Frequently Asked Questions (FAQs) on Insurance

What is a contract of insurance?

A contract of insurance is 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 shall be deemed to be an insurance contract, within the meaning of the Insurance Code, only if made by a surety who or which, as such, is doing an insurance business, which shall include:

1. Making or proposing to make, as insurer, any insurance contract;
2. Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;
3. Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code;
4. Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code.
5. The fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.

What laws govern contracts of insurance in the Philippines?

The following are the laws which govern contracts of insurance in the Philippines, to wit:

1. Republic Act No. 10607, otherwise known as “The Insurance Code”
2. Republic Act No. 386, otherwise known as the Civil Code of the Philippines, in the absence of applicable provisions in the Insurance Code
3. General principles about insurance, in the absence of applicable provisions in the Insurance Code and the Civil Code

What is the concept of insurance?

Insurance is a means by which one seeks to be covered against the consequences of an event that may cause loss or damage. The concept is that the premiums that are paid are accumulated in a pool from which payment of claims are to be obtained. As a basis, it is assumed that the people contributing premiums are in excess of those making claims resulting in a larger pool of money than the amounts being claimed. Insurance is a matter of addressing risks (risks we can live with and risks we cannot live with).

What may be insured?

Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of the Insurance Code.

What may not be insured?

An insurance for or against the drawing of any lottery or for or against any chance or ticket in a lottery drawing a prize may not be insured, because gambling results in profit and insurance only seeks to indemnify the insured against loss.

When is there insurable interest?

An insurance for or against the drawing of any lottery or for or against any chance or ticket in a lottery drawing a prize may not be insured, because gambling results in profit and insurance only seeks to indemnify the insured against loss.

When is there insurable interest?

Insurable interest will exist when the insured has such a relation or connection with, or concern in, such subject matter that he will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against.

What is insurable interest in life and health?

Every person has an insurable interest in the life and health:

1. Of himself, of his spouse and of his children;
2. Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
3. Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and

Of any person upon whose life any estate or interest vested in him depends.

What is the test or measure of insurable interest in property?

The test or measure is whether one will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction.

Who are the parties to an insurance contract?

The following are the parties in an insurance contract:

1. INSURER – Every person, partnership, association or corporation duly authorized to transact insurance business as provided in the Code may be an insurer. H is the party who agrees to indemnify another upon the happening of specified contingency.
2. INSURED – Party to be indemnified in case of a loss. Anyone except a public enemy (is a nation at war with the Philippines and every citizen or subject of such nation) may be insured.  The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent to destroy its resources then pay it the value of what has been destroyed.
3. BENEFICIARY – the person who receives the benefits of an insurance policy upon its maturity.

Can the beneficiary be changed?

Yes. The insured shall have the right to change the beneficiary he designated, unless he has expressly waived the right in the policy.  If he has waived the right, the effect is to make the designation as irrevocable.

Note though that the designation of the guilty spouse as irrevocable beneficiary is revocable at the instance of the innocent spouse in the following cases:

(1) termination of a subsequent marriage;

(2) nullification of marriage;

(3) annulment of marriage; and

(4) legal separation.

What is a policy of insurance?

The written instrument in which a contract of insurance is set forth, is called a policy of insurance. It shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein.

What are the contents of the policy?

A policy of insurance must specify:

1. The parties between whom the contract is made;
2. The amount to be insured except in the cases of open or running policies;
3. The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined;
4. The property or life insured;
5. The interest of the insured in property insured, if he is not the absolute owner thereof;
6. The risks insured against; and
7. The period during which the insurance is to continue.

What is premium?

The premium is the agreed price for assuming and carrying the risk which the insurer is entitled to the payment of a premium as soon as the thing insured is exposed to the peril insured against.

Why must it be paid?

The payment of a premium is essential to the validity of an insurance policy, and is known as the “cash and carry basis” or “no premium payment no policy” rule.

What is the cash and carry basis?

It means that no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid. Any agreement to the contrary is void.

What is life insurance?

It is an insurance on human lives and insurance appertaining thereto or connected therewith.

When is life insurance payable?

An insurance upon life may be made payable on:

1. death of the person, unless excepted or
2. surviving a specified period, or
3. contingently on the continuance or cessation of life.

Is a life insurance policy transferable or assignable?

Yes, it may pass by transfer, will or succession to any person, whether he has insurable interest or not. The person to whom it is transferred may recover upon it whatever the insured might have recovered.

What is double insurance?

Double insurance exists where the same person is insured by several insurers separately in respect to same subject and interest.

What is over-insurance?

Over insurance occurs when property is insured for an amount in excess of its value.

What is co-insurance?

Co-insurance is a form of insurance in which the person who insures his property for less than the entire value is understood to be his own insurer for the difference which exists between the true value of the property and the amount of insurance.

What is reinsurance?

It is a contract through which the insurer procures a third person to insure him against loss or liability by reason of such original insurance. In every reinsurance, the original contract of insurance and the contract of reinsurance are separate and distinct from each other and covered by separate policies.

What is Compulsory Motor Vehicle Liability Insurance (CMVLI)?

It is an insurance policy that directly insures against liability. The insurer’s liability accrues immediately upon the occurrence of the injury upon which liability depends, and does not depend on the recovery of judgment by the injured party against the insured.

About Nicolas and De Vega Law Offices

If you need assistance in corporate law, commercial law, corporate or commercial litigation, or civil or other criminal law-related issues,  we can help you. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com.