CHAPTER 4 – PREMIUM

 Insurance is a risk-spreading device

 The insurer pools the premiums by all its client
 In theory, the pool of premiums answers for the losses of each insured
 Premium is the elixir vitae (elixir of life) of insurance business

I. PREMIUM REQUIRED FOR POLICY TO BE BINDING

 Section 77 (Insurance Code). 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.
 When payment accrues
o Insurer entitled to payment of premium as soon as the thing insured is exposed
to peril insured against
o Usually, insured cannot be sued for non-payment of premium; effect of non-
payment is that the policy will not go into force
o After insurance comes into force after payment of premium, it is only the insurer
that makes a legally enforceable promise
 Payment may be made to the insurer or its agent
o Section 315 (Insurance Code) – “any insurance company which delivers to an
insurance agent or insurance broker a policy or contract of insurance shall be
deemed to have authorized such agent or broker to receive on its behalf
payment of any premium which is due on such policy or contract of insurance at
the time of its issuance or delivery or which becomes due thereon”
o Payment to an agent having authority to receive or collect payment is equivalent
to payment to the principal himself
o Such payment is complete when the money delivered is in the agent’s hands and
is a discharge of the indebtedness owing to the principal
 Industrial Life Policy
o Section 235 (Insurance Code) – the same “shall not lapse for non-payment of
premium if such non-payment was due to the failure of the company to send
its representative or agent to the insured, at the residence of the insured, or at
some other place indicated by him for the purpose of collecting such premium”
o This rule does not apply when the premium on the policy remains unpaid for a
period of three (3) months or twelve (12) weeks after the grace period has
expired.
 EFFECT OF NON-PAYMENT
o First Premium – Obligation of the insurer will not become valid and binding
o Subsequent Premiums – policies issued wull be deemed to have lapsed
o Mere delivery of promissory note or post-dated check not sufficient unless case
is covered by any of the exceptions