INTO FORCE AFTER THE PAYMENT OF PREMIUM,

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 16

 -Section 234, Insurance Code premium that is due. The insurer can still
No policy of group life insurance shall be issued demand payment of the premium.
and delivered in the Philippines unless it contains in
substance the following provisions, or provisions
which in the opinion of the Commissioner are more INSTALLMENT
favorable to the persons insured, or at least as -An undertaking to allow insured to pay
favorable to the persons insured and more favorable premium in installments not so proscribed.
to the policyholders:
"(a) A provision that the policyholder is entitled CREDIT EXTENSION
to a grace period of either thirty (30) days or of one -Section 77 as amended by RA 10607
(1) month for the payment of any premium due after “a ninety (90)-day credit extension is given. No
the first, during which grace period the death benefit credit extension to a duly licensed intermediaries”.
coverage shall continue in force, unless the
policyholder shall have given the insurer written -REQUISITES:
notice of discontinuance in advance of the date of 1. the credit extension must be provided
discontinuance and in accordance with the terms of for under the broker and agency requirements.
the policy. The policy may provide that the 2. The credit extension to a duly licensed
policyholder shall be liable for the payment of a pro intermediary should exceed 90 days from date
rata premium for the time the policy is in force of issuance of policy.
during such grace period.
-Notes:
-Section 236(a), Insurance Code -the credt extension is extended to the duly
In the case of industrial life insurance, the licensed intermediary which in turn can benefit
policy shall contain in substance the following the insured. However, the 4th exception to Sec.
provisions: 77means that if the insurer has granted the
"(a) A provision that the insured is entitled to a insured a credit term for the payment of the
grace period of four (4) weeks within which the premium and loss occurs before the expiration
payment of any premium after the first may be made, of the term, recovery on the policy should be
except that where premiums are payable monthly, allowed even though the premium is paid after
the period of grace shall be either one (1) month or the loss but within the credit term.
thirty (30) days; and that during the period of grace,
the policy shall continue in full force, but if during -Under the old law, the insurance policy
such grace period the policy becomes a claim, then would be valid and binding notwithstanding the
any overdue and unpaid premiums may be deducted non-payment of premium if there was a clear
from any amount payable under the policy in agreement to grant to the insured credit
settlement; extension. Such agreement may be express or
implied.
-Under the present law, Sec. 77 has deleted
ACKNOWLEDGEMENT the clause “unless there is agreement to grant
-Section 79, Insurance Code the insured credit extension of the premium
An acknowledgment in a policy or contract of due”.
insurance or the receipt of premium is CONCLUSIVE -Velasco v. Apostol: credit transactons are
EVIDENCE OF ITS PAYMENT, so far as to make the no longer allowed because the law-making body
policy binding, notwithstanding any stipulation deliberately made the deletion precisely to
therein that it shall not be binding until the premium remove the exception.
is actually paid.
-When credit extensions were EXPRESSLY
NOTE: - The insurer’s obligation will already be ALLOWED, the policy is deemed
in force if there is agreement, EVEN if, in fact, the AUTOMATICALLY CANCELLED if the insured
insured has not yet paid the premium. signed a PN stating that the insured will pay the
HOWEVER, this doesn’t mean that the premium on or before a fixed date and the
insured is excused from paying the insured failed to pay on the stipulated date.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 17

 ESTOPPEL AUTOMATIC POLICY LOAN AND CASH SURRENDER
-it may bar an insurer from taking refuge under VALUE
Section 77 if the insured relied in good faith on a -CASH SURRENDER VALUE (as applied in life
practice that they have been following with the insurance) is the amount of money the company
insurer. agrees to pay to the holder of the policy if he
surrenders it and releases his claims upon it.
-surrender value is always a LESSER sum
SALARY DEDUCTIONS FOR GOVERNMENT than the total amount of premiums paid.
EMPLOYEES -the cash value or cash surrender value is
-Section 78, Insurance Code an amount which the insurance company holds
EMPLOYEES of the Republic of the Philippines, in trust for the insured to be delivered to him
including its political subdivisions and upon demand.
instrumentalities, and GOCCs, MAY PAY THEIR
INSURANCE PREMIUMS AND LOAN OBLIGATIONS -Section 233(f), Insurance Code
THROUGH SALARY DEDUCTIONS: Provided, That the A provision specifying the OPTIONS TO
treasurer, cashier, paymaster or official of the entity WHICH THE POLICYHOLDER IS ENTITLED TO IN
employing the government employee is authorized, THE EVENT OF DEFAULT IN A PREMIUM
notwithstanding the provisions of any existing law, PAYMENT AFTER 3 FULL ANNUAL PREMIUMS
rules and regulations to the contrary, to make SHALL HAVE BEEN PAID. Such option shall
deductions from the salary, wage or income of the consist of:
latter pursuant to the agreement between the "(1) A cash surrender value payable upon
insurer and the government employee and to remit surrender of the policy which shall not be less
such deductions to the insurer concerned, and than the reserve on the policy, the basis of
collect such reasonable fee for its services. which shall be indicated, for the then current
policy year and any dividend additions thereto,
-REQUIREMENTS: reduced by a surrender charge which shall not
-There must be an AGREEMENT between be more than one-fifth (1/5) of the entire
the insurer and the gov’t employee authorizing reserve or two and one-half percent (2 陆%) of
salary deduction of the premium.
the amount insured and any dividend additions

thereto; and

"(2) One or more paid-up benefits on a plan
SURETY
or plans specified in the policy of such value as
-ANOTHER EXCEPTION ONLY WITH RESPECT TO
may be purchased by the cash surrender value.
SURETYSHIP:

-the surety is already liable even if there is
-Section 233(g), Insurance Code
non-payment of the premium IF THE OBLIGEE
A provision that at any time after a cash
HAS ALREADY ACCEPTED THE BOND (Sec. 177,
surrender value is available under the policy and
Insurance Code).
while the policy is in force, the company will

advance, on proper assignment or pledge of the

policy and on sole security thereof, a sum equal
VALID TENDER OF PAYMENT
to, or at the option of the owner of the policy,
-The act of the insurer or his agent in REFUSING
less than the cash surrender value on the policy,
THE TENDER OF PAYMENT of a premium properly
at a specified rate of interest, not more than the
made, will necessarily STOP THE INSURER FROM
maximum allowed by law, to be determined by
CLAIMING A FORFEITURE FROM NON-PAYMENT.
the company from time to time, but not more

often than once a year, subject to the approval

of the Commissioner; and that the company will
HOW TO PREVENT LAPSE OF LIFE INSURANCE POLICY
deduct from such loan value any existing
1. Grace period
indebtedness on the policy and any unpaid
2. Automatic policy loan
balance of the premium for the current policy
3. Application of dividend
year, and may collect interest in advance on the
4. Restatement clause

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 18

 loan to the end of the current policy year, which -The insurer MAY DENY the application for
provision may further provide that such loan reinstatement if it is not satisfied as to the
may be deferred for not exceeding six (6) insurability of the insured and if the insured does not
months after the application therefor is made; pay the overdue premium.


-under an AUTOMATIC PREMIUM LOADN RETURN OF PREMIUM
CLAUSE, if at the end of the grace period the -WHEN RETURN OF PREMIUM IS A MATTER OF
premium due has not been paid, A POLICY LOAN RIGHT?
will automatically be made from the policy’s -See. Sections 80-83, Insurance Code
cash value to pay the premium.
-PURPOSE: to prevent unintentional 1. when the thing was not exposed to the
lapse of the policy. peril insured
-HOWEVER, where the risk is
entire and the contract is
DIVIDENDS indivisible, the insured is NOT
-(The life insurance policy may be participating ENTILED to a refund of the
or non-participating) premiums paid if the property
insured was exposed to the risk
PARTICIPATING INSURANCE NON-PARTICIPATING insured for any period, however
POLICY INSURANCE POLICY brief or momentary.
-The insured is ENTITLED to the - not entitled
dividends that may be available. 2. “time policy” when the policy is
surrendered before the expiration of the
-there must contain a provision stipulated time (the refund is pro rata)
that the company shall -the refund shall be on a pro
periodically ascertain and rata basis EXCEPT if a short time
apportion any divisible surplus rate has been agreed upon and
accruing on the policy under appears in the policy.
conditions specified therein.
3. When the contract is voidable and
-it may be provided that the subsequently annulled under the provisions of
dividend shall be applied to the the NCC
premiums that are due or -the ground that the contract
payable is voidable should be on account
of fraud or misrepresentation of
the INSURER or of his agent, or on
REINSTATEMENT CLAUSE account of facts, the existence of
-A life insurance policy must contain a provision which the insured was ignorant
that the policyholder shall be entitled to have the without his fault.
policy reinstated at any time within three (3) years *a person insured is not
from the date of default of premium payment unless entitled to a return of premium if
the cash surrender value has been duly paid, or the the policy is annulled, rescinded
extension period has expired (Section 233(j), or if a claim is denied by reason of
Insurance Code). fraud.(Sec. 82)
*the insurer CANNOT keep
-The reinstatement will be made the premium that was paid by the
*upon production of evidence of insurability insured if the insurer was never at
satisfactory to the company and risk because the policy was
*upon payment of all overdue premiums and inoperative and innefectual from
any indebtedness to the company upon said policy. the beginning.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 19

 4. When the contract is annulled on agent or broker and the imposition of a fine not
account of the fraud or misrepresentation of the exceeding P25,000.
insurer or of his agent or on account of facts, or
the existence of which the insured was ignorant Notes:
of without his fault. -The purpose of these statutes is the
5. When by any default of the insured PREVENTION OF UNFAIR DISCRIMINATORY
other than the actual fraud, the insurer never PRACTICES by insurance companies, agents
incurred liability under the policy and brokers in order to ensure that equal
6. When there is over-insurance by several terms are fixed for policyholders of the
insurers same insurable class and eequal
expectation of life.

ADVANCE PAYMENT -the statutes prohibit such practices
-Section 84, Insurance Code involving rebates or preferential
An insurer may contract and accept payments, treatment with respect to the cost of the
in addition to regular premium, for the purpose of policy or the benefits allowed fo the
paying future premiums on the policy or to increase premium.
the benefits thereof.


REBATE OF PREMIUM
-Section 370, Insurance Code
No insurance company doing business in the
Philippines or any agent thereof, no insurance broker,
and no employee or other representative of any such
insurance company, agent, or broker, shall make,
procure or negotiate any contract of insurance or
agreement as to policy contract, other than is plainly
expressed in the policy or other written contract
issued or to be issued as evidence thereof, or shall
directly or indirectly, by giving or sharing a
commission or in any manner whatsoever, pay or
allow or offer to pay or allow to the insured or to any
employee of such insured, either as an inducement
to the making of such insurance or after such
insurance has been effected, any rebate from the
premium which is specified in the policy, or any
special favor or advantage in the dividends or other
benefits to accrue thereon, or shall give or offer to
give any valuable consideration or inducement of
any kind, directly or indirectly, which is not specified
in such policy or contract of insurance; nor shall any
such company, or any agent thereof, as to any policy
or contract of insurance issued, make any
discrimination against any Filipino in the sense that
he is given less advantageous rates, dividends or
other policy conditions or privileges than are
accorded to other nationals because of his race.

-violation of Section 370 constitutes a
ground for the IMMEDIATE REVOCATION of the
license issued to the erring insurance company,

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 20

 V. THE POLICY APPROVAL OF INSURANCE COMPANY
-No policy, certificate or contract of
insurance shall be issued or delivered within the
CONSENSUAL Philippines UNLESS in the FORM PREVIOUSLY
-an insurance contract is a consensual contract APPROVED BY THE COMMISSIONER, and
-perfected by mere consent -no application form shall be used with, and
-no formality is required -no rider, clause, warranty or endorsement
*an absence of a policy DOES NOT BAR the shall be attached to, printed or stamped upon
contract from coming into existence such policy, certificate or contract UNLESS THE
FORM OF SUCH APPLICATION, RIDER, CLAUSE,
WARRANTY OR ENDORSEMENT HAS BEEN
STATUTE OF FRAUDS INAPPLICABLE APPROVED BY THE COMMISSIONER (Sec. 232,
-Article 1403, NCC (Statute of Frauds) -requires I.C).
a contract to be in a note or memorandum if it is one
of the cases covered by SoF. The include contracts
that CANNOT BE PERFORMED W/IN 1 YEAR after the CLASSIFICATION OF INSURANCE CONTRACTS
contract is made. 1. Declarations
-Insurance contracts are NOT COVERED by 2. Insuring agreements
statute of frauds. 3. Exclusions
-For instance, life insurance contracts 4. Conditions
may remain in force for decades, the
obligation of the insurance company to pay
the proceeds may likewise be performed DECLARATIONS
w/in 1 year because the future event -(See. Section 51, Insurance Code)
(death-insured) may occur w/in one year. -declarations identify the insured;
-describe the property, activity, or life
insured
POLICY -state the types of coverage purchased
-Section 49, Insurance Code -applicable policy limits
The written instrument in which a contract of -term of coverage
insurance is set forth, is called a policy of insurance. -indicate the premium paid for each
separate coverage purchases
-It is without prejudice to the no required form
for the perfection of the contract. Purpose: to give insurer sufficient information
to enable it, to issue the desired contract at a proper
price.
PRINTED FORM
-The policy shall be in printed form which INSURING AGREEMENTS
may contain blank spaces; and any word, phrase, -describe the characteristics of the events
clause, mark, sign, symbol, signature, number, covered.
or word necessary to complete the contract of -specify what the insurer promises to do
insurance shall be written on the blank spaces
provided therein (Sec. 50(1st par.), I.C). EXCLUSIONS
-these provisions exclude specified perils,
ELECTRONIC DOCUMENT property, sources of liability, persons losses,
- the policy may be in electronic form locations and time periods; impose limitations.
subject to the pertinent provisions of Republic
Act No. 8792, otherwise known as the CONDITIONS
‘Electronic Commerce Act’ and to such rules and -conditions that must be complied before
regulations as may be prescribed by the the insurer can be made liable and may describe
Commissioner. (Sec. 50(4th par.), I.C). the basis for computing the premium.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 21

POLICY V. NOTES POLICY FORM
-In Marine Insurance, the policy should be -The insurer is GENERALLY FREE TO PROVIDE for
distinguished in “Marine Risk Notes”----an the terms and conditions of the policies that it will
acknowledgment/ declaration confirming the specific issue so long as the same are not contrary to Law,
shipment covered by its Marine Open Policy, the Morals, Customs, and Public Policy.
evaluation of the cargo, and the chargeable premium. -Subject to the approval of the
Such note is not the policy itself. Insurance Commission
-(SEE. Section 226, Insurance Code)

DESIGNATION OF BENEFICIARY -In some cases, the Insurance Commission
-should be made in unequivocal terms approved STANDARD POLICIES that should be used
-RULES: Section 53, Insurance Code by the insurers.
The insurance proceeds shall be applied -(SEE. Circular Letter 14-93) - Standard
exclusively to the proper interest of the person in Fire Policy
whose name or for whose benefit it is made unless
otherwise specified in the policy. -In certain cases, the law provides for the
MANDATORY PROVISIONS
IDENTIFICATION OF THE INSURED -(SEE. Sections 233-235, I.C)
1. Individual life
-RULES ON THE DETERMINATION OF THE REAL 2. Endowment insurance
OWNER OF THE POLICY: 3. Group life
-Section 54. When an insurance contract is 4. Industrial life
executed with an AGENT OR TRUSTEE as the
insured, the fact that his principal or beneficiary
is the real party in interest may be indicated by RIDERS
describing the insured as agent or trustee, or by
other general words in the policy. -RULES REGARDING RIDERS, CLAUSES,
-Section 55. To render an insurance WARRANTIES OR ENDORSEMENTS THAT ARE NOT
effected by ONE PARTNER OR PART-OWNER, PART OF THE ORIGINAL PRINTED FORM BUT ARE
applicable to the interest of his co-partners or MERELY ATTACHED TO THE POLICIES:
other part-owners, it is NECESSARY that the -(SEE. Section 50 (2nd,3rd par.), I.C)
terms of the policy should be such as are
applicable to the joint or common interest. -REQUISITES for a rider, clause warranty or
endorsement to be binding:
1. the rider, clause warranty or
-WHEN THE INSURED IS NOT SPECIFICALLY endorsement is ATTACHED in the policy
IDENTIFIED:
-Section 56. When the description of the 2. the descriptive title or name of the rider,
insured in a policy is so general that it may clause, warranty or endorsement is MENTIONED
comprehend any person or any class of persons, AND WRITTEN ON THE LANK SPACES PROVIDED
only he who can show that it was intended to IN THE ORIGINAL PRINTED POLICY FORM.
include him, can claim the benefit of the policy.
3. If not applied for by the insured or
-Hence, it is a question of proof if the owner, the rider, clause, warranty or
person claims that he is one of those described endorsement issued after the original policy
as insured in general terms. shall be COUNTERSIGNED BY THE INSURED OR
OWNER.
-Thus, an insurance over a car may
designate the registered owner as the insured. -A rider is an endorsement to an insurance
In such case, it can easily be established by policy that modifies clauses and provisions of the
presenting the COR of the car. policy, including or excluding coverage.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 22

 Note: COVER NOTES
-if the requirements of -are interim or preparatory contracts of
Section 50 of the Insurance Code insurance
are complied with, they take -these are necessary because the insurer may
precedence over the original need more time to process the insurance
policy provisions. application.
-IN CASE REPUGNANCE -(SEE. Section 52, I.C.)
EXISTS BETWEEN WRITTEN AND
PRINTED PORTIONS OF POLICY, -REQUISITES:
THE WRITTEN PORTION PREVAILS. 1. the cover note shall be ISSUED OR
-A rider prevails over the RENEWED ONLY UPON PRIOR APPROVAL OF
printed clause it covers THE INSURANCE COMMISION.
2. Shall be VALID AND BINDING NOT MORE
THAN 60 days from the date of the issuance.
CONTRACT OF ADHESION 3. May be CANCELLED BY EITHER PARTY
-Insurance policies are contracts of adhesion upon prior notice to the other of at least 7 days
because one one part(insurer) prepares the written 4. Should be ISSUED WITHIN 60 days after
contract while the other party(insured) merely the issuance of the cover note
adheres to the contract. 5. The 60-day period MAY BE EXTENDED
-The conformity of the insured to the upon written approval of the Insurance
terms of the policy is implied from his Commission
failure to express any disagreement with
what is provided for therein. -WHEN APPROVAL IS DISPENSED WITH
-upon the certification of the president,
-RULE: injured persons may accept policies vice president or general manager of the insurer
without reading them, and that this is not negligence
per se. (Dura lex sed lex) NOTE: NO SEPARATE PREMIUM is required
-NO EXCEPTIONS for the cover note.


INTERPRETATION AND PROOF KINDS OF PROPERTY INSURANCE POLICY
-(Sections 60-62, I.C.)
INTERPRETATION
-any doubt should be resolved against the 1. VALUED POLICY
insurer and in favor of the insured. Since an -expresses the agreed valuation of the thing
insurance contract is a contract of adhesion. insured on the face of the policy
-Section 1377, I.C -binding on the parties
The interpretation of obscure words or -no part can establish a different valuation in
stipulations in a contract shall not favor the party case of loss
who caused the obscurity. -the measure of indemnity is the agreed
valuation and not the actual loss
PROOF -exception to the principle of indemnity
-if the terms and conditions of the policy is in -A LIFE INSURANCE POLICY is always a valued
question in a case, THE PARTY WHO SEEKS TO PROVE policy because the amount fixed in the policy is
SUCH TERMS AND CONDITIONS MUST PRESENT THE always not related to the actual loss.
POLICY during trial and formally offer it as evidence.
-the obligation to attach the policy to 2. OPEN POLICY
the complaint as an actionable document -sometimes called an “unvalued policy” because
and to present and offer the same APPLIES it is one in which the value is not fixed, but is
EVEN IF THE PLAINTIFF IS AN INSURANCE left to be definitely determined in case of loss.
COMOANY THAT IS TRYING TO RECOVER -No valuation of property is stipulated in an
BASED ON ITS RIGHT OF SUBROGATION. open policy.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 23

 -the insurer is only entitled to recover the
amount of the actual loss sustained by him as he -ACTUAL PERSONAL NOTICE to the insured
may be able to establish (there being no express is ESSENTIAL it is a condition precedent to a
evaluation in the policy). cancellation of the policy by the insurer.
-the actual loss will represent the total Consequently, a letter containing a notice of
indemnity due the insures from the insurer cancellation which is mailed by the insurer but
EXCEPT ONLY that the total indemnity shall not not received by the insured, is INEFFECTIVE AS
exceed the face value of the policy. CANCELLATION.

3. RUNNING POLICY -RECEIPT OF NOTICE BY BROKER:
-this policy is a typical running policy where the -GENERAL RULE: not binding on
extent of the property insured shall be defined from the insured.
time to time because of the nature of the business -EXCEPTION: notice can be given
that is being insured. to the broker PROVIDED that the
broker is authorized in writing by the
*read problems given in the book for policy owner to receive the notice of
this topic. :) cancellation on his behalf.


CANCELLATION -CANCELLATION OF THE INSURED
-Cancellation of property insurance should be -while section 64 deals only with the
made in accordance with Sections 64 and 65 of the right of the insurer to cancel the policy, it
Insurance Code. does not follow that the insured cannot
cancel the policy.
-REQUISITES OF CANCELLATION: -RIGHT TO SURRENDER THE POLICY
1. prior notice of cancellation to insured (SEE. Sec. 80, Insurance Code).
2. Notice must be base on the occurrence
after effective date of the policy of one or more
of the grounds mentioned in Sec. 64. RENEWAL OF POLICY
3. Notice must e in writing, mailed or -The insured has the RIGHT TO RENEW A
delivered to the name insured at the address NON-LIFE INSURANCE POLICY by simply PAYING THE
shown in the policy or to his broker is PREMIUM DUE ON THE EFFECTIVE DATE OF THE
authorized in writing in the policy owner to RENEWAL.
receive the notice of cancellation on his behalf. -HOWEVER, the insured will not
4. Notice must state the grounds relied have any right if NOTICE OF THE
upon provided in Section 64 of the Insurance INTENTION NOT TO RENEW IS GIVEN
Code and upon request of insured, to furnish BY THE INSURER AT LEAST 45 DAYS
facts on which cancellation is based. PRIOR EXPIRATION OF THE POLICY.
(See. Sec. 45, insurance Code)
NOTES:
-SECTION 64 APPLIES ONLY TO PROPERTY
INSURANCE, however some of the grounds REFORMATION OF THE POLICY
stated may apply in life insurance such as the -It may happen that what was agreed upon is
cancellation of policy for non-payment of different from what is written in the policy. In such
premium, fraud or material misrepresentation. case, the Court would have the power to reform the
contracts and give effect to them in the sense in
-SECTION 65 requires a statement of the which the parties intended to be bound.
grounds relied upon. NEVERTHELESS, so long as Note: In order to justify this, it
the ground is stated, written notice to the must be clearly made to appear that
insured need not be in any particular form in the minds of the contracting parties
order to form the basis for the cancellation of a did not actually meet in agreement
policy. and they labored under some mutual

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 24

 error or mistake in respect to the
expression of their purpose.

MISTAKE
-It is also possible for the insured to recover
even if there was a mistake. It is NOT NECESSARY
that there be reformation of the policy.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 25