What is Life Insurance: It is the policy where the insurer agrees to pay the indemnity in case the insured dies. It includes casualty insurance, which also insures against death, whether natural or accidental
What are the KINDS OF POLICIES IN LIFE INSURANCE
1.
TERM, or when the insurance coverage is for a definite period agreedupon at the beginning. The parties agree on a period of insurance coverage. The premium is low because it does not have non- forfeiture values.
a.
If the insured survives, the policy expires.b. As a general rule, the surviving insured does not get anything.
c.
The exception is a contract of ENDOWMENT, where the insured will receive the face value of the policy if he survives the expiration of the term but he is no longer insured. If he dies within the term, the amount will be paid to his beneficiary.2.
ORDINARY, or when there is no term and the insured remainsinsured as long as he pays the premium. The duration depends on the contract or policy. Premiums are thus payable for as long as the insured is alive.
a.
BUT THE NORMAL LIMIT IN POLICIES IS 100 YEARS OLD! Upon reaching such age, the amount of the policy is paid because the contract of insurance had lapsed. As to the insurer, the insured already died.b.
There are variations of life insurance. 20 pay life is when the insured pays for the full premiums for 20 years while pay life at 65 is when the insured pays the premiums until the age of 65.What are NON-FORFEITURE VALUES IN ORDINARY LIFE INSURANCE These are living benefits. These do not exist in term insurance where the insured only gets the face value of the policy.
a) CASH VALUE
When: From the third year of premium payment, part of every premium
payment made by the insured is set aside by the insurer for the insured. Every year, the rate of case value increases.
Example: In Year 1, the premium of P20k is paid and the insured survives. In
Y2, P20k is paid and the insured survives. At this point, the P40k paid goes down the drain if the insured survives because of the overriding commissions of salesmen. The case value begins to accumulate on the third year. Thus, in Y3, from the premium of P20k, the cash value is P1k and the rest goes down the drain. In Y4, the cash value is now P2k, and so on. The longer you pay premium, the more goes to the cash value, such that in Y20, 80% of the premium paid is cash value.
What is its advantage: if you need money but you want to remain insured, you
can first surrender the policy and borrow the cash value. If you are unable to pay, interests are charged.
What is CASH SURRENDER VALUE
If the policy is returned and the premium is no longer to be paid. The insurance ceases.
b) PAID-UP INSURANCE
When: The insured, without having to pay additional premium, is insured for
the rest of his life at an amount corresponding to the cash value, and no longer at the original amount. The insured is fully paid for the rest of his/her life but for a lower amount of insurance.
Example: Insurance is originally for P1M, but now, he is insured only for P600k
to be paid from his cash value.
c) EXTENDED TERM INSURANCE
When: When the insured is no longer paying an additional amount but is still
insured at the same price, but only for a specified duration.
Example: The insured is originally insured for P1M, for 21y5m. If he dies, the
beneficiaries get the amount in full. If he survives, the policy lapses.
What is the nature of these non-forfeiture values? They are alternative. Normally, the policy stipulates that upon failure to pay the premium, the insurance would be converted into paid-up or extended.
NOTE: Many insurers now offer participatory plans. The insured, although not
What are PREMIUMS
These are the amounts the insured has promised to pay the insurer to keep the policy active.
How is it computed in Property Insurance
As a general rule, they are computed on an annual basis and fully paid in advance.How are premiums paid: CASH ON DELIVERY (COD) of policy. In the
policy, there is a printed acknowledgement of premium payment. Policies thus serve as receipts as well.
May premiums be paid on credit and in the meantime, be insured already?
These days, premiums may also be paid by credit card which is as good as cash. According to the SC, it is not prohibited by law. THUS, when the risk happens when the premium is not yet paid, the insurer is obliged to pay as long as the premium is paid within the credit term. The insured must thus pay the premium first before he files his claim.
UCPB v. Masagana: Masagana procured fire insurance from an agent. It
was not able to pay immediately because of the internal processing time of the check. The policy was delivered to Masagana, but before its check was released to the agent, fire broke and damaged the properties. Masagana tried to pay the insurer and the insurer accepted. The following day, it filed a claim, but the claim was rejected because premium had not been paid. The SC considered the insurer in estoppel because it was regular procedure for the insured and insurer to pay at a date later than the effectivity of the policy. There was a customary date of payment.
Exceptions:
o
SHORT-TERM RATES, where the insurance is for a period less than1y, thus the rate is on a short-term rate.
o
HEIRS BOND, where the premium is computed and paid on anannual basis but for two-year’s worth. This is in line with the requirement in the Rules of Court to answer for the claims of creditors and excluded heirs in extrajudical settlements.
How is it computed in Life Insurance
It is computed annually but the frequency of payment depends on the agreement of the parties.
Annual payment is cheapest; Semi-annual or semestral is higher than the annual; Quarterly; Monthly; Daily (for industrial life insurance
taken by a group of persons) which is the most expensive premium payment.
Note: The more premiums are paid, the higher the amounts because
of high administrative costs.
When do you pay the premiums? Every time a premium is due in a life insurance policy, there is a ONE-MONTH GRACE PERIOD. If the same is not paid, the amount is deducted from the insurance.
Why is there a grace period? Insurers do not want their
policies to lapse.
What if the insured fails to pay after 1m?
1.
IF there is an AUTOMATIC PREMIUM LOAN CLAUSE, the accumulated cash value would cover the unpaid premium as a loan.Example: Premium is due on Dec. 15, 2012. It remains
outstanding until January 22. The policy could have lapsed already but the accumulated cash value was used as a loan to pay for the premium. If the insured dies, the insurer pays the policy less the amount of the loan and the interests.
2. IF there is no such clause, the policy lapses.
What are the options of the insured when the policy lapses? • He can apply for a new policy (BUT with higher rates
because he is now older)
•
He can apply for a reinstatement of his policy, where the premium is at the original rate, BUT he must first pay all accrued premium and interests due in lump sum. There is no limit as to the number of times the insured reinstates his insurance. He must either undergo the same process for application of a new policy, or merely issue a Health Statement. HOWEVER, it is best not to reinstate because the contestability period is renewed.NOTE: Reinstatement is not a matter of right, but
What are LOSSES in Property Insurance?
1.
PARTIAL, or when only a part of the thing insured is lost. There ispartial loss only in property insurance.
2.
TOTAL, or when the thing is lost in its entirety. BUT in Marine Insurance, total loss can either be:a. ACTUAL
b. CONSTRUCTIVE
a. When more than ¾ of the thing insured is lost or damaged, or
b. When the damage is not big but to put the thing back to its original condition, more than ¾ of its value will have to be spent
When is the insurer obliged to pay?
If the proximate cause of the loss or damage is the risk insured against, although the direct and immediate cause is not the risk insured against.
eg House is insured against fire. During a storm, a lightning hit the electric post near the house. The firemen directed the water against the post and as a result, the post fell and collapsed on the roof. The damage is covered by the insurance. Though the house was not directly damaged by the fire, it was the burning of the electric post that caused the damage.
What must the insured do in case of loss or damage?
1.
He must file with the insurer: a claim for indemnity and apreliminary proof of loss or damage
eg Pictures are sufficient proof. They need not be in the same degree as required by courts.
In practice, the insurer refers the claim to an INSURANCE
ADJUSTER, an independent third party who is licensed by the
Insurance Commissioner and paid by the insurer to determine the extent of the loss or damage, and to inform the insurers who acts on his recommendation.
Who may be a BENEFICIARY
GR: The insured may designate anyone. Beneficiary need not have insurable interest in the life of the insured. E:
o
Those disqualified by law from making or receiving donations inter vivoso
Guilty of adultery. BUT One may designate his kabit who is single and who he sees only during lunch because there is no adultery and no cohabitation.o Government officers
How many beneficiaries may be designated?
1.
PRIMARY, one whom the insured wants the proceeds ahead of theothers
2.
CONTINGENT or SECONDARY, in case the primary can no longerreceive the value
NOTE: In the absence of a qualified beneficiary, it pertains to the
estate of the insured.
How may beneficiaries be designated?
1.
IRREVOCABLE. This is the general rule. The written consent of thebeneficiary is required in case of revocation and change.
Why require written consent? Because in effect, all rights
under the policy have already transferred to the beneficiary. EXCEPTION TO WRITTEN CONSENT: Legal separation, where the innocent spouse may revoke without it.
2.
REVOCABLE, where the beneficiary may be changed at any time.There is a small box in the application form if the insured wishes to the designation to be revocable.
In case of death, what are required to be filed with the insurer? 1. Death Certificate
2. Birth Certificate, to ascertain the true statement of age when the insured applied for insurance
If there is a misrepresentation on age: This is a material
misrepresentation. BUT if the two-year contestability period has lapsed, the insurer is allowed by equity to adjust the amount of insurance indemnity based on the true age of the insured. The premium that the insured paid will be used to pay for an amount of insurance coverage corresponding to your true age. If the insured is younger, this has no effect. This applies only if the insured is actually older than his stated age.
3. Sworn Affidavit from two persons that they know the insured and that he is already dead
a.
Pay the cash valueb.
Replace the thing with another property of the same kind and qualityNote: This is common in motor vehicle insurance, where
other insured abandoned the insured thing to the insurer. Insurer salvages parts from the vehicles left to replace those needed in the currently insured vehicle. However, replacement needs to be in good condition