G. Premium

G. Premium

R.A. No. 10607, Sections 77-84

"PREMIUM

"Section 77.¹ An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies, or whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy.

"Section 78.² Employees of the Republic of the Philippines, including its political subdivisions and instrumentalities, and government-owned or -controlled corporations, may pay their insurance premiums and loan obligations through salary deduction: Provided, That the treasurer, cashier, paymaster or official of the entity employing the government employee is authorized, notwithstanding the provisions of any existing law, rules and regulations to the contrary, to make deductions from the salary, wage or income of the latter pursuant to the agreement between the insurer and the government employee and to remit such deductions to the insurer concerned, and collect such reasonable fee for its services.

"Section 79.³ An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.

"Section 80.⁴ A person insured is entitled to a return of premium, as follows:

"(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against; "(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued: Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law.

"Section 81.⁵ If a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned.

"Section 82.⁶ A person insured is entitled to a return of the premium when the contract is voidable, and subsequently annulled under the provisions of the Civil Code⁷; or on account of the fraud or misrepresentation of the insurer, or of his agent, or on account of facts, or the existence of which the insured was ignorant of without his fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.

"A person insured is not entitled to a return of premium if the policy is annulled, rescinded or if a claim is denied by reason of fraud.

"Section 83.⁸ In case of an over insurance by several insurers other than life, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.

"Section 84.⁹ An insurer may contract and accept payments, in addition to regular premium, for the purpose of paying future premiums on the policy or to increase the benefits thereof.

An insurance premium is the agreed price for assuming and carrying the risk, i.e. the consideration paid to an insurer for undertaking to indemnify the insured against the specified peril.

General Rule: A policy is not valid and binding until the premium is paid, subject to the statutory exceptions and applicable jurisprudence on agreed credit terms and estoppel [Sec. 77¹⁰].

Exceptions:

• Whenever the grace period provision applies in the case of a life or an industrial life policy [Sec. 77].
• Whenever under the broker and agency agreements with duly licensed intermediaries, a 90-day credit extension is given. Note: No credit extension to a duly licensed intermediary should exceed 90 days from the date of issuance of the policy [Sec. 77].
• When there is an acknowledgment in the contract that the premium has been paid [Sec. 79].
• Payment to an authorized agent¹³ [South Sea Surety and Insurance Company, Inc. v. Court of Appeals, G.R. No. 102253, 2 June 1995¹¹; Arreola v. CA¹²]. [American Home Assurance v. Chua¹⁴].
• Credit Extension [Ucpb General Insurance Co. Inc v. Masagana Telamart, Inc., G.R. No. 137172, 4 April 2001¹⁵].

Jurisprudence decided before the enactment of RA 10607¹⁶ has provided two further exceptions:

• Agreement to grant payment of premium in installment basis and partial payment has been made [Makati Tuscany Condominium Corporation v. Court of Appeals, G.R. No. 95546, 6 November 1992¹⁷].
• When parties are barred by estoppel [Ucpb General Insurance Co. Inc v. Masagana Telamart, Inc.].

Authority of Agent to Receive Premium

Where an insurer authorizes an insurance agent or broker to deliver a policy to the insured, it is deemed to have authorized said agent to receive the premium on its behalf.

The insurer is bound by its agent’s acknowledgement of receipt of payment of premium [American Home Assurance Company v. Chua, G.R. No. 130421, 28 June 1999]¹⁸.

Payment by Post-Dated Check

The payment of premium by a postdated check at a stated maturity subsequent to the loss is insufficient to put the insurance into effect.

But payment by a check bearing a date prior to the loss, assuming availability of funds, would be sufficient, even if it remains unencashed at the time of the loss. The subsequent effects of encashment would retroact to the date of the instrument and its acceptance by the creditor [Vitug].

1. Effects

• Prevents the contract from becoming binding, unless waived [Philippine Phoenix Surety & Insurance Company v. Woodworks, Inc., G.R. No. L-25317, August 6, 1979]¹⁹.
• As a general rule, nonpayment of the premium prevents the policy from becoming valid and binding, subject to the exceptions under Section 77 of the Insurance Code, as amended by RA 10607, and applicable jurisprudence.

2. Applicable Grace Periods

In case of individual life insurance, the policy holder is entitled a grace period of either 30 days or one month within which payment of any premium after the first may be made [Sec. 233]²⁰.

In cases of industrial life insurance, the grace period is four weeks, and where premiums are paid monthly, either 30 days or one month [Sec. 236]²¹.

3. Excuses for Non-Payment<br>

• Fortuitous events which render payment by the insured wholly impossible will not prevent forfeiture of the policy when the premium remains unpaid. In other words, it is not an excuse.
• Non-payment of premiums occasioned by war causes an insurance to be not merely suspended, but completely abrogated [De Constantino v. Asia Life Insurance Company, G.R. No. L-1669, 31 August 1950]²².

Consideration

An insurance premium is the agreed price for assuming and carrying the risk. It is the consideration paid to the insurer for undertaking to indemnify the insured against a designated peril. It is based on probability of loss and extent of liability [43 Am. Jur. 2d326].

As a general rule, the insurance policy is not valid and binding unless the premium therefor has been paid, except in the following cases:

• Whenever the grace period applies in the case of a life or an industrial life policy.
• Whenever under the broker and agency agreements with duly licensed intermediaries, a 90-day credit extension is given. No credit extension to a duly licensed intermediary should exceed 90 days from date of issuance of the policy.
• An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.
• In a contract of suretyship, the suretyship or bond shall not be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor or to the surety.
• When there is an agreement allowing the insured to pay the premium in installments and partial payment has been made at the time of the loss.
• In case of estoppel as when there is a long-standing business practice of allowing the insured to pay the premiums after issuance of the policy and was relied upon in good faith by the insured.

A cover note is a temporary document issued by an insurance company that provides evidence of insurance coverage before the official policy is issued. Its binding effect remains subject to the applicable premium-payment requirements and exceptions under Sec. 77 of RA 10607.

Note:

• An accepted check dated before the loss may constitute payment if funds are available, even if it has not yet been encashed; a postdated check maturing after the loss does not, by acceptance alone, put the insurance into effect before the loss.
• Section 77 permits a credit extension of no more than 90 days under broker or agency agreements with duly licensed intermediaries. Any other asserted credit or estoppel exception depends on the applicable case law and its facts.