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
Concepts

Payment of
Proceeds

Life
Insurance

Non-Life
Non-Life
Insurance
Insurance

Grounds for
Rescission

Summary of
Amendments
in 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
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

non-life

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

insurers

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
Xs 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 Xs 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 Xs
favor.

Principle of Subrogation

Process
substitution

of

legal

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
insurers
payment
of
the
insured.
C. The insureds formal assignment of his right to
indemnification to the insurer.
D. The insureds endorsement of its claim to the insurer.

Answer

B. The equitable assignment that

results from the insurers 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

Answer
AleatoryA
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 contracts operation was
confined to Philippine territory.Further, it argued that its liability to
Amorin was extinguished upon the latters 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
insurance:
cannot
shorter than ONE YEAR.

of
be

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

Regulation of the Insurance

Business

NEW

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 companys
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

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

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.

Regulation of Insurance-Related
Entities

NEW

The Commissioner shall have the power to register as a selfregulatory 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.

Regulation of Insurance-Related
Entities

NEW

"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.

Regulation of Insurance-Related
Entities

NEW

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.

Regulation of Insurance-Related
Entities

NEW

(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;

Regulation of Insurance-Related
Entities

NEW

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

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 companys
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 governmentowned 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 10member 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 FIMAs paid up capital more than meets the
countrys 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 2706).

What may be insured against

DAMNIFY A PERSON OR
CREATE LIABILITY AGAINST
HIM

CONTINGEN
T EVENT

UNKNOWN
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.

NEW
Rights
of minor under life insurance
policies

When there is a contract of life, health, or accident insurance

involving a minor
The minors judicial guardian, father, or in the latters 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

Individu
al
Group
Industria
l

Insuranc
e

Marine
Casualty
Fire
Non-Life

Suretysh
ip

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
insurance whose object
other than a persons life
where the covered peril
something other than death

or
is
or
is

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,
workmens 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:
(P20,000.00);

Twenty

thousand

pesos

(ii)
Light:
Twenty
(P20,000.00); and

thousand

pesos

(iii)
Heavy:
(P30,000.00).

thousand

pesos

Thirty

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

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
Concepts

Payment of
Proceeds

Life
Insurance

Non-Life
Insurance

Grounds for
Rescission

Summary
Summary of
of
Amendments
Amendments
in 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

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

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

Annuitant
Annuitant gives
gives
money
money to
to insurer
insurer

Annuitant

Insurer
Insurer becomes
the debtor
Insurer must give
pension to
annuitant or
designated
person

Death of
annuitant or
appointed
persons
extinguishes
obligation to give
pensionEnd of

End of
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 claimants 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
Oriente v. Posadas
Business partners

El

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 Zs 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 Biancas 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 ones
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 Soteros 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 Abans 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

Bene
ficiar
y

Cestu
i Que
Vie
Insur
er
Insur
ed

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
corporationscorporations 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
participating
230(e)

dividends
if
policy 227(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/bequeathpass 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

beneficiaries as this
of Diwata who is
beneficiary. Diwata
inclusion.

the two friends as additional

would diminish the interest
irrevocably designated as
has to consent first to the

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,
insureds
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 premiumpaying 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/NONDEFAULT 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

.
Ordinary Life
payment of premiums is
annually
or
at
more
frequent
intervals
throughout life and the
beneficiary is entitled to
receive payment only after
1

Kinds of Policies

. 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

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 a
a 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
applicantinsured does not know about
approval, there is NO perfected

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
Xs
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
insurers negligence or
fault
insurer waives the right
to payment

When is non-payment excused?

war does not suspend the policy
and does not excuse nonpayment 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