INSURANCE BAR REVIEW 2016

Ateneo de Davao
College of Law
Insurance Code of 2013
• REPUBLIC ACT NO. 10607

• AN ACT STRENGTHENING THE INSURANCE

INDUSTRY, FURTHER AMENDING PRESIDENTIAL
DECREE NO. 612, OTHERWISE KNOWN AS "THE
INSURANCE CODE", AS AMENDED BY PRESIDENTIAL
DECREE NOS. 1141, 1280, 1455, 1460, 1814 AND 1981,
AND BATAS PAMBANSA BLG. 874, AND FOR OTHER
PURPOSES
Syllabus for 2015 Bar Examination
• A. Concept of Insurance

• B. Elements of an Insurance Contract

• C. Characteristics/Nature of Insurance Contracts

• D. Classes
1. Marine
2. Fire
3. Casualty
4. Suretyship
5.Life
6. Compulsory Motor Vehicle Liability Insurance
Syllabus for 2015 Bar Examination
•E. Insurable Interest
1. In Life/Health
2. In Property
3. Double Insurance and Over Insurance
4. Multiple or Several Interests on Same Property

•F. Perfection of the Contract of Insurance

1. Offer and Acceptance/Consensual

a. Delay in Acceptance
b. Delivery of Policy

2. Premium Payment
Syllabus for 2015 Bar Examination
•3. Non-Default Options in Life Insurance

•4. Reinstatement of a Lapsed Policy of Life Insurance

•5. Refund of Premiums

•G. Rescission of Insurance Contracts

1. Concealment
2. Misrepresentation/Omissions
3. Breach of Warranties

•H. Claims Settlement and

1. Notice and Proof of Loss

2. Guidelines on Claims Settlement
a. Unfair Claims Settlement; Sanctions
b. Prescription of Action
c. Subrogation
Framework

General Non-Life
Non-Life
Life Insurance
Concepts Insurance

Summary of
Payment of Grounds for
Amendments in
Proceeds Rescission
Insurance Code

PDIC Law
 Insurance Code
• General principles

• Life Insurance

• Non-Life Insurance

• Payment of Proceeds

• Rescission of insurance contracts

IMPORTANT CONCEPTS

• Differences between life and non-life insurance

• What is insurable interest
• No-fault Indemnity Clause
• Special rules in Industrial Life
• Incontestability Clause
• Unfair Settlement Practices Act
• Illegal Acts in Collecting Claims
IMPORTANT CONCEPTS
• Coverage under PDIC Law
• Cash and Carry Rule
• Effect of grace period
• Cover notes Test of Materiality
• Double Insurance
• Rule in case of suicide
• Ratable return of premiums
PART ONE:
GENERAL
PRINCIPLES
 Concept

• An agreement whereby one undertakes for a

consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event.

• A contract of suretyship is deemed an insurance

contract only if made by a surety who or which is
doing an insurance business as a vocation.
Elements

•The insured has insurable interest or

interest of some kind susceptible of
pecuniary estimation

•The insured is subject to a risk of loss

caused by the happening of the
designated perils;
Elements
• The insurer assumes the risk of loss;

• Assumption is part of a general scheme to

distribute actual losses among a large group
of persons bearing somewhat similar risks;

• As consideration for the insurer’s promise,

the insured pays the premium
 Philippine HealthCare v. CIR
• ISSUE: Is a healthcare agreement in the nature of a
contract of insurance?

• FACTS: Individuals enrolled in its health care programs

pay an annual membership fee.
• They are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed
physicians, specialists and other professional technical
staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or
accredited by it.
 Philippine HealthCare v. CIR

• The DST under Section 185 of the 1997 Tax Code is imposed
on the privilege of making or renewing any policy of
insurance (except life, marine, inland and fire insurance),
bond or obligation in the nature of indemnity for loss,
damage, or liability.

• RULING: The health care agreement is primarily a contract

of indemnity. A health care agreement is in the nature of a
non-life insurance policy.
Bar 2011
•In return for the 20 years of faithful
service of X as a househelper to Y, the
latter promised to pay Php100,000.00 to
X’s heirs if he (X) dies in an accident by
fire. X agreed. Is this an insurance
contract?
Bar 2011
•A. Yes, since all the elements of an
insurance contract are present.
•B. Yes, since X’ services may be regarded
as the consideration.
C. No, since Y actually made a conditional
donation in X’s favor.
D. No, since it is in fact an innominate
contract between X and Y.
Answer
•C. No, since Y actually made a
conditional donation in X’s favor.
Principle of Subrogation

•Process of legal substitution

•The insurer, after paying the amount

covered by the policy, steps into the
shoes of the insured
 Principle of Subrogation

•Insurer avails of the rights of the

insured against the wrongdoer

•Insured CANNOT recover from

offender what was paid by insurer but
can recover any deficiency.
Principle of Subrogation

•Applicable only in non-life

insurance (Philamgen v. CA)
Instances when subrogation is not applicable
• a. When the insurer pay the insured for a loss not
covered by the policy.

• b. The insurer by his own act releases the

wrongdoer.

• c. In case of life insurance.

• d. Recovery of loss in excess of the limits provided

by the policy.
Bar 2011
• Where the insurer was made to pay the
insured for a loss covered by the
insurance contract, such insurer can run
after the third person who caused the
loss through subrogation. What is the
basis for conferring the right of
subrogation to the insurer?
Bar 2011
• A. Their express stipulation in the contract of insurance.

• B. The equitable assignment that results from the insurer’s

payment of the insured.

• C. The insured’s formal assignment of his right to indemnification to

the insurer.

• D. The insured’s endorsement of its claim to the insurer.

Answer

•B. The equitable assignment that results

from the insurer’s payment of the
insured.
Bar 2014
•ELP Insurance, Inc. issued Marine Policy No. 888 in favor of FCL Corp.
to insure the shipment of 132 bundles of electric copper cathodes
against all risks. Subsequently, the cargoes were shipped on board the
vessel "M/V Menchu" from Leyte to Pier 10, North Harbor, Manila.

•Upon arrival, FCL Corp. engaged the services of CGM, Inc. for the
release and withdrawal of the cargoes from the pier and the
subsequent delivery to its warehouses/plants in Valenzuela City. The
goods were loaded on board twelve (12) trucks owned by CGM, Inc.,
driven by its employed drivers and accompanied by its employed truck
helpers. Of the twelve (12) trucks en route to Valenzuela City, only
eleven (11) reached the destination. One (1) truck, loaded with eleven
(11) bundles of copper cathodes, failed to deliver its cargo.
Bar 2014
•Because of this incident, FCL Corp. filed with ELP Insurance, Inc.
a claim for insurance indemnity in the amount of P1,500,000.00.
After the requisite investigation and adjustment, ELP Insurance,
Inc. paid FCL Corp. the amount of P1,350,000.00 as insurance
indemnity.

•ELP Insurance, Inc., thereafter, filed a complaint for damages

against CGM, Inc. before the Regional Trial Court (RTC), seeking
reimbursement of the amount it had paid to FCL Corp. for the
loss of the subject cargo. CGM, Inc. denied the claim on the basis
that it is not privy to the contract entered into by and between
FCL Corp. and ELP Insurance, Inc., and hence, it is not liable
therefor. If you are the judge, how will you decide the case? (4%)
Suggested Answer
•If I were the judge, I will rule in favor of ELP.
While it is true that CGP is not privy to the
contract of ELP and FCL, ELP has the right of
subrogation.

•In insurance law, an insurer, after paying the

claim of an insured, by process of legal
substitution, steps into the shoes of the insured
and can proceed against an erring party or the
one who caused the loss.
Nature and Characteristics
• Aleatory
• Contract of indemnity for non-life and an
investment for life insurance
• Personal
• Executory and conditional on the part of
the insurer
• Uberrimae fides
• Adhesion
Bar 2012
• An insurance contract is an aleatory contract, which means:
A. The insurer will pay the insured equivalent to the amount
of premium paid
B. The obligation of the insurer is to pay depending upon the
happening of an uncertain future event
C. The insured pays a fixed premium for the duration of the
policy period and the amount of premiums paid to the insurer
is not necessarily the same amount that the insured will get
upon the happening of an uncertain future event

D. The obligation of the insurer is to pay dependent upon the

happening of an event which is certain to happen
Answer
•Aleatory- A contract whose performance
by one party depends on the occurrence
of an uncertain contingent event

•ANSWER: B. The obligation of the insurer

is to pay depending upon the happening
of an uncertain future event
Rule of Construction

• Doubts are resolved in favor of the insured

• Since a contract of insurance is a contract of

adhesion, any obscure word or stipulation in the
insurance policy shall be resolved against the
insurance company which drafted the terms
thereof (AMERICAN HOME V. TANTUCO, OCTOBER
8, 2001)
Fortune Care v. Amorin, March 12, 2014
• Amorin is a holder of a Fortune Care healthcard, issued by his employer, the
House of Representatives.

• While in Hawaii, Amorin had to undergo an emergency surgery, an

appendectomy.

• He spent professional and hospitalization expenses of US$7,242.35 and

US$1,777.79, respectively.

• He sought reimbursement from Fortune Care, which denied the claim. The
denial was based on the contention that the Health Care Contract did not
cover hospitalization costs and professional fees incurred in foreign
countries, as the contract’s operation was confined to Philippine
territory.Further, it argued that its liability to Amorin was extinguished upon
the latter’s acceptance from the company of the amount of P12,151.36.
Fortune Care v. Amorin, March 12, 2014
• SC: In the absence of any qualifying word that clearly limited Fortune
Care's liability to costs that are applicable in the Philippines, the
amount payable by Fortune Care should not be limited to the cost of
treatment in the Philippines, as to do so would result in the clear
disadvantage of its member. If, as Fortune Care argued, the premium
and other charges in the Health Care Contract were merely computed
on assumption and risk under Philippine cost and, that the American
cost standard or any foreign country's cost was never considered,
such limitations should have been distinctly specified and clearly
reflected in the extent of coverage which the company voluntarily
assumed. This was what Fortune Care found appropriate when in its
new health care agreement with the House of Representatives,
particularly in their 2006 agreement, the provision on emergency care
in non-accredited hospitals was modified to read as follows:
Fortune Care v. Amorin, March 12, 2014
• However, if the emergency confinement occurs in a foreign
territory, Fortunecare will be obligated to reimburse or pay one
hundred (100%) percent under approved Philippine Standard
covered charges for hospitalization costs and professional fees but
not to exceed maximum allowable coverage, payable in pesos at
prevailing currency exchange rate at the time of availment in said
territory where he/she is confined. x x x 24

• Settled is the rule that ambiguities in a contract are interpreted

against the party that caused the ambiguity. "Any ambiguity in a
contract whose terms are susceptible of different interpretations
must be read against the party who drafted it.”
Bar 2012
• An insurance contract is a contract of adhesion, which means in
resolving ambiguities in the provision of the insurance contract –
A. The general rule is that, the insurance contract is to be
interpreted strictly in accordance with what is written in the
insurance contract
B. Are to be construed liberally in favor of the insured and strictly
against the insurer who drafted the insurance policy
C. Are to be construed strictly against the insured and liberally in
favor of the insurer
D. If there is an ambiguity in the insurance contract, this will
invalidate the contract
ANSWER: B
Statute of Limitations

•General Rule: 10 YEARS from the

time the cause of action accrues.

•Exception: Period may be increased

or decreased BUT
 Statute of Limitations

•In industrial life: cannot be shorter

than SIX YEARS

•in all other kinds of insurance:

cannot be shorter than ONE YEAR.
“Right of Action Accrues”

•Period is reckoned from the time of the

denial of the claim by the insurer (Vda de
Gabriel v. CA)

•If there was no denial of the claim, right

of action does not accrue
“Doing an Insurance Business”
• making or proposing to make, as insurer, any
insurance contract;

• making or proposing to make, as surety, any

contract of suretyship as a vocation and not
merely incidental to any other legitimate
business or activity of the surety.
 “Doing an Insurance Business”
• doing any kind of business, including a reinsurance
business, specifically recognized as doing insurance
business

• doing or proposing to do any business in substance

equivalent to any of the foregoing

• An entity can still be deemed engaged even if he

does not derive any profit from the activity
NEW
MICROINSURANCE
•Section 187. 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 seven and a half percent (7.5%) of
the current daily minimum wage rate for
nonagricultural workers in Metro Manila; and
NEW
MICROINSURANCE
•(b) The maximum sum of guaranteed benefits is
not more than one thousand (1,000) times of the
current daily minimum wage rate for
nonagricultural workers in Metro Manila.
•Section 188. No insurance company or mutual
benefit association shall engage in the business
of microinsurance unless it possesses all the
requirements as may be prescribed by the
Commissioner. The Commissioner shall issue such
rules and regulations governing microinsurance.
Regulation of the Insurance Business
•Insurance business is impressed with
public interest.

•The public must be protected against

insolvency or unfair treatment by
insurers.
Regulation of the Insurance Business

•Insurance Commission is tasked to

regulate the conduct of insurance
business through licensing, examination,
investigation and revocation
NEW

Regulation of the Insurance Business

The Commission is authorized to issue a certificate

of authority which shall expire on the last day of
December, 3 years following its date of issuance,

This shall be renewable every 3 years thereafter,

subject to the company’s continuing compliance
with the provisions of this Code, circulars,
instructions, rulings or decisions of the Commission.
NEW

No LGU interference
• "No insurance company issued with a valid certificate of authority to
transact insurance business anywhere in the Philippines by the
Insurance Commissioner, shall be barred, prevented, or
disenfranchised from issuing any insurance policy or from
transacting any insurance business within the scope or coverage of
its certificate of authority, anywhere in the Philippines,

• by any local government unit or authority, for whatever guise or

reason whatsoever, including under any kind of ordinance,
accreditation system, or scheme. Any local ordinance or local
government unit regulatory issuance imposing such restriction or
disenfranchisement on any insurance company shall be deemed null
and void ab initio.
 NEW

FINANCIAL REPORTING FRAMEWORK

• All companies regulated by the Commission, should comply
with the financial reporting frameworks adopted by the
Commission for purposes of creating the statutory financial
reports and the annual statements to be submitted to the
Commission.
• “Financial reporting framework” means a set of accounting
and reporting principles, standards, interpretations and
pronouncements that must be adopted in the preparation and
submission of the statutory financial statements and reports
required by the Commission.
• Not the same as financial reporting framework used to
prepare the financial statements of SEC.
NEW

FINANCIAL REPORTING FRAMEWORK

• Main purpose of the statutory statements: to present
important information about the level of risk and solvency
situation of insurers.
• In prescribing the applicable statutory financial reporting
framework, the Commissioner shall take into account
international standards concerning solvency and insurance
company reporting as well as generally accepted actuarial
principles concerning financial reporting promulgated by the
Actuarial Society of the Philippines.
• The assets and investments discussed in Sections 204 to 215
shall be accounted for in accordance with this section.
• "The valuation of reserves shall be accounted for in
accordance with Title 5 of this Code.
NEW

Regulation of Bancassurance
• Section 375. The term bancassurance shall mean the
presentation and sale to bank customers by an insurance
company of its insurance products within the premises of the
head office of such bank duly licensed by the Bangko Sentral
ng Pilipinas or any of its branches under such rules and
regulations which the Commissioner and the Bangko Sentral
ng Pilipinas may promulgate.

• To engage in bancassurance arrangement, a bank is not

required to have equity ownership of the insurance company.
No insurance company shall enter into a bancassurance
arrangement unless it possesses all the requirements as may
be prescribed by the Commissioner and the Bangko Sentral ng
Pilipinas.
 NEW

Regulation of Bancinsurer
• No insurance product under this section, whether life or non-life,
shall be issued or delivered unless in the form previously approved
by the Commissioner.

• Section 376. Personnel tasked to present and sell insurance

products within the bank premises shall be duly licensed by the
Commissioner and shall be subject to the rules and regulations of
this Act.

• "Section 377. The Commissioner and the Bangko Sentral ng Pilipinas

shall promulgate rules and regulations to effectively supervise the
business of bancassurance.
Consequences of Bancassurance provisions
• To engage in a bancassurance arrangement, a bank is not required anymore to have
equity ownership of the insurance company. Previously, pursuant to BSP Circular 357
(dated 8 November 2002), only insurance companies which are affiliates of banks can
engage in cross-selling.

• Nonetheless, insurance companies cannot enter into a bancassurance arrangement

unless it possesses all the requirements as may be prescribed by the Insurance
Commission and the BSP.

• All bancassurance products, whether life or non-life, are required to be issued or

delivered in the form previously approved by the Insurance Commission.

• Personnel tasked to present and sell insurance products within the bank premises must
be duly licensed by the Insurance Commission. Such personnel will also be subject to
the rules and regulations of RA 10607 to be promulgated by the Insurance Commission
and the BSP.
NEW

Regulation of Insurance-Related Entities

• The Commissioner shall have the power to register as a self-
regulatory organization, or otherwise grant licenses, and to
regulate, supervise, examine, suspend or otherwise
discontinue, as a condition for the operation of organizations
whose operations are related to or connected with the
insurance market such as, but not limited to, associations of
insurance companies, whether life or non-life, reinsurers,
actuaries, agents, brokers, dealers, mutual benefit
associations, trusts, rating agencies, and other persons
regulated by the Commissioner, which are engaged in the
business regulated by this Code.
NEW

Regulation of Insurance-Related Entities

• "The Commissioner may prescribe rules and
regulations which are necessary or appropriate in the
public interest or for the protection of investors to
govern self-regulatory organizations and other
organizations licensed or regulated pursuant to the
authority granted hereunder including, but not
limited to, the requirement of cooperation within and
among all participants in the insurance market to
ensure transparency and facilitate exchange of
information.
NEW

Regulation of Insurance-Related Entities

Section 431. An association cannot be registered as a self-regulatory organization unless the
Commissioner determines that:
(a) The association is so organized and has the capacity to be able to carry out the purposes
of this Code and to comply with, and to enforce compliance by its members and persons
associated with its members, with the provisions of this Code, the rules and regulations
thereunder, and the rules of the association.

(b) The rules of the association, notwithstanding anything in the Corporation Code to the
contrary, provide the following:

(1) Qualifications and the disqualifications on membership of the association;

(2) A fair representation of its members to serve on the board of directors of the association
and the administration of its affairs, and that any natural person associated with a juridical
entity that is a member shall also be deemed to be a member for this purpose;
(3) Fair procedure for the disciplining of members and persons associated with members; and
(4) The prohibition or limitation of access to services offered by the association or a member
thereof.
NEW

Regulation of Insurance-Related Entities

(5) The president of the association and at least two (2) independent
directors as members of the board of directors of the association;

(6) Equitable allocation of reasonable dues, fees, and other charges

among members and other persons using any facility or system which the
association operates or controls;

(7) The prevention of fraudulent and manipulative acts and practices to

protect the insuring public and the promotion of just and equitable
principles of business;

(8) Members and persons associated with its members subject to

discipline for violation of any provision of this Code, the rules or
regulations thereunder, or the rules of the association;
NEW

Regulation of Insurance-Related Entities

Section 432. A self-regulatory organization may examine
and verify the qualifications of an applicant to become a
member in accordance with procedures established by the
rules of the association.
A self-regulatory organization shall deny membership or
condition the membership of an entity, if it does not meet
the standards of financial responsibility, operational
capability, training, experience, or competence that are
prescribed by the rules of the association; or has engaged,
and there is a reasonable likelihood it will again engage, in
acts or practices inconsistent with just and equitable
principles of fair trade.
NEW

CAPITALIZATION
SECTION 194

PAID-UP CAPITAL FOR NEW domestic life or non-life insurance

company shall, in a stock corporation: One billion pesos;
(P1,000,000,000.00): Provided,

Domestic insurance company already doing business in the

Philippines;
net worth by June 30, 2013- P250 Million
by December 31, 2016- an P300 Million worth
By December 31, 2019- an additional P350 Million worth
By December 31, 2022- an additional P400 Million worth
NEW

CAPITALIZATION
• Pre-licensing requirement of a new insurance
company, in addition to the paid-up capital stock,
require the stockholders to pay in cash to the
company in proportion to their subscription interests
a contributed surplus fund of not less than P100
Million

• May also require such company to submit to him a

business plan showing the company’s estimated
receipts and disbursements, as well as the basis
therefor, for the next succeeding (3) years.
NEW

CAPITALIZATION
SECTION 197 Foreign Corporations

Unimpaired capital or assets and reserve: P1 Billion nor

until it shall have deposited with the Commissioner for
the benefit and security of the policyholders and
creditors of such company in the Philippines, securities
satisfactory to the Commissioner consisting of good
securities of the Philippines, including new issues of
stock of "registered enterprises” as this term is defined
in E.O. 226 of 1987, as amended, to the actual market
value of not less than the amount herein required
NEW

CAPITALIZATION
Section 289.

Any partnership, association, or corporation authorized to

transact solely reinsurance business must have a
capitalization of at least Three billion pesos
(P3,000,000,000.00) paid in cash of which at least fifty
percent (50%) is paid-up and the remaining portion
thereof is contributed surplus, which in no case shall be
less than Four hundred million pesos, (P400,000,000.00)
or such capitalization as may be determined by the
Secretary of Finance, upon the recommendation of the
Commissioner:
NEW

CAPITALIZATION

Provided , That (25%) of the paid-up capital must be invested in

securities satisfactory to the Commissioner, consisting of bonds or
other instruments of debt of the Government of the Philippines or
its political subdivisions or instrumentalities, or of government-
owned or -controlled corporations… Provided, That aforesaid
capital requirement is without prejudice to other
requirements to be imposed under any risk-based capital
method that may be adopted by the Commissioner: Provided,
finally, That the provisions of this chapter applicable to insurance
companies shall as far as practicable be likewise applicable to
professional reinsurers.
NEW

CAPITALIZATION
No mutual benefit association shall be
issued a license to operate as such unless it
has constituted and established a Guaranty
Fund by depositing with the Commissioner
an initial minimum amount of Five million
pesos (P5,000,000.00) in cash, or in
government securities with a total value
equal to such amount, to answer for any
valid benefit claim of any of its members.
Bar 2011

• A group of Malaysians wanted to invest in the

Philippines’ insurance business. After negotiations, they
agreed to organize "FIMA Insurance Corp." with a group
of Filipino businessmen. FIMA would have a PhP50
Million paid up capital, PhP40 Million of which would
come from the Filipino group. All corporate officers
would be Filipinos and 8 out of its 10-member Board of
Directors would be Filipinos. Can FIMA operate an
insurance business in the Philippines?
Bar 2011
• A. No, since an insurance company must have at least PhP75 Million
paid-up capital.

• B. Yes, since there is substantial compliance with our

nationalization laws respecting paid-up capital and Filipino
dominated Board of Directors.
• C. Yes, since FIMA’s paid up capital more than meets the country’s
nationalization laws.

• D. No, since an insurance company should be 100% owned by

Filipinos.
Answer
•A. No, since an insurance company must
have at least PhP75 Million paid-up capital
(based on DO 27-06).
What may be insured against

DAMNIFY A PERSON OR CREATE

LIABILITY AGAINST HIM

CONTINGENT UNKNOWN
EVENT EVENT
Contingent Event

• An event which may or may not happen

• Example: Fire, accident, sinking of a ship,

theft
Unknown event

• An event which is certain to happen

• Aspect of being unknown is WHEN it will happen

• Example: Death
Damnify v. Create a liability

•Damnify - direct loss of a person

•Create a liability - expose the person to

liability to third persons. E.g. third party
liability insurance
 NEW

Insurance by a married person

•May take out an insurance on his/her life

or that of her children or that of his/her
spouse without the consent of his/her
spouse
Insurance by a minor
(Sec. 3)

• Any minor may

• contract for life, health and accident insurance, with
any insurance company duly authorized to do
business in the Philippines
• provided the insurance is taken on his own life and
• the beneficiary appointed is the minor's estate or
the minor's father, mother, husband, wife, child,
brother or sister.
Rights
NEW of minor under life insurance
policies
• When there is a contract of life, health, or accident insurance involving a
minor

• The minor’s judicial guardian, father, or in the latter’s absence or

incapacity, the mother

• In the absence of parents and grandparents, the eldest brother or sister at

least eighteen (18) years of age, or any relative who has actual custody of
the minor insured or beneficiary

• May obtain a policy loan, surrendering the policy, receiving the proceeds of
the policy, and giving the minor's consent to any transaction on the policy

• If the amount does not exceed P500,000.00

Insurance by a minor

•A property insurance taken by a minor is

voidable or valid until annulled (1390)

•If contract is not disaffirmed, insurer

cannot invoke minority to escape
liability.
Bar 2012
• X, a minor, contracted an insurance on his own life. Which
statement is most accurate?

• The life insurance policy is void ab initio.

• The life insurance is valid provided it is with the consent of the

beneficiary.

• The life insurance policy is valid provided the beneficiary is his

estate or his parents, or spouse or child.

• The life insurance is valid provided the disposition of the proceeds

will be subject to the approval of the legal guardian of the minor.
ANSWER

•The life insurance policy is valid provided

the beneficiary is his estate or his parents,
or spouse or child.
 Life Individual

Group

Industrial
Insurance
Marine

Casualty

Fire
Non-Life
Suretyship
NEW
Life Insurance

• Insurance on human lives and insurance appertaining

thereto or connected therewith

• Every contract or undertaking for the payment of annuities

including contracts for the payment of lump sums under a
retirement program where a life insurance company
manages or acts as a trustee for such retirement program
shall be considered a life insurance contract for purposes
of this Code.
Classes
1. Individual – protection is based on individual
application.
2. Group – unit of selection is the group rather
than the individual, blanket policy covering a
number of individuals
3. Industrial – premiums are payable either
monthly or oftener if the face amount of insurance
is not more than 500 times the current statutory
minimum wage in Metro Manila.
Non-Life

•Property insurance or insurance

whose object is other than a
person’s life or where the covered
peril is something other than death
Types: Fire

•Includes insurance against loss by fire,

lightning, windstorm, tornado or
earthquake and other allied risks, when
such risks are covered by extension to
fire insurance policies or under separate
policies
Types: Casualty

•Covers loss or liability arising from

accident or mishap, excluding certain
types of loss which by law or custom are
considered as falling exclusively within
the scope of other types of insurance
such as fire, marine.
Types: Casualty

• Includes but is not limited to employers’

liability insurance, workmen’s compensation
insurance, public liability insurance, motor
vehicle liability insurance, plate glass
insurance, burglary and theft insurance,
personal accident and health insurance written
by non-life companies.
Casualty: Compulsory Motor Vehicle
Liability OR Third Party Liability
• Insurance against passenger and third party
liability for death or bodily injuries arising
from motor vehicle accidents
• Required before an owner or operator can
use his vehicle
• Required in registration or renewal of
registration
Bar 2014
• As a rule, an insurance contract is consensual and
voluntary. The exception is in the case of: (1%)
• (A) Inland Marine Insurance
• (B) Industrial Life Insurance
• (C) Motor Vehicle Liability Insurance
• (D) Life Insurance
Answer
• (C) Motor Vehicle Liability Insurance
Compulsory Motor Vehicle Liability OR Third
Party Liability
Land transportation operator, the insurance guaranty in cash or surety bond shall
cover liability for death or bodily injuries of third-parties and/or passengers arising
out of the use of such vehicle in the amount not less than Twelve thousand pesos
(P12,000.00) per passenger or third -party and an amount, for each of such
categories, in any one accident of not less than that set forth in the following scale :
• (1) Motor vehicles with an authorized capacity of twenty-six (26) or more
passengers: Fifty thousand pesos; (P50,000.00);

• (2) Motor vehicles with an authorized capacity of from twelve (12) to twenty-five
(25) passengers: Forty thousand pesos; (P40,000.00);

• (3) Motor vehicles with an authorized capacity of from six (6) to eleven (11)
passengers: Thirty thousand pesos; (P30,000.00);

• (4) Motor vehicles with an authorized capacity of five (5) or less passengers: Five
thousand pesos (P5,000.00) multiplied by the authorized capacity.
Compulsory Motor Vehicle Liability OR Third
Party Liability
• (1) Private Cars

• (i) Bantam: Twenty thousand pesos (P20,000.00);

• (ii) Light: Twenty thousand pesos (P20,000.00); and

• (iii) Heavy: Thirty thousand pesos (P30,000.00).

Compulsory Motor Vehicle Liability OR Third
Party Liability
• (2) Other Private Vehicles
• (i) Tricycles, motorcycles and scooters: Twelve
thousand pesos (P12,000.00);
• (ii) Vehicles with an unladen weight of 2,600 kilos
or less: Twenty thousand pesos (P20,000.00);
• (iii) Vehicles with an unladen weight of between
2,601 kilos and 3,930 kilos: Thirty thousand pesos
(P30,000.00); and
• (iv) Vehicles with an unladen weight over 3,930
kilos: Fifty thousand pesos (P50,000.00).
Types: Marine

• vessels, craft, aircraft, vehicles, goods, freights, cargoes,

merchandise, effects, bottomry, respondentia interests

• person or property in connection with or appertaining to

marine, inland marine, transit or transportation insurance but
excludes life insurance or surety bonds or insurance against loss
by reason of bodily injury to any person who arising out of
ownership, maintenance or use of automobiles
Types: Marine

• precious stones, jewels, jewelry, precious metals,

whether in the course of transportation OR otherwise

• bridges, tunnels and other instrumentalities of

transportation and communication (excluding
buildings, furniture and furnishings fixed contents
and supplies held in storage), piers, wharves, docks
and slips other aids of navigation, dru docks, marine
railways, dams
Types: Suretyship
• An agreement whereby a party called the
surety guarantees the performance of
another party called the principal or obligor of
an obligation or undertaking in favor of a
third party called the obligee.

• Includes official recognizances, stipulations,

bonds or undertakings issued by any company
At a glance
• In an insurance contract, a person indemnifies
another person for his loss, damage or liability

• Any contingent or unknown event which may

damnify a person or create a liability against him
may be insured

• The two main kinds of insurance are life and non-

life insurance
At a glance

• A person can sue based on an insurance contract within 10

years from the time the right of action accrues

• 10-year period may be longer or shorter but generally, cannot

be shorter than one year and in industrial life, cannot be
shorter than 6 years

• Doubts in interpreting insurance contracts are resolved in

favor of the insured
Framework

General Non-Life
Life Insurance
Concepts Insurance

Summary
Summary of
of
Payment of Grounds for
Amendments
Amendments in in
Proceeds Rescission
Insurance
Insurance Code
Code

PDIC
PDIC Law
Law
PART TWO:
LIFE INSURANCE
 Procedure

Agent offers a person a life insurance

policy
1
The person files an application for a policy.
He is required to pay the first premium when
he applies
2
Insurance company approves the application and issues a policy
in favor of the person. In case of disapproval, the premium is
returned to the person
Procedure

In case the contingency happens, either the policyholder

or his designated beneficiaries claim from the policy
3
The claim is either granted or denied
by the insurance company
4
If denied, the claimant may file a case either in the insurance
commission or the regular courts depending on the amount of
the claim
Topics in Stages 1 and 2
•What may be insured against
•Rule in case of death by suicide
•Insurable Interest
•Parties
•Kinds of life insurance
•Kinds of life insurance policies
Concept

•Life Insurance - insurance on

human lives and insurance
appertaining thereto or
connected therewith
 NEW

Concept
• Every contract or undertaking for the payment
of annuities including contracts for the
payment of lump sums under a retirement
program where a life insurance company
manages or acts as a trustee for such
retirement program shall be considered a life
insurance contract for purposes of this Code.
Classes
1. Individual – protection is based on individual
application.
2. Group – unit of selection is the group rather
than the individual, blanket policy covering a
number of individuals
3. Industrial – premiums are payable either
monthly or oftener if the face amount of insurance
is not more than 500 times the current statutory
minimum wage in Metro Manila.
Contingencies

• death

• survival of a specific period

• continuance or cessation of life

What may be insured against?

•Actual death

•Living death

•Retirement death
Actual Death

Cessation of life

Best proof of death: death certificate

Policy matures upon the death of the

insured
Living Death

•When the insured suffers from

disability due to disease or accident
which prevents him from engaging in
any lawful occupation

•Partakes the nature of health and

disability benefits
Living Death:
Accident and Health

Health, accident and disability

insurance are deemed as both life
and non-life insurance and such
may be issued by either life or
non-life insurance companies (Sec.
193, 9th par).
Living Death:
Accident and Health

Deemed life insurance when

death is one of the risks
insured against (Gallardo v.
Morales)
Accident

An event which happens without any

human agency or, if happening through
human agency, an event which under the
circumstances, is unusual and not expected
by the person to whom it happens by
reason of some violence or casualty to the
insured without his design, consent or
voluntary cooperation (Sun Insurance v. CA)
Death by suicide: compensable?

• General Rule: NO.

• BASIS:
• Sec. 89 which provides that an insurer is not liable if
loss is caused by willful act or connivance of the
insured; and

• the Rules of Court which provides that a person is

presumed to intend the consequences of his
voluntary acts
 When is suicide compensable?
Section 183
• If insured was not in his right mind/insane at the
time of suicide

• If insured committed suicide after the policy has

been effective for at least 2 years from issuance or
last reinstatement

• Note: The 2-year period can be shortened but not

lengthened
Bar 2012
X, on January 30, 2009, or two years before reaching the age of
65, insured his life for P20 Million. For reasons unknown to his
family, he took his life 2 days after he reached 65. The policy
contains no excepted risk. Which statement is most accurate?
A. The insurer will be liable
B. The insurer will not be liable
C. The state of sanity of the insured is relevant in order to hold
the insurer liable
D. The state of sanity of the insured is irrelevant in order to
hold the insurer liable
ANSWER
•The insurer will be liable. The suicide was
committed after the two-year period
from the time the policy was obtained.
Further, there is no excepted risk
provision in the policy. Hence, the
beneficiaries are entitled to the proceeds.
Retirement Death

Life Annuity – debtor binds himself to pay

annual pension or income during the life of
one or more determinate persons in
consideration of a capital consisting of
money or other property, whose ownership
is transferred to him at once with the
burden of income (Art. 2021, Civil Code)
Dynamics in Life Annuity

Insurer
•• Annuitant
Annuitant gives
gives • Death of annuitant
money
money to
to insurer
insurer or appointed
• Insurer becomes the persons
debtor extinguishes
• Insurer must give obligation to give
pension to pension
annuitant or
End of
Annuitant designated person
obligation
Retirement Death

Annuitant gives money or property to the insurer

Insurer now becomes the debtor, and has the obligation

to give annual pension or income to either the annuitant
or another person

The obligation of insurer to give pension stops upon the

death of the annuitant
INSURABLE INTEREST
Insurable Interest in Life
• A person cannot insure just anyone he wants

• One has to establish that he stands to suffer some

loss because of the death of a person

• Insurable interest ensures that a person can

only get a policy on the life of someone
whose death will produce loss
Concept

• Relation between the insured and a

particular event such that the happening
of the event will damnify or cause loss to
the person

• PURPOSE FOR THE CONCEPT:

• To avoid wagering
• To avoid temptation of bringing about the
event
On whose life does a person have
insurable interest?
•himself, spouse, children

•person on whom he depends wholly or

in part for education or support or in
whom he has a pecuniary interest
On whose life does a person have
insurable interest?
• any person who is under legal obligation to
him for payment of money or respecting
property or services of which illness or
death might delay or prevent performance

• any person upon whose life any estate or

interest vested in him depends
Section 10(a)

•Every person has unlimited insurable

interest in his own life

•One also had insurable interest in the

life of his spouse and children on the
basis of love and affection
Section 10(b)
Obligation to give support
Article 195, Family Code
• Spouses, legitimate ascendants and descendants
• parents and their legitimate children and
legitimate or illegitimate children of the latter
• parents and their illegitimate children and
legitimate or illegitimate children of the latter
• legitimate brothers and sisters whether of the
full or half blood
Section 10(b)
Obligation to give support:
Article 196, Family Code
• Brothers and sisters not legitimately
related,whether of the full or half blood,
are likewise bound to support each other
EXCEPT only when the need for support
of the brother or sister, being of age, is
due to a cause imputable to the
claimant’s fault or negligence .
Blood relationship, affinity: enough?
•In cases not falling under 195 and 196,
mere blood relationship or affinity does
not create insurable interest

•Examples: uncle, aunt, nephew, niece,

cousins, son-in-law, brother-in-law,
stepchildren
Section 10©
Pecuniary Interest

•Debtor-Creditor

•Employer-Employee - El Oriente v.
Posadas

•Business partners
Corporate officers

•A corporation may have insurable interest

in the lives of its officers when the death
or illness of said officers would materially
and injuriously affect the corporation.
Section 10(d)
Person in whose estate an interest is
dependent
•Person is given the right to use a
house

•Right ceases when the owner dies

and another person becomes the
owner
Bar 2011

•X has been a long-time household helper

of Z. X's husband, Y, has also been Z's
long-time driver. May Z insure the lives of
both X and Y with Z as beneficiary?
Bar 2011
• A. Yes, since X and Y render services to Z.

• B. No, since X and Y have no pecuniary interest on

the life of Z arising from their employment with
him.

• C. No, since Z has no pecuniary interest in the lives

of X and Y arising from their employment with him.

• D. Yes, since X and Y are Z’s employees.

Answer
•C. No, since Z has no pecuniary
interest in the lives of X and Y arising
from their employment with him.
Bar 2011
• X, Co., a partnership, is composed of A
(capitalist partner), B (capitalist partner) and C
(industrial partner). If you were partner A,
who between B and C would you have an
insurable interest on, such that you may then
insure him?
Bar 2011
• A. No one, as there is merely a partnership contract
among A, B and C.

• B. Both B and C, as they are your partners.

• C. Only C, as he is an industrial partner.

• D. Only B, as he is a capitalist partner.

Answer

• B. Both B and C, as they are your partners.

Bar 2014
• Carlo and Bianca met in the La Boracay festivities.
Immediately, they fell in love with each other and got
married soon after. They have been cohabiting
blissfully as husband and wife, but they did not have
any offspring. As the years passed by, Carlo decided
to take out an insurance on Bianca’s life for
P1,000,000.00 with him (Carlo) as sole beneficiary,
given that he did not have a steady source of income
and he always depended on Bianca both emotionally
and financially.
Bar 2014
• During the term of the insurance, Bianca died of what
appeared to bea mysterious cause so that Carlo
immediately requested for an autopsy to be
conducted. It was established that Bianca died of a
natural cause. More than that, it was also established
that Bianca was a transgender all along – a fact
unknown to Carlo. Can Carlo claim the insurance
benefit? (5%)
Suggested Answer
• Carlo cannot recover from the insurance policy. Insurable interest is
necessary before a person can obtain a life insurance policy on the
life of another person. Without insurable interest, there is no valid life
insurance policy.

• Section 10 of the Insurance Code enumerates the people on whom

we have an insurable interest on, one of which is one’s legitimate
spouse.

• In the instant case, the marriage between Bianca and Carlo is void ab
initio since marriage must be between a man and a woman. Since
Bianca was a transgender, there was never a valid marriage between
Bianca and Carlo. Carlo never had any insurable interest on the life of
Bianca and hence, cannot recover from the policy.
Bar 2014
• On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from
Ilocos Bankers Life Insurance Corporation (Ilocos Life) designating Creencia
Aban(Aban), her niece, as her beneficiary. Ilocos Life issued Policy No. 747,
with a face value of P100,000.00, in Sotero’s favor on August 30, 1993, after
the requisite medical examination and payment of the premium.
• On April 10, 1996, Sotero died. Aban filed a claim for the insurance proceeds on
July 9, 1996. Ilocos Life conducted an investigation into the claim and came
out with the following findings:
• 1. Sotero did not personally apply for insurance coverage, as she was illiterate.
• 2. Sotero was sickly since 1990.
• 3. Sotero did not have the financial capability to pay the premium on the
policy.
• 4. Sotero did not sign the application for insurance.
• 5. Aban was the one who filed the insurance application and designated
herself as the beneficiary.
Bar 2014

• For the above reasons and claiming fraud, Ilocos Life

denied Aban’s claim on April 16, 1997, but refunded
the premium paid on the policy. (6%)
• (A) May Sotero validly designate her niece as
beneficiary?
• (B) May the incontestability period set in even in
cases of fraud as alleged in this case?
• (C) Is Aban entitled to claim the proceeds under the
policy?
Suggested Answer
• (A) May Sotero validly designate her niece as beneficiary?

• Yes, Sotero has insurable interest on her own life and can
validly designate any beneficiary as long as it is not against the
law, public policy and morals. A beneficiary is not required to
have insurable interest in life insurance.
Suggested Answer
• (C) Is Aban entitled to claim the proceeds under the policy?

• No Aban is not entitled to the proceeds. She was the one who
obtained the policy on the life of her aunt on whose life she
did not have insurable interest. Since she did not insurable
interest, the policy is void.
Measure of Recovery of Proceeds

•GENERAL RULE: Face value of the policy

•Except: pecuniary estimation is possible

[10©]
Special Rule on Insurable Interest in
Industrial Life

• Usual rules re insurable interest are

generally not made applicable in industrial
life because:

• Proceeds are small, little danger to induce a

person to kill
Special Rule on Insurable Interest in
Industrial Life
• Investigation of presence of insurable
interest will nullify speedy payment of
proceeds under the facility of payment
clause

• The costs to prove insurable interest will

destroy the purpose for this type of
insurance
PARTIES
Cestui Que
Beneficiary
Vie

Insurer

Insured
NEW

Insurer: Section 6

•Every corporation, partnership, or

association, duly authorized to transact
insurance business as elsewhere
provided in this Code, may be an insurer
Insurer

• Insurance corporations- corporations formed

or organized to save any person or persons or
other corporations harmless from any loss,
damage or liability arising from any unknown
or contingent event, or to indemnify or
compensate for such loss, damage or liability
or to guarantee performance with
contractual obligations or payment of debts
Mutualization and Demutualization

• Mutualization – A a shareholder-owned company is

converted into a mutual organization, typically
through takeover by an existing mutual organization.
A mutual organization is customer-owned.

• Demutualization -customer-owned mutual

organization or cooperative changes form to a joint,
stock company, sometimes called stocking for
privatization.
 NEW

Demutualization

• Section 280. A domestic mutual life insurance company

doing business in the Philippines may convert itself into
an incorporated stock life insurance company by
demutualization. To that end, it may provide and carry out
a plan for the conversion by complying with the
requirements of this title.

• "The conversion of a domestic mutual life insurance

company to an incorporated stock life insurance company
shall be carried out pursuant to a conversion plan duly
approved by the Commissioner.
 NEW

Demutualization
• "The Commissioner shall promulgate such rules and
regulations as he or she may deem necessary to carry out the
provisions of this title, after due consultation with
representatives of the insurance industry.

• "All converted insurers under the provisions of this title shall

be subject to all other applicable provisions of this Code. The
provisions of the Corporation Code shall apply in a suppletory
manner.
Insured: Section 7

•Anyone except a public enemy may

be insured.

•Public enemy - citizen or national of

any country with which the
Philippines is at war
 Bar 2000

May a member of the Moro Islamic

Liberation Front or its breakaway
group Abu Sayyaf be insured with a
company licensed to do business
under the Insurance Code of the
Philippines? Explain (3%)
 ANSWER

Yes, a member of the MILF or the

Abu Sayyaf may be insured. Only a
public enemy cannot be insured. A
public enemy is a citizen or national
of a country with which the
Philippines is at war.
Insured
The person who must have insurable interest

The person who pays the premiums

Commonly referred to as the policyholder

Not necessarily whose life is used to

constitute the insurance policy
Insured: Rights

•Right to borrow on the policy 227(g)

•Right to dividends if participating

policy 227(e); 230(e)
Insured: Rights

• Right to reinstatement 227(j); 230(j)

• 3 years from date of default in individual
• 2 years from date of default in industrial
• payment of overdue premiums
• evidence of insurability
Insured: Rights

•Right to transfer/bequeath-pass by
transfer, will or succession to any
person whether he has insurable
interest or not; notice to insurer not
required
Cestui Que Vie

•Person on whose life the insurance

contract is constituted

•Can be any of those enumerated

under Section 10
 NEW

Beneficiary

• One who receives benefits

• GENERAL RULE: Designation may be changed
by insured
• EXCEPTION: insured has expressly waived his
right to change
• BUT, if there was no change of beneficiary,
designation is IRREVOCABLE
 Bar 2005

What are the effects of an irrevocable designation of

a beneficiary under the Insurance Code? Explain (2%)

Jacob obtained a life insurance policy for P1 M

designating irrevocably Diwata, a friend, as his
beneficiary. Jacob changed his mind and wants to
include two other friends as beneficiaries. Can Jacob
still add the two friends? (2%)
 ANSWER

The irrevocable beneficiary has a vested interest in

the policy, including its incidents such as the policy
loan and cash surrender value

Jacob cannot include the two friends as additional

beneficiaries as this would diminish the interest of
Diwata who is irrevocably designated as beneficiary.
Diwata has to consent first to the inclusion.
Disqualified Beneficiaries
• Article 2012 in relation to Article 739 of the Civil
Code

• those made between persons who were guilty of

concubinage at the time of donation

• those made between persons found guilty of the

same criminal offense in consideration thereof

• those made to a public officer or his spouse,

descendants and ascendants by reason of his
office
Beneficiary

•Insular Life v. Ebrado, 80 SCRA 181 -

The designation of a common law
wife is void. This need only be proved
by preponderance of evidence, no
previous conviction is required
Beneficiary
• Common-law spouses are, definitely, barred from receiving donations
from each other. Article 739 of the new Civil Code provides:
• The following donations shall be void:
• 1. Those made between persons who were guilty of adultery or
concubinage at the time of donation;
• 2. Those made between persons found guilty of the same criminal
offense, in consideration thereof;
• 3. Those made to a public officer or his wife, descendants or
ascendants by reason of his office.
• In the case referred to in No. 1, the action for declaration of nullity
may be brought by the spouse of the donor or donee; and the guilt of
the donee may be proved by preponderance of evidence in the same
action.
If the beneficiary is disqualified

•The estate of the insured will

be entitled to the proceeds of
the life insurance policy.
 Bar 1998

A was issued a policy on whole life plan for

P20,000. A is married to B with whom he has
3 legitimate children. However, A
designated his common-law wife C as the
beneficiary in his policy and referred to C as
his legal wife. When A died, both B and C
claimed the proceeds of the insurance. Who
is entitled to the proceeds? (5%)
 ANSWER

•The estate of A is entitled to the

proceeds. C is a disqualified beneficiary
because of the illicit relation she had
with A.
Bar 2012
• X is the common law wife of Y. Y loves X so much that he took
out a life insurance on his own life making X as the sole
beneficiary. Y did this to ensure that X will be financially
comfortable when he is gone. Upon the death of Y---
A. X as the sole beneficiary in the policy of Y will be entitled to
the entire proceeds
B. Despite the designation of X, the proceeds will go to the
estate of Y
C. The proceeds will go the compulsory heirs of Y
D. The proceeds will be divided equally amongst X and the
compulsory heirs of Y
ANSWER
• Common law spouses are barred from
donating to each other. Those who are barred
from being donees cannot be beneficiaries in a
life insurance policy.

• Hence, X is a disqualified beneficiary and the

proceeds will go to the estate of Y.
 NEW

If beneficiary willfully causes death of insured

If beneficiary WILLFULLY causes the death of the
insured/cestui:

• The share forfeited shall pass on to the other beneficiaries,

unless otherwise disqualified.
• In the absence of other beneficiaries, the proceeds shall be
paid in accordance with the policy contract.
• If the policy contract is silent, the proceeds shall be paid to
the estate of the insured.
If beneficiary dies before insured
•If beneficiary dies ahead of the
insured/cestui, the estate of the
insured will get the proceeds
If no beneficiary

•If beneficiary is not designated,

insured’s estate will get the
proceeds
NOTE!!!

Only the insured or policyholder in life insurance is

required to have insurable interest on the life of the
cestui.

The beneficiary may or may not have insurable interest

on the life of the cestui. What is vital is that the
beneficiary is not disqualified under the law to get the
proceeds.
 Bar 2000

A is an elderly bachelor who took out an

individual life insurance policy on his life.
The designated beneficiary is B a companion-
friend. A died in a fire which also destroyed
his home. The insurer refused payment to B
due to absence of insurable interest on the
life of A. Is the insurer correct?
 ANSWER

The insurer is wrong. B as the

beneficiary is entitled to collect the
proceeds. As a beneficiary in a life
insurance policy, B is not required to
have insurable interest on the life of A.
A had insurable interest on his own life
and the policy was taken on his life.
LIFE INSURANCE POLICY
NEW

Form
• GENERAL RULE: printed form
• EXCEPTIONS: The policy may be in electronic
form subject to the pertinent provisions of
Republic Act No. 8792, otherwise known as the
‘Electronic Commerce Act’ and to such rules and
regulations as may be prescribed by the
Commissioner.
• Contains blanks where word, phrase, clause,
mark, sign necessary to complete the policy are
placed
Contents
• Parties

• amount to be insured

• premium

• life insured

• risks
Required Provisions

• Grace period provision – provision which gives

the insured additional time to pay his premiums
from the due date

• Clarifies the right to collect if death happens

within the grace period

• Individual life – 30 days/1 month

• Group life – 30 days/1 month
• Industrial life – 4 weeks or if payable monthly –
30 days/1 month
Required Provisions
•Entire contract provision – The
policy shall constitute the entire
contract between the parties
Required Provisions

•Misstatement of age provision – if the

age of the insured is misstated, the
amount payable shall be as such
premium would have purchased at the
correct age
Required Provisions
• Reinstatement provision – clarifies the
requirements for restoring a policy to
premium-paying status after it has lapsed.
• Individual – within 3 years from default
• Group – no reinstatement
• Industrial – within 2 years from default
Lalican v. Insular Life, August 25, 2009
• Eulogio obtained a life insurance policy on his life, with benefits
payable to his wife Violeta.

• The policy lapsed due to non-payment of premiums

• Eulogio applied for reinstatement. On the same day that Violeta

was able to file the application, Eulogio died.

• SC: Reinstatement can only happen upon filing of application

within the applicable period, payment of premiums in arrears and
evidence of insurability. The application should have been approved
during the LIFETIME of the insured. Therefore, Violeta is not
entitled to the proceeds.
Special Features
• Loan privilege – based on the cash
surrender value, the insured may obtain
a loan by pledging the policy

• Policy dividend options – if the policy is

participating, the policyholder is entitled
to a share of the surplus.
Special Features
• Exemption from claims of creditors – protection
against execution

• Income tax treatment – proceeds of life insurance

policies are generally tax exempt. However,
endowment proceeds and cash surrender values
are treated as income and are taxable.
Special Features

•Surrender options/NON-DEFAULT
OPTIONS – if the policyholder cannot
continue paying the premiums, he has
some options which will not put to
waste what he has paid. However,
these options are available only upon
payment of at least 3 annual
premiums
Non-Default/Surrender Options
• Cash Surrender Value 227(f); 230(f) and
(g)
• payment of at least 3 annual premiums
• not less than the reserve on the policy

• Extended Insurance
• At least three annual premiums
• limited time, same face value
Non-Default/Surrender Options
• Paid-Up Insurance
• At least three annual premiums
• same period, lower proceeds

• Automatic Premium Loan

• Parties agree that in case of default
insurer advances the premium not subject
to repayment
Kinds of Policies

1. Ordinary Life – payment of

premiums is annually or at more
frequent intervals throughout
life and the beneficiary is
entitled to receive payment only
after the death of the insured.
Kinds of Policies

2 . Limited Payment Life – premiums

are payable only during a limited
period of years (10,15,20 years).
After the period, the insurance is
deemed fully paid. Proceeds are
payable upon death of insured.
Kinds of Policies

3. Term Insurance – provides coverage

only if the insured dies during a
limited period.
If the insured dies within the
period, the beneficiary gets the
proceeds. If the insured survives
the period, the contract is
terminated.
Kinds of Policies

4. Endowment Policy – insured

gets a sum of money if he
survives a specified period. If
insured dies within the period,
the beneficiary gets the
proceeds.
Kinds of Policies
5. Life Annuity – debtor binds himself to
pay an annual pension or income
during the life of one or more
determinate persons in
consideration of a capital consisting
of money or other property, whose
ownership is transferred to him at
once with the burden of income.
Kinds of Policies

6. Accident Insurance – may be life

or non-life insurance.

* If death is one of the risks insured

against, it is classified as life
insurance.
WHEN IS AN
INSURANCE
CONTRACT
PERFECTED?
 Procedure

Agent offers a person a life insurance

policy
?
The person files an application for a policy.
He is required to pay the first premium when
he applies
?
Insurance
Insurance company
company approves
approves the
the application
application and
and issues
issues aa policy
policy
in
in favor
favor of
of the
the person.
person. In
In case
case of
of disapproval,
disapproval, the
the premium
premium is is
returned
returned to
to the
the person
person
When is the insurance contract
perfected?

•At the time the insured-applicant has

knowledge of the approval of his
application.

•Even if the application has been

approved if the applicant-insured does
not know about approval, there is NO
perfected contract yet
When is the insurance contract
perfected?

•Since the insured is the one making

the offer, the submission of the
application WITHOUT the approval of
the policy does not result in a
perfected contract of insurance
(Grepalife v. CA)
When is the insurance contract
perfected?

•De Lim v. Sun Life – the applicant paid

the premium upon filing of application
but he dies before the approval

•HOLDING: NO perfected contract of

insurance
Bar 2011
• On June 1, 2011, X mailed to Y Insurance, Co. his application for
life insurance, with payment for 5 years of premium enclosed
in it. On July 21, 2011, the insurance company accepted the
application and mailed, on the same day, its acceptance plus
the cover note. It reached X's residence on August 11, 2011.

• But, as it happened, on August 4, 2011, X figured in a car

accident. He died a day later. May X's heirs recover on the
insurance policy?
Bar 2011
• A. Yes, since under the Cognition Theory, the insurance contract
was perfected upon acceptance by the insurer of X's application.

• B. No, since there is no privity of contract between the insurer and

X’s heirs.

• C. No, since X had no knowledge of the insurer's acceptance of his

application before he died.
• D. Yes, since under the Manifestation Theory, the insurance
contract was perfected upon acceptance of the insurer of X's
application.
Answer
•C. No, since X had no knowledge of the
insurer's acceptance of his application
before he died.
When is the insurance contract
perfected?

•If insured died during the period of

provisional policy which is conditioned
upon approval of application,
beneficiary is NOT entitled to
proceeds.
When is the insurance contract
perfected?

•Even if the insurer has approved the

application via a letter, there is no
perfected contract if there is no
evidence that the applicant knew of
the approval (Enriquez v. SunLife, 41
Phil 629)
When is the insurance contract perfected?

•The insured is presumed to have

understood the application and the
contract of insurance (Tang v. CA, 90
SCRA 236)
 Cover Notes v. Binding Receipt

• COVER NOTE: Temporary insurance policies

intended to cover the insured while
application is being evaluated
Cover Note v. Binding receipt

• BINDING RECEIPT: acknowledgment of

receipt of premium and application subject
to evaluation. NOT the same as cover note
(Great Pacific v. CA, 89 SCRA 543)
Cover note is a valid insurance K IF:
• Issued and renewed with prior approval of IC

• Valid and binding for not more than 60 days,

unless the insurance commission has approved
an extension based on valid grounds

• No separate premium is required for the cover

note (Pacific Timber v. CA)
Cover note is a valid insurance K IF:

•7-day notice to the other party is

required to cancel the cover note
•Policy must be issued within 60 days
from issuance of cover notes
Cover note is a valid insurance K IF:

• 60-day period may be extended upon

written approval of IC
• Written approval is dispensed when
president, VP or general manager that the
renewal is not to circumvent the insurance
code (Ins. Memo Circular 3-75)
PREMIUM
Concept

• Agreed price for assuming the risk

• The right to premium arises the moment the

property/object is exposed to risk

• Cash and carry basis - based on section 77 which

provides that the moment the thing insured is
exposed to the peril, the insurer has the right to
payment of premium.
When is non-payment excused?

insolvent insured
• insurer’s negligence or fault
• insurer waives the right to
payment
When is non-payment excused?

•war does not suspend the policy and

does not excuse non-payment of
premiums
•Constantino vs. Asia Life, 87 Phil 248
Premium

•If insured fails to pay 1st premium, insurer

cannot ask for specific performance but
can only rescind the contract since there is
no creditor-debtor relationship
Special Rule in Industrial Life if
premiums are not paid

•If insured failed to pay because the

insurance agent did not collect in the
address provided in the policy – policy
will NOT lapse
Special Rule in Industrial Life if
premiums are not paid
• Except: if 12 weeks or 3 months have
lapsed from end of grace period
At a glance
Only the insured must have insurable interest on
the life if the cestui

Suicide is generally not compensable unless:

mentally ill or committed after the policy has
existed for more than two years from issuance
At a glance

• If the beneficiary is disqualified because he

participated in the death of the cestui, the other
beneficiaries will get his share. If there are no other
beneficiaries or also disqualified, the terms of the
policy will be followed. Otherwise, the estate will
recover.

• In all other cases, it is the estate of the insured which

can recover
At a glance

If the cestui dies during the grace period, there can be
recovery

If the cestui dies during the duration of the cover notes,
there can be recovery

The measure of recovery in life insurance is the face

value of the policy. Except when insurable interest is
capable of pecuniary estimation