What is Life Insurance?

>Life insurance may be defined as insurance payable on the death of a person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life. >It has also been defined as a mutual agreement by which a party agrees to pay a given sum on the happening of a particular event contingent on the duration of human life, in consideration of the payment of a smaller sum immediately, or in periodical payments by the other party. >Essentially, life insurance is a contract to make specific payments to pay to a certain person, the beneficiary, upon the death of a person whose life has been insured. Parties involved in a policy of life insurance. 1. The owner of the policy, who has the power to name or change the beneficiary, to assign the policy ( under certain conditions), cash it in for its surrender value, or use it as collateral in obtaining a loan; and the obligation to pay the premiums. 2. The person whose life is the subject of the policy, also known as the cestui que vie;

3. The beneficiary to whom the proceeds are paid. Note: One person might occupy all three positions by naming his estate as beneficiary; or each of the three positions may be held by a separate party. Nature of Life insurance The nature of an insurance contract as one of indemnity is not, or is not altogether, true as to life insurance.  The ordinary life insurance contemplates the certain payment of a specified sum at an uncertain time; and the premiums are so calculated that in accordance with the insured’s expectancy of life under a specified mortality table, there will be paid to the insurer in premiums and interest thereon, a sum equal to an amount to become due on the death of the insured plus the expense of administration.  Life insurance may not be regarded as a contract of indemnity exists in the difficulty to be encountered in fixing any sort of pecuniary value upon life.  When the insured dies, the insurer must pay face the amount of policy (or more) to the named beneficiary.  It is treated substantially as a valued policy because there is no way to measure the value of a human life. Life insurance policies are “valued” by the purchaser when the policy is purchased and the value placed on the insured is basically decided by the amount the purchaser is willing to pay in premiums. The amount is determined by the factors affecting the life of the insured such as his age, health, and occupation.  A life policy is not a mere contract of indemnity, but is more accurately characterized as a form of investment. The measure of recovery is the face amount of the policy and not the value of the insured’s life. Life insurance is purchased to provide security to the insured’s beneficiaries in the event the insured suffers an early death.  The beneficiaries are under no obligation to demonstrate as a condition precedent to recovery, a direct pecuniary loss as a result of the death of the insured.

which the amount insured will have to be paid sooner or later. Application of exemption to accident insurance  A life insurance is distinct and different from accident insurance (Sec. Sometimes. insurable interest in the life or health of the person insured need not exist after the insurance takes effect or when the loss occurs. is a certain event which is only uncertain as to its occurrence. In life insurance. and should be construed liberally for the purpose of enabling an individual to provide a fund after his death for his family which will be free from the claims of creditors. It may be terminated by the insured. 3.  An alternative form of payment. the liability of the insurer to make payment is certain. 9. It is also known as whole life or regular life.  An “accident insurance” is not to be likened to an ordinary life insurance where the insured’s death. Unless expressly required. Provided. 8. That the terms “life” and “non-life” insurance shall be deemed to include health. like death. Kinds of Life Insurance Policies 1. accident and disability insurance. and not as part of insurance laws of the State. it permits the insured to borrow against the value without surrender of the policy. The contingency contemplated. Insurable interest need not have any legal basis. Ordinary Life Policy – the terms of which the insured is required to pay a certain fixed premium annually or at a more frequent intervals throughout his entire life and the beneficiary is entitled to receive payment under the policy after the death of the insured.Characteristics of Life Insurance: 1. privileges or annuities accruing or in any manner growing out of any life insurance are exempt from execution (Rule 39. benefits. 5. Note: No insurance company may be authorized to transact in the Philippines the business of life and Non-life insurance concurrently. would normally be compensable. 6. however. can come about by the inclusion of an investment feature although the payment of the “cash surrender value” of the policy in case it is cancelled by the owner or it lapses through nonpayment of premiums. It may be transferred or assigned to any person even if he has no insurable interest. 174). (save that effected by a creditor on life of debtor). . 4. and is usually therefore a long-term contract. 2. It is a contract of investment. however. then such accident insurance may also be regarded as life insurance. It is always regarded as a valued policy. all moneys. Note: Article 2012 of the New Civil Code states that “ any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him. Sec. Exemption of life insurance policies from execution Under the Rules of Court. the consent of the insurer is not essential to the validity of the assignment of a life policy. 12[k]). or straight life. It has been held that statutes exempting proceeds of life insurance from claims of creditors are regarded as exemption laws. but it cannot be cancelled by the insurer. unless specifically authorized to do so. In life insurance (unless written only for a term).. 7. This policy is for the whole duration of life and carries the lowest rate of premium. if one of the risks insured in the latter is the death of the insured by accident. or cash-value insurance. regardless of the cause.

the premiums are payable only during a limited period of years (5. the premiums are proportionately higher.2. It has no loan value. Limited Payment Life Policy . 15 or 20 years). creditors. If he survives the period. Because of the limited number of payments to be made by the insured. The insured stands a chance of being paid the proceeds of the policy while still alive and after receiving the face amount of the policy. and the words “industrial policy” printed upon the policy. The premium is higher because the cash values of the policy grow more rapidly. 10. It attempts to provide protection to the cessation of the current earning power of the insured. or others against pecuniary loss as a result of the death of the insured. It has generally no provision for payment of a cash surrender value or investment value upon surrender or lapse of the policy. or if he dies within such period. 3. . accident and disability insurance is deemed by law as both life and non-life. 5. the insurance is fully paid for. Scope of Life Insurance Life insurance undertakes to protect the insured’s family. 4. five. or where premiums are payable monthly or more often but not less than weekly). such as two. The proceeds on maturity can be paid either in a lump sum or as annuity and is thus useful in retirement planning. Term Insurance Policy – one which provides coverage only if the insured dies during a limited period. It is an insurance for a fixed or a specific term. which may be: a) Actual death – represents “casket death” b) Living death – permanent disability c) Retirement death – living beyond the period of earning capacity Health. the contract terminates or expires at the end of the time period. Endowment policy – the insurer binds himself to pay a fixed sum to the insured if he survives for a specified period( maturity date stated in the policy). Also called as limited premium insurance policy. This form of life insurance is not considered to carry with it the element of investment. The insured however may be given the option to convert the policy to one of whole life or endowment life. Also called as temporary insurance. if the face value is P2000 or less. The permanent loss of the earning capacity of the insured amounts to an “economic death . to some other person indicated. or ten years. all coverage of the terminate. When the specified number of premium payments have been made. 6. Variable Contract – Policy or contract on either group/ individual basis issued by an insurance company providing for benefits or other contractual payments or values there under to vary so as to reflect investment results of any segregated portfolio of investment. Industrial Life – life insurance entitling the insured to pay premiums weekly.

the insurer is liable. if not otherwise disqualified (Sec 12) Exceptions: a) Accidental Killing b) Self-Defense c) Insanity of the beneficiary at the time he killed the insured. does not require the insurable interest to continue as in the case of fire insurance. . accomplice or accessory in the willfully bringing about the death of the insured.g. however. 41 Phil. not being one of indemnity. When not liable a) The suicide is not by the reason of insanity and is committed within the two-year period b) The suicide is by reason of insanity but is not among the risks assumed by the insurer regardless of the date of the commission c) The insurer can show that the policy was obtained with the intention to commit suicide even in the absence of any suicide exclusion in the policy Killing by the beneficiary General Rule: The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal.LIABILITY Liability of insurer in case of suicide The insurer is liable in case of suicide in the following cases: a) The suicide is committed after the policy has been in force for a period of two (2) years from the date of its issued or its last reinstatement b) The suicide is committed after a shorter period (e. if the policy provides for a three-year period and the suicide is committed within said period but after two (2) years. The contract. of Canada vs. one year) provided in the policy although within the two-year period c) The suicide is committed in the state of insanity regardless of the date of commission. Ingersoll. (Sun Life Assurance Co.) A provision in a contract of life insurance denying his right to assign without the consent of the insurer is void. RIGHT OF INSURED TO ASSIGN THE INSURANCE POLICY All life insurance policies are declared by law to be assignable regardless of whether the assignee has an insurable interest in the life of the insured or not. Note: The policy cannot provide a period longer than two (2) years.. (see Sec. the nearest relative of the insured shall receive the proceeds of said insurance. permit the process of assignment to be used as a cloak to hide an illegal intent to make contracts on human life such as the fact that the assignment occurred almost immediately after the policy was issued. in which event. 331 [1921]. 19) The courts will not. Thus. unless suicide is an excepted risk.

The exception is when a person insures the life of another. in which case. to the insurer is required by the provisions of the policy. in effect. 1) In policies maturing upon the expiration of the term set forth therein. Even without notice to the insurer. 11) 2. Money claims for life insurance upon the death of the insured are death claims. Civil Code. A person can purchase life insurance for any amount as long as he can pay the premium. 2. Notice not required by the policy – If the policy does not expressly require the insured to give notice of an assignment or transfer of the policy to the insurer. Assignment with consent of insurer . unless they are made payable in installments or as annuity. The beneficiary of an ordinary life insurance policy which contains an express waiver of the right to change the beneficiary acquires a vested and absolute interest which cannot be divested without his consent (Sec. NOTICE TO INSURER OF TRANSFER 1. (Sec 61).. This means that the insurer without notice is relieved of any responsibility in case payment is made to the beneficiary before receipt by the insurer of the notice.NECCESITY OF CONSENT OF BENEFICIARY TO ASSIGNMENT 1. the proceeds are immediately payable to the insured.Whether or not the policy expressly requires that notice of an assignment or transfer must be given to the insurer.) The assignee takes the newly formed contract free of defenses available to the insurer against the insured (assignor) under the old contract. The beneficiary has a mere expectancy and he cannot make an assignment of the policy until his interest in the proceeds thereof becomes absolutely fixed by the death of the insured.) In this case. Notice required by policy – Where notice. (see Sec. The notice may be given by the beneficiary or the legal representative of the insured. 3. MEASURE OF INDEMNITY UNDER LIFE POLICY The extent or amount of indemnity payable on the death of the insured under a policy of insurance upon life or health is the amount fixed in the policy. the assignment is binding upon the assignor (insured) and the assignee. the assignment with the consent of the insurer creates. the interest of the creditor in the “life of the debtor” is susceptible of exact pecuniary measurement or estimation Claims Settlement Time for payment of claims in life policies. the installments or annuities shall be paid as they become due. such notice is not essential to the validity of the assignment. Life policies are valued. shall have no effect so far as the insurer is concerned.(Art 1291. If the policy contains no such waiver. an assignment (not the policy itself) without such notice in the absence of waiver. . the proceeds are payable to the beneficiaries within 60 days after presentation of the claim and filing of proof of death. 2) In policies maturing at the death of the insured occurring prior to the expiration of the term stipulated. a novation. the insured may assign the policy without the consent of the beneficiary. 10[c]. as where a creditor insures the life of his debtor.

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