FM3 Module 3

MODULE 3
Rural Banks and Insurance Companies

This module contains two lessons that tackle about rural banks and insurance companies.
Lesson 1 is about “Rural banks” which discusses definition, functions, products and services
(deposits and loans), its powers, functions and the rural bank act of 1992. Lesson 2 talks
about “insurance companies” which discusses the ideas of insurance, different types of
insurance such as health, life, disability income, automobile and home, its policies and
benefits.
LESSON 1 Rural Banks

I - Learning Objectives:
At the end of this lesson, the students are expected to:
1. describe concept and nature of a rural bank, how it is organized, its operations, interests
on deposits, other operations and its significance in the financing system of the country;
and
2. demonstrate the knowledge and understanding of the concepts of rural banks through
write-up indicating its ownership, services offered, and areas covered.
II – Discussions:
The Philippines has the unique situation of having the urban areas growing much faster than
the rural areas. In the end, this imbalance will be responsible for a less desirable state of
development of the country as a whole. Since agricultural production is the main pre-
occupation of rural dwellers, this aspect of our economic life cannot be left to chance. The
maintenance of a steady supply of farm outputs like cereals, vegetables, fish and fruits are
too important to be ignored. This is the reason why the government has provided a certain
means of financial support to producers of farm products. The service referred to is called
rural banking. The implementing arms of the system are the rural banks which are located in
almost every part of the archipelago.
What is Rural Banking?
Rural banking according to Ortega is “the economic vehicle that provides banking services to
people who otherwise would not be able to avail of them- and these people are usually those
who live and work in the countryside.”
Although, rural banking may be practiced in other countries, foreign literature in finance does
not indicate so. What is clear, however that is in the Philippines, rural banking is a
government priority.
What is a Rural Bank?
A rural bank is one established and located in a rural area that provided banking and
financial services to residents of such area.
Role of Rural Banks
The New Rural Banks Act (Republic Act No. 7353) enumerates the role of rural banks in the
economic development of the country, which is as follows:
“The State hereby recognizes the need to promote comprehensive rural
development with the end in view of attaining a more equitable distribution of
opportunities, income and wealth; a sustained increase in the amount of goods
and services produced by the nation for the benefit of the life; and in expanding
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Banking and Financial Institutions (FM 3) Page 1
productivity as a key to raising the quality of life for all, especially the
underprivileged.
Towards these ends, the State hereby encourages and assists in the establishment of a rural
banking system designed to make needed credit available and readily accessible in the rural
areas on reasonable terms.”
The fundamental purpose of the existence of rural bank is to provide credit access to
farmers, fishermen and the rural communities.
Since most businesses are located in urban areas like Manila and investment funds flows in
the direction, rural banks are tasked with bringing funds to the rural areas, where they are
needed most. Rural banks play an important role in shaping the country’s economy by
making the money they generate from the countryside be available for use in developing the
rural areas. This is to minimize the ill-effects of the activities of big commercial banks in
raising money in the countryside then channelling them to businesses in the urban areas.
Organization of Rural Banks
Rural banks may be organized in accordance with pertinent laws. The establishment and
operation of rural banks shall be in accordance with the rules and regulations formulated by
the Monetary Board of the Bangko Sentral ng Pilipinas.
The requirements for the establishment of domestic banks including rural banks are indicated
in Chapter II of General Banking Act (R.A. No. 337 as amended). The following are the
highlights of the said chapter and which are applicable to rural banks:
1. rural banks shall be organized in the form of stock corporation;
2. rural banks are not allowed to issue no par value stocks of ownership;
3. rural banks shall register with the Securities and Exchange Commission but only after
a certificate of authority has been issued by the Monetary Board;
4. the qualifications of the directors and officers of a rural bank shall be prescribed by
the Monetary Board.
Regarding ownership, the New Rural Banks Acts (R.A. 7353) require that the capital stock of
any rural bank shall be fully owned and held directly or indirectly by citizens of the Philippines
or corporations, associations or cooperatives qualified under Philippines laws to own and
hold such capital stock (Section 4).
Regarding membership in the board, the New Rural Banks Act requires that all members of
the board of directors of the rural bank shall be citizens of the Philippines at the time of their
assumption to office.
POWER AND FUNCTIONS
The following are the powers and functions granted by law to rural banks:
1. to extend loans or advances for the purpose of meeting the normal credit needs of
farmers, fishermen or farm families owning or cultivating land dedicated to agricultural
production as well as the normal credit need of cooperatives and merchants;
2. to accept savings and time deposits;
3. to open current or checking accounts provided the rural bank has net assets of at
least five million pesos (₱5,000,000), subject to such guidelines as may be
established by the Monetary Board;
4. to act as correspondent for other financial institutions;
5. to act as a collection agent;
6. to act as official depositary of municipal, city or provincial funds in the municipality,
city or province where it is located, subject to such guidelines as may be established
by the Monetary Board;
7. to rediscount paper with the Philippines National Bank, the Land Bank of the
Philippines, the Development Bank of the Philippines, or any other banking
institutions, including its branches and agencies;
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8. To offer other banking services such as
a. Receive in custody funds, documents and valuable objects, and rent safety
deposit boxes for the safeguarding of such effects;
b. Act as financial agent and buy and sell, by order of and for the account
c. Make collections and payments for the account of others and perform such other
services for their customers as are not incompatible with banking business;
d. Upon prior approval of the Monetary Board, act as managing agent, adviser,
consultant or administrator of investment management advisory/ consultancy
account.
9. To extend financial assistance to private and public employees in accordance with
the provisions of Section 5 of R.A. No. 3779 as amended;
10. Subject to such guidelines as may be established by the Monetary Board, rural banks
may invests in equities of allied undertakings as follows;
a. banks, financial institutions and non-bank financial intermediaries;
b. warehousing and other post-harvest facilities;
c. fertilizer and agricultural chemical and pesticides distribution;
d. farm equipment distribution;
e. trucking and transportation of agricultural products;
f. marketing of agricultural products;
g. leasing; and
h. other undertakings as may be determined by the Monetary Board.
THE EXTENT OF RURAL BANKING
Rural Banks are important components of the Philippines financial system. In terms of
resources, they comprise 1.6% of the total resources of the Philippines financial system.
In terms of number, rural banks constitute 8.9% of the total number of financial institutions in
the Philippines, most especially in the rural areas.
LOANS AND INVESTMENTS
Loans or advances extended by rural banks shall be primarily for the purpose of meeting the
normal credit needs of farmers, fishermen or farm families owning or cultivating land
dedicated to agricultural production as well as the normal credit needs of cooperatives and
merchants.
In the granting of loans, preferences shall be given to the application of farmers and
merchants whose cash requirements are small.
Lands without Torrens Titles as Security
Loans may be granted by rural banks on the security of lands without Torrens Title where the
owner of private property can show five (5) years or more of peaceful, continuous and
uninterrupted possession in concept of owner, or of portions of friar land estate or other land
administered by the Bureau of Lands that are covered by sales contracts and the purchasers
have paid at least five (5) years instalment thereon, without the necessity of prior approval
and consent by the Director of Lands, or of portions of other estates under the administration
of the Department of Agrarian Reform or other governmental agency which are likewise
covered by sales contracts and the purchasers have paid at least five (5) years instalment
thereon, without the necessity of prior approval and consent of the Department of Agrarian
Reform or corresponding governmental agency, or of homesteads or free paten lands
pending the issuance of titles but already approved, the provisions of any pending the
issuance of titles but already approved, the provisions of any law or regulations to the
contrary notwithstanding: Provided, that when the corresponding titles are issued, the some
shall be delivered to the Register of Deeds of the province where such lands are situated for
the annotation of the encumbrance: Provided, further, that in the case of tends pending
homestead or free patent titles, copies of notices for the presentation of the final proof shall
also be furnished the creditor rural bank and, the borrower applicants fail to present the final
proof of within thirty (30) days from date of notice, the creditor rural bank may do so for them
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at their expense: Provided, furthermore, that the applicant for homestead or free patent has
already made improvements on the land and the loan applied for is to be used for further
development of the same or for other productive economic activities: Provided, finally, that
the appraisal and verification of the status of a land is a full responsibility of the rural bank
and any loan granted on any land which shall be found later to be within the forest zone shall
be for the sole account of the rural bank.
Requirements in Foreclosing Mortgages
The foreclosure of mortgages covering loans granted by rural banks and executions of
judgement thereon involving real properties levied upon by a sheriff shall be exempt from the
publications in newspapers now required by law where the total amount of loan excluding
interests due and unpaid, does not exceed one hundred thousand pesos (₱100,000) or such
amount as the Monetary Board may prescribe as may be warranted by prevailing economic
conditions. It shall be publication in such cases if the notices of foreclosure and execution of
judgment are posted in the most conspicuous area of the municipal building, the municipal
public market, the rural bank, the barangay hall, and the barangay public market, if any,
where the land mortgaged is situated during the period of sixty (60) days immediately
preceding the public auction or execution of judgment. Proof of publication as required herein
shall be accomplished by an affidavit of the sheriff or officer conducting the foreclosure sale
or execution of judgment and shall be attached with the records of the case: Provided, that
when a homestead or free patents is foreclosed, the homesteader or free patent holder, as
well as his heirs shall have the right to redeem the same within one (1) year from the date of
foreclosure in the case of land not covered by the Torrens Title or one (1) year from the date
of the registration of the foreclosure in the case of land covered by a Torrens Title: Provided,
finally, that in any case, borrowers, especially those who are more tenants, need only to
secure their loans with the produce corresponding to their share.
A rural bank shall be allowed to foreclose lands mortgaged to it: Provided, that said lands
shall covered under Republic Act No. 6657.
Loans to Small Business Enterprise
With the view to ensuring the balanced rural economic growth and expansion, rural banks
may, within limits and conditions fixed by the Monetary Board, devote a portion of their
loanable funds to meeting the normal credit needs of small business enterprises: Provided,
that loans shall not exceed fifteen percent (15%) of the net worth of a rural bank or such
conditions, and of essential enterprises or industries, other than those which are strictly
agricultural in nature.
SERVICES OFFERED
Rural banks offer services that are varied as those of other banks. A typical rural bank
accepts savings, time, and checking deposits. It also extends agricultural, industrial, and
commercial loans.
Shown in Exhibit 1.0 are the products and services offered by BDO Network Bank
PRODUCTS AND SERVICES OFFERED BY A RURAL BANK
BDO NETWORK BANK
(Source: https://www.bdonetworkbank.com.ph/product-and-services)
 DEPOSITS
o Savings
o Checking
o Auto Transfer Account
o ATM Deposit Products
o Regular Time Deposit
o 5-Year Time Deposit
 LOANS
o Kabuhayan Loan
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o Teachers Loan
 BANKING SERVICES
o Cash Management Solutions
o Remittance
o Bills Payment
o Business Online Banking
o Personal Online Banking
For the list of rural banks in the Philippines try to visit the website of Bangko Sentral ng
Pilipinas @ www.bsp.gov.ph.
REPUBLIC ACT NO. 7353

AN ACT PROVIDING FOR THE CREATION, ORGANIZATION AND OPERATION
OF RURAL BANKS, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:
Section 1. This Act shall be known and cited as the “Rural Act of 1992.”
Sec. 2. The State hereby recognizes the need to promote comprehensive rural development
with the end in view of attaining acquitable distribution of opportunities, income and wealth; a
sustained increase in the amount of goods and services produced by the nation of the benefit
of the people; and in expanding productivity as a key raising the quality of life for all,
especially the underprivileged.
Towards these ends, the State hereby encourages and assists in the establishment of rural
banking system designed to make needed credit available and readily accessible in the rural
areas on reasonable terms.
Sec. 3. In furtherance of this policy, the Monetary Board of the Central Bank of the
Philippines shall formulate the necessary rules and regulations governing the establishment
and operation of rural banks for the purpose of providing adequate credit facilities to farmers
and merchants, or to cooperatives of such farmers and merchants and in general, the people
of the rural communities, and to supervise the operation of such banks.
Sec. 4. No rural bank shall be operated without a Certificate of Authority from the Monetary
Board of the Central Bank. Rural banks shall be organized in the form of stock corporations.
Upon consultation with the rural banks in the area, duly established cooperatives and
corporations primarily organize to hold equities in rural banks may organize a rural bank
and/or subscribe to the shares of stock of any rural bank: Provided, That a cooperative or
corporation owning or controlling the whole or majority of the voting stock of the rural bank
shall be subject to special examination and to such rules and regulations as the Monetary
Board may prescribe. With exception of shareholdings of corporations organized primarily to
hold equities in rural banks as provided for under Section 12-C of Republic Act 337, as
amended, and of Filipino-controlled domestic banks, the capital stock of any rural bank shall
be fully owned and held directly or indirectly by citizens of the Philippines or corporations,
associations or cooperatives qualified under Philippine laws to own and hold such capital
stock: Provided, That any provisions of existing laws to own and hold such capital stock:
Provided, That any provision of existing laws to the contrary notwithstanding, stockholdings
in a rural bank shall be exempt from any ownership ceiling for a period of ten (10) years from
the approval of this Act: Provided, further, That any such exemption shall require the
approval of the Monetary Board. If subscription of private shareholders to the capital stock of
rural cannot be secured or is not available, or insufficient to meet the normal credit needs of
the locality, the Land Bank of the Philippines, the Development Bank of the Philippines, or
any government-owned or controlled bank or financial institution, on representation of the
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said private shareholders but subject to the investment guidelines, policies and procedures of
the bank or financial institution and upon approval of the Monetary Board of the Central
Bank, shall subscribe to the capital stock of such rural bank, which shall be paid in full at the
time of subscription, in an amount equal to the fully paid subscribe and unimpaired capital of
the private stockholders or such amount as the Monetary Board may prescribed as may be
necessary to promote and expand rural economic development: Provided, however, That
such shares of stock subscribe by the Land Bank of the Philippines, the Development Bank
of the Philippines or any government-owned or controlled bank or financial institution may be
sold at any time at market value to private individuals who are citizens of the Philippines:
Provided, finally, That in the sale of shares of stock subscribed by the Land Bank of the
Philippines, the Development bank of the Philippines or any government-owned or controlled
bank or financial institution, the registered stockholders shall have the right of preemption
within one (1) year from the date of offer in proportion to their respective holdings, but in the
absence of such buyer, preference, however, shall be given to residents of the locality or
province where the rural bank is located.
Sec. 5. All members of the Board of Directors of the rural bank shall be citizens of the
Philippines at the time of their assumption to office: Provided, however, That nothing in this
Act shall be construed as prohibiting any appointive or elective public official from serving as
director, officer, consultant or in any capacity in the bank.
No Director or officer of any rural bank shall, either directly or indirectly, for himself or as the
representative or agent of another borrow any of the deposits or funds of such banks, nor
shall he become a guarantor, endorser, or surety for loans from such bank to others, or in
any manner be an obligor for money borrowed from the bank or loaned by it except with the
written approval of the majority of the directors of the bank, excluding the director concerned.
Any such approval shall be entered upon the records of the corporation and a copy of such
entry shall be transmitted forthwith to the appropriate supervising department. The
director/officer of the bank who violates the provisions of this section shall be immediately
dismissed from his office and shall be penalized in accordance with Section 26 of this Act.
The Monetary Board may regulate the amount of credit accommodations that may be
extended directly to the directors, officers or stockholders of rural banks of banking
institutions. However, the outstanding credit accommodations which a rural bank may extend
to each of its stockholders owning two percent (2%) or more of the subscribed capital stock,
its directors, or officers shall be limited to an amount equivalent to the respective outstanding
deposits and book value of the paid-in capital contributions in the bank.
Sec. 6. Loans or advances extended by rural banks organized and operated under this Act
shall be primarily for the purpose of meeting the normal credit needs of farmers, fishermen or
farm families owning or cultivating land dedicated to agricultural production as well as the
normal credit needs of cooperatives and merchants. In granting of loans, the rural bank shall
give preference to the application of farmers and merchant whose cash requirements are
small.
Loans may be granted by rural banks on the security of lands without Torrens Title where the
owner of private property can show five (5) years on more peaceful, continuous and
uninterrupted possession in concept of owner; or of portions of friar land estates or other
lands administered by the Bureau of Lands that are covered by sales contracts and the
purchase have paid at least five (5) years installment thereon, without the necessity of prior
approval and consent by the Director of lands; or of portions of other estates under the
administration of the Department of Agrarian Reform or other government agency which are
likewise covered by sales contracts and the purchasers have paid at least five (5) years
installment thereon, without the necessity of prior approval and consent of the Department of
Agrarian Reform or corresponding government agency; or of homesteads or free patent
lands pending the issuance of titles but already approved, are issued, the provisions of any
law or regulations to the contrary notwithstanding: Provided, That when the corresponding
titles are issued, the same shall be delivered to the Register of Deeds of the province where
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such lands are situated to the annotation of the encumbrance: Provided, further, That in the
case of lands pending homestead of free patent titles, copies of notices for the presentation
of the final proof shall also be furnished the creditor rural bank and, if the borrower applicants
fail to present the final proof within thirty (30) days from date of notice, the creditor rural bank
may do so for them at their expense: Provided, furthermore, That the applicant for
homestead or free patent has already made improvements on the land and the loan applied
for is to be used for further development of the same or for other productive economic
activities: Provided, finally, That the appraisal and verification of the status of a land is a full
responsibility of the rural bank and any loan granted on any land which shall be found later to
be within the forest zone shall be for the sole account of the rural bank.
The foreclosure of mortgage covering loans granted by rural banks and executions of
judgment thereon involving real properties levied upon by a sheriff shall be exempt from the
publications in newspaper now required by law where the total amount of loan, excluding
interest due and unpaid, does not exceed One hundred thousand pesos (P100,000) or such
conditions. It shall be sufficient publication in such cases if the notices of foreclosure and
execution of judgment are posted in the most conspicuous area of the municipal building, the
municipal public market, the rural bank, the barangay hall, the barangay public market, if any,
where the land mortgaged is situated during the period of sixty (60) days immediately
preceding the public auction or execution of judgment. Proof of publication as required herein
shall be accomplished by an affidavit of the sheriff or officer conducting the foreclosure sale
or execution of judgment and shall be attached with the records of the case: Provided, That
when a homestead or free patent is foreclosed, the homesteader or free patent holder, as
well as his heirs shall have the right to redeem the same within one (1) year from the date of
the registration of the foreclosure in the case of land covered by a Torrens Title: Provided,
finally, That in any case, borrowers, especially those who are mere tenants, need only to
secure their loans with the procedure corresponding to their share.
A rural bank shall be allowed to foreclose lands mortgaged to it: Provided, That said lands
shall be covered under Republic Act No. 6657.
Sec. 7. With the view to ensuring the balanced rural economic growth and expansion, rural
banks may, within limits and conditions fixed by the Monetary Board, devote a portion of their
loanable funds to meeting the normal credit needs of small business enterprises: provided,
That loans shall not exceed fifteen percent (15%) of the net worth of a rural bank of such
conditions, and of essential enterprises or industries, other than those which are strictly
agricultural in nature.
Sec. 8. To provide supplemental capital to any rural bank until it has accumulated enough
capital of its own or stimulate private investments in rural banks, the Land Bank of the
Philippines or any government-owned or controlled bank or financial institution shall
subscribe within thirty (30) days to the capital stock of any rural bank from time to time in an
amount equal to the total equity investment of the private shareholders which shall be paid in
full at the time of the subscription of such amount as may be necessary to promote and
expand rural economic development: Provided, however, That shares of stock issued to the
Land Bank of the Philippines, the Development Bank of the Philippines or any government-
owned or -controlled bank or financial institution, may, pursuant to this section, at any time,
be paid off at par and retired in whole or in part if the rural bank has accumulated enough
capital strength to permit retirement of such shares; or if an offer is received from private
sources to replace the equity investment of the Land Bank of the Philippines, the
Development Bank of the Philippines or any government-owned or –controlled bank or
financial institution with an equivalent investment or more in the equity of such bank. In case
of retirement of stock or replacement of equity investment of the Land Bank of the
Philippines, the Development Bank of the Philippines or any government-owned or –
controlled bank or financial institution, the registered private shareholders of the rural bank
shall have the right of preemption within one (1) year from the date of offer in proportion to
their respective holdings.
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Stock held by the Land Bank of the Philippines, the Development Bank of the Philippines or
by any government-owned or –controlled bank or financial institution, under the terms of this
section, shall be made preferred only as to assets upon liquidation and without power to vote
and shall share in dividend distribution from the date of issuance in the amount of four
percent (4%) on the first and second years, six percent (6%) on the third and fourth years,
eight percent (8%) on the fifth and sixth years, ten percent (10%) on the seventh and eighth
years and twelve percent (12%) on the ninth to the fifteen years without preference:
Provided, however, That is such stock of the Land Bank of the Philippines, the Development
bank of the Philippines or any government-owned or –controlled bank or financial institution
is sold to private shareholders, the same may be converted into common stock of the class
provide for in Section 10 hereof: Provided, further, That pending the amendment of Articles
of Incorporation of the rural bank, if necessary, for the purpose of reflecting the conversion
into common stock of preferred stock sold to private stockholders, the transfer shall be
recorded by the rural bank in the stock and transfer book and such shareholders shall
thereafter enjoy all the rights and privileges of common stockholders. The preferred stocks
so transferred shall be surrendered and cancelled and the corresponding common stocks
shall be issued.
The corporate secretary of the rural bank shall submit to the Central Bank and the Securities
and Exchange Commission a report on every transfer of preferred stock to private
shareholders, and such report received by the Securities and Exchange Commission shall
form part of the corporate records of rural bank. When all the prepared shares of stock of a
rural bank have been sold to private shareholders, the Articles of Incorporation of the rural
bank shall be amended to reflect the conversion of the preferred shares of stock into
common stock. For this purpose, the President, the corporate secretary, and a majority of the
Board of Directors, shall be filed with the Securities and Exchange Commission, which shall
attach the same to the original Articles of Incorporation on file with said office.
The Securities and Exchange Commission shall not register and amended Articles of
Incorporation unless accompanied by the Certificate of Authority required under Section 9 of
Republic Act No. 337, as amended.
All supervised past due and restructured past due loans, including those covered under
existing rehabilitation programs of the Central Bank, and fifty percent (50%) of non-
supervised past due and restructured past due loans including accrued interest thereon on
rural banks organized under Republic Act No. 720, as amended, as of December 31, 1986,
shall be converted into preferred stocks, of the rural bank and issued in favor of the Land
Bank of the Philippines, the Development Bank of the Philippines or any government-owned
or –controlled bank or financial institution: Provided, That penalties thereon are hereby
warned except accrued interest on arrearages: Provided, further, That rural banks that prefer
to settle their arrearages under a plan or payment or a combination of both plan of payment
and conversion may do so in accordance with existing regulations and provisions of this Act:
Provided, furthermore, That rural banks shall match these preferred stocks with private
equity in equal annual installments over a period of fifteen (15) years to begin three (3) years
after conversion: Provided, finally, That the Central Bank, the Land Bank of the Philippines,
the Development Bank of the Philippines and any government-owned and –controlled bank
or financial institution shall continue to rediscount subject to their respective programs,
policies and guidelines against papers evidencing a loan granted by a rural bank in order to
achieve the declared policy and promote the objectives of this Act.
Sec. 9. The Land Bank of the Philippines, the Development Bank of the Philippines, or any
government-owned or –controlled bank or financial institution may obtain from any source as
may be authorized under existing laws and regulations such amount as it may require for the
purpose of subscribing to the shares of stock of rural bank: as provided in Section 13 of this
Act.
Sec. 10. Stock certificates shall be issued to represent the contributions to capital stock of
the rural bank by the Government through the Land Bank of the Philippines, the
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Development Bank of the Philippines or through any government-owned or –controlled bank
or financial institutions, and by qualified persons under such terms and conditions as the
Monetary Board mat prescribe. The powers of the Monetary Board over rural banks shall
extend to prescribing the amount, value and class of stock issued by any rural bank,
organized under this Act.
Sec. 11. The power to supervise the operation of any rural bank by the Monetary Board as
herein indicated shall consists in placing limits to the maximum credit allowed to any
individual borrower; in prescribing the interest rate; in determining the loan period and loan
procedures; in indicating the manner in which technical assistance shall be extended to rural
banks; in imposing a uniform accounting system and manner of keeping the accounts and
records of rural banks; in instituting periodic surveys of loan and lending procedures, audits,
test-check of cash and other transactions of the rural banks; and, in general in supervising
the business operations of the rural banks.
The Central bank shall have the power to enforce the laws, orders, instructions, rules and
regulations promulgated by the Monetary Board applicable to rural banks; to require rural
banks, their directors, officers and agents to conduct and manage the affairs of the rural
banks in a lawful and orderly manner, and, upon proof that the rural bank of its Board of
Directors, or officers are conducting and managing the affairs of the banking in a manner
contrary to the laws, orders, instructions, rules and regulations promulgated by the Monetary
Board or in a manner substantially prejudicial in the interest of the Government, depositors or
creditors, to take over the management of such bank when specifically authorized to do so
by the Monetary Board after due hearing process until a new board of directors and officers
are elected and qualified without prejudice to the prosecution of the persons for such
violations under the provisions of Sections 32, 33 and 34 of Republic Act No. 265, as
amended.
The management of the rural bank by the Central Bank shall be without expense to the rural
bank, except such as is actually necessary for its operation, pending the election and
qualification of a new board of directors and officers to take place of those responsible for the
violations or acts contrary to the interest of the Government, depositors or creditors.
The director and the examiners of the department of the Central Bank charged with the
supervision of rural banks are hereby authorized to administer oaths to any director, officer or
employee of any rural bank or to any voluntary witness and to compel the presentation of all
books, documents, papers or records necessary in his or their judgment to ascertain the
facts relative to the true condition of any rural bank or to any loan
Sec. 12. In addition to the operations especially authorized in this Act, any rural bank may:
Accept saving and time deposit;

Open current or checking accounts, provided the rural bank has net assets of at least Five
million (P5,000,000) subject to such guidelines as may be established by the Monetary
Board:
Act as correspondent for other financial institutions;
Act as a collection agent;
Act as official depositary of municipal, city or provincial funds in the municipality, city or
province where it is located, subject to such guidelines as may be established by the
Monetary Board;
Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the
Development Bank of the Philippines, or any other banking institution, including its branches
and agencies. Said institution shall specify the nature of paper deemed acceptable for
rediscount, as well as the rediscount rate to be charged by any of these institutions;
Offer other banking service as provided in Section 72 of Republic Act No. 337, as amended,
and
Extend financial assistance to public and private employees in accordance with the
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provisions of Section 5 of Republic Act No. 3779, as amended.
With written permission of the Monetary Board of the Central bank, any rural bank may act
as trustee over estates or properties of farmer and merchants.
Nothing in this section shall be construed as precluding a rural bank from performing, with
prior approval of the Monetary Board, all the services authorized and mortgage banks, of for
commercial banks, under an expanded banking authority as provided in Section 21-B of the
same Act.
Sec. 13. Subject to such guidelines as may be established by the Monetary, rural banks may
invest in equities of the allied undertakings are hereinafter enumerated: Provided, That: (a)
the total investment in equities shall not exceed twenty- five percent (25%) of the net worth of
the rural bank; (b) the equity investment in any single enterprise shall be limited to fifteen
percent (15%) of the net worth of the rural bank; and (c) the equity investment of the rural
bank in any single enterprise shall remain a minority holding in that enterprise: Provided,
further, That equity investment shall not be permitted in non-related activities.
Allied undertaking shall include:
banks, financial institutions and non-bank financial intermediaries;

Warehousing and other post-harvested facilities;
Fertilizer and agricultural chemical and pesticides distribution;
Farm equipment distribution;
Trucking an transportation of agricultural products;
Marketing and agricultural products;
Leasing; andOther undertakings as may be determined by the Monetary Board.
Sec. 14. The Land Bank of the Philippines, the Development Bank of the Philippines or any
government-owned or –controlled bank or financial institution shall, within sixty (60) days of
certification of the Monetary Board, which shall be final, extend to a rural bank a loan or
loans from time to time repayable in ten (10) years, with concessional rates of interest,
against security which may be offered by any stockholders or stockholders of the rural bank:
Provided:
That the Monetary Board is convinced that the resources of the rural bank are inadequate to
meet the legitimate credit requirements of the locality wherein the rural bank is established.;
That there is a dearth of private capital in the said locality; and
That it is not possible for the stockholders of the rural bank to increase the paid-up capital
thereof.
Sec. 15. All rural banks created and organized under the provisions of this Act shall be
exempt from the payment of all taxes, fees and charges of whatever nature and description,
except the corporate income tax and local taxes, fees and charges, for a period of five (5)
years from the date of commencement of operations.
All rural banks in operation as of the date of approval of this Act shall be exempt from the
payment of all taxes, fees and charges of whatsoever nature and description, except the
corporate income tax and local taxes, fees and charges, for a period of five (5) years from
the approval of this Act.
Sec. 16. In an emergency or when a financial crisis is imminent, the Central Bank may give a
loan to any rural bank against assets of the rural bank which may be considered acceptable
by a concurrent vote of at least four (4) members of the Monetary Board.
In normal times the Central bank may rediscount against paper evidencing a loan granted by
a rural bank to any of its customers which can be liquefied for a period of three hundred sixty
(360) days: Provided, however, That for the purpose of implementing a nationwide program
of agricultural and industrial development, rural banks are hereby authorized, under such
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terms and conditions as the Central bank shall prescribe, to borrow, on a medium – or long-
term basis, funds that the Central Bank or any other government financing institution shall
borrow from the Development Bank of the Philippines or other international or foreign-lending
institutions for the specific purpose of financing the abovestated agricultural and industrial
program. Repayment of loans obtained by the Central Bank of the Philippines or any other
government financing institutions from said foreign-lending institutions under this section
shall be guaranteed by the Republic of the Philippines.
Sec. 17. Deposits of rural banks with government-owned or –controlled financial institutions
like the Land Bank of the Philippines, the Development Bank of the Philippines, and the
Philippine national Bank are exempted from the Single Borrower’s Limit imposed by the
General Banking Act.
In areas where there are no government banks, rural banks may deposit in private banks
more than the amount prescribed by the Single Borrower’s Limit subject to Monetary Board
regulations.
Sec. 18. To encourage consolidation and mergers of rural banks, if there are five (5) or more
rural banks within the region that merge and consolidate within three (3) years from the
enactment of this Act, the merged or consolidated entity will be given the following incentives
for a period of seven (7) years:
Its deposit liabilities shall be subjected to only one-third (1/3) of reserves normally required
for rural banks;
Its reserve requirement can all be maintained under interest-bearing government securities
but kept unencumbered with government financial institutions or the Central Bank; and
It shall have unrestricted branching right within the region, free from any assessment or
surcharge required in setting up a branch but under coordination with the Central bank which
will have to assess that there are qualified personnel, control and procedures to operate the
branch.
Sec. 19. The Central Bank of the Philippines shall extend technical assistance to any rural
bank in the process of organization or during the course of operations whenever it is
requested to do so or whenever the Monetary Board deems it necessary to preserve, protect
and promote the objectives of this Act: Provided, however, That said assistance shall be
without cost or obligation on the part of the rural bank.
Sec. 20. Any city or municipal trial court in his capacity as notary public ex officio shall
administer the oath to or acknowledgement the instruments of any rural bank and to
borrowers or mortgagors, fee from all charges, fees and documentary stamp tax, collectible
under existing laws, relative to any loan or transaction not exceeding Fifty thousand pesos
(P50,000), or such amount as the Secretary of Finance, upon recommendation of the
Monetary Board may prescribe as may be necessary to promote and expand the rural
economy.
Sec. 21. Any Register of Deeds shall accept from any rural bank and its borrowers and
mortgagors for registration, free from all charges, fees and documentary stamp tax,
collectible under existing laws, any instrument, whether voluntary or involuntary, relating to
loans or transaction extended by a rural bank in an amount not exceeding Fifty thousand
pesos (P50,000): Provided, however, That charges, if any, shall be collectible on the amount
in excess of Fifty thousand pesos (P50,000); and that in instruments related to assignments
of several mortgage consolidated in a single deed, if any, shall be levied only on the amount
in excess of Fifty thousand pesos (P50,000) of the consideration in the assignments of each
mortgage, of such amount as the Secretary of Finance, upon recommendation of the
Monetary Board may prescribe as may be necessary to promote and expand the rural
economy.
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Sec. 22. Any rural bank organized under this Act may, pursuant to regulations promulgated
for the purpose by the Monetary Board, be required to contribute to the Central Bank an
annual fee to help defray the cost of maintaining the appropriate supervising department
within the central bank in an amount to be determined by the Monetary Board but in no case
to exceed one-fortieth of one percent (1/40 of 1%) of its average total assets during the
preceding year, as shown on its end-of-month balance sheets, after deducting its cash on
hand and amounts due from banks, including the Central Bank.
Sec. 23. Every individual acting as officer or employee of a rural bank and handling funds or
securities amounting to Five thousand pesos (P5,000) or more than one (1) year, shall be
covered by an adequate bond as determined by the Monetary Board; and the bylaws of the
rural bank may also provide for the bonding of other employees or officers of rural banks.
Sec. 24. For the purpose of carrying out the objectives of this Act, the Central Bank is
authorized to require the services and facilities of any department or instrumentality of the
Government or any officer or employee of any such department or government
instrumentality.
Sec. 25. Rural banks organized and operated under the provisions of this Act shall act as
agents of the Philippine National Bank, the Land Bank of the Philippines and the
Development Bank of the Philippines in places where these banks have no offices, subject to
accreditation guidelines.
Sec. 26. Without prejudice to any prosecution under any law which may have been violated a
fine of not more than ten thousand pesos (P10,000) or imprisonment of not less than six (6)
months but not more than ten (10) years, or both, at the discretion of the court, shall imposed
upon:
Any officer, employee, or agent of a rural bank who shall:

Make fake entries in any bank report or statement thereby affecting the financial interest of or
causing damage to, the bank or any person;
Without order of a court of competent jurisdiction, disclose any information relative to the
funds or properties in the custody of the bank belonging to private individuals, corporations,
or any other entity;
Accept gifts, fees or commission or any other form of remuneration in connection with the
approval of a loan from said bank; or
Overvalue or aid in overvaluing any security for the purpose of influencing in any way the
action of the bank on any loan; or
Appear and sign as guarantor, indorser, or surety for loans granted; or
Violate any of the provisions of this Act.
Any applicant for a loan from, or borrower of a rural bank who shall:
Misuse, misapply, or divert the proceeds of the loan obtained by him from its declared
purpose; or
Fraudulently overvalue property offered as security for loan from said bank; or
Give out or furnish false misrepresentation of material facts for the purpose of obtaining,
renewing, or increasing a loan or extending the period thereof; or
Attempt to defraud the said bank in the event of court action to recover a loan; or
Offer any officer, employee, or agent of a rural bank as a gift, fee, commission, or other form
of compensation in order to influence such bank personality in approving an application; or
Dispose or encumber the property or the crops offered as security for the loan.
Any examiner, or officer or employee of the Central Bank of the Philippines or other
department, bureau, office, branch or agency of the Government who is assigned to
examine, supervise, assist or render technical services to rural banks and who shall connive
or aid in the commission of the same.
Sec. 27. Any municipal trial court judge or register of deeds who shall demand or accept,
directly or indirectly, any gift, fee, commission or other form of compensation in connection
with the service, or the registration of documents required to be as provided in Section 20
and by said register of deeds as proposed in Section 21 of this Act, shall be punished by One
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thousand pesos (P1,000) or by imprisonment for not more than one (1) year, or both, at the
discretion of the court.
Sec. 28. Any bank not organized under this Act and any person, association, or corporation
doing the business of banking, not authorized under this Act which shall use the words “Rural
Bank” as part of the name or title of such bank or of such person, association, or
corporations, shall be punished by a fine of not less than Fifty pesos (P50) for each day
during which said words are so used.
Sec. 29. The Monetary Board of the Central Bank shall submit a report to the Congress of
the Philippines as the end of each calendar year of all the rules and regulations promulgated
by it in accordance with the provisions of this Act, as well as its other actuations in
connection with rural banks, together with an explanation of its reasons therefor.
Sec. 30. If any provision or section of this Act or the application thereof to any person or
circumstances is held invalid, the other provisions or sections of this Act, and the application
of such provision or section to other persons or circumstances, shall not be affected thereby.
Sec. 31. Republic Act No. _____, as amended, is hereby repealed. The provisions of
Republic Act No. 265, as amended, and Republic Act No. 337, as amended, insofar as they
are applicable and not in conflict with any provision of this Act, are hereby made a part of this
Act.
Sec. 32. This Act shall take effect upon its approval.
Approved,
NEPTALI GONZALES
President of Senate
RAMON V. MITRA
Speaker of the House of Representatives
This Act which is a consolidation of House Bill No. 28736 and Senate Bill No. 1554 was
finally passed by the House of Representatives and the Senate on January 22, 1992.
CAMILO L. SABIO
Secretary of the Senate Secretary General
House of Representatives
Approved : April 02, 1992
CORAZON C. AQUINO
President of the Philippines
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Name: ___________________________________ Section/Year Level: _____________
Major: ___________________________________ Semester/ Academic Year: __________
Course Code/Course Title: __________________ Date Submitted:___________________
Instructor: Sharon May F. Ronquillo, MBA
Exercise 1.1
Directions: Answer the following items correctly.
Test I. Fill in the blanks.
1. A ___________________________ is one established and located in a rural area that

provides banking and financial services to resident of such area.
2. Rural banks are mandated to be organized in the form of _______________________.
3. In the granting of loans, preferences shall be given by rural banks to the application of
___________________________________ whose cash requirements are small.
4. A typical rural bank accepts savings, time, and ______________________ deposits.
5. Rural banks are also extends agricultural, industrial, and _________________ loans.
Test II. True or False. Write T on the blank if your answer is TRUE, and F, if it is FALSE.
______1. Rural banks are mainly concerned with the development of urban areas.
______2. Rural banks may act as correspondent for other financial institutions.
______3. A rural bank may act as collection agent.
______4. Rural banks are allowed to issue no par value stocks of ownership.
______5. Rural banking is a government priority.
Test III. Match column A with column B.
COLUMN A
_____1. The qualifications of the directors and officers of rural bank.
_____2. To open checking accounts
_____3. Equities in leasing
_____4. Lands without Torrens title
_____5. Make collections and payments for the account of others
_____6. Agricultural production
_____7. Rural banks
_____8. The fundamental purpose of the existence of rural banks
_____9. Current accounts
_____10. Redemption of foreclosed property
COLUMN B
A. A power vested on rural banks

B. An investment option of rural banks
C. May be accepted by rural banks as collateral subject to certain requirements
D. A function of rural banks
E. Shall be prescribed by the Monetary Board
F. The implementing arm of the rural banking systems
G. To provide credit access to farmers, fishermen, and the rural communities
H. Also called checking account
I. Within one year from the date of foreclosure
J. The main pre-occupation of rural dwellers
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Exercise 1.2
Directions: Prepare a write-up of a rural bank in your area indicating the following:
a. Ownership
b. Services offered
c. Areas covered
d. capitalization
__________________________________________________________________________
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__________________________________________________________________________
__________________________________________________________________________
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LESSON 2 INSURANCE COMPANIES
I - Learning Objectives:
At the end of this lesson, the students are expected to:
1. identify the different types of insurance;
2. explain the primary function of an insurance company compare with that of a
depository institution; and
3. demonstrate the knowledge and understanding of the concept of insurance through
searching the top insurance companies in our country and its revenue and assets.
II – Discussions:
Risk is everywhere. When we discuss risk we are not talking about the board game you may
have played; instead we are referring to the potential occurrence of a loss of something of
value. Risk can take on many forms: loss of or damage to property, premature death, illness,
being found legally responsible for others’ loss, or outliving one’s financial resources. In this
lesson we examine various ways of shifting risk onto other entities. It is important to
remember that risk can never be eliminated, it can only be transferred. We review how risk is
shifted to another entity via the market for insurance.
Insurance services offered by financial institutions (FIs) compensate individuals and

corporations (policyholders) if a prespecified adverse event occurs, in exchange for
premiums paid to the insurer by the policyholder. The insurance provide can act either as an
insurance underwriter or insurance broker. An insurance underwriter assesses the risk of an
applicant for coverage or for a policy. An insurance broker simply sells insurance contracts
for coverage or for a policy. Thus, a broker acts more as an intermediary between the
insurance underwriter and the applicant. Insurance services are classified into two major
groups: (1)life and (2) property-casualty. Life insurance provides protection in the event of
untimely death, illnesses, and retirement. Property-casualty insurance protects against
personal injury and liability due to accidents, theft, fire and other catastrophes. Many FIs offer
both life and property-casualty services. Further, many FIs that offer insurance services also
sell a variety of investment products in a similar fashion to other financial service firms, such
as mutual fund and commercial banks.
The Idea of Insurance
To understand the idea of insurance, it is first important to understand different kinds of risk
that exist. With pure or insurable risk there are two potential outcomes: a loss or no loss.
For example, you get into an accident with your automobile, your car is damaged, and you
incur a loss; or, you drive your card accident free and there is no loss. On the other hand,
with speculative risk there are three potential outcomes: a gain, a loss, or no loss.
Pure or insurable risk: Category or type of risk where the only possible outcomes are loss
or no loss.
Speculative risk: Category or type of risk where the possible outcomes are loss, no loss, or
a gain.
An insurance policy is a contract between you (the insured) and an insurance company (the
insurer) under which the insurance company agrees to reimburse you for any losses you
suffer according to specified terms. From your perspective, you are transferring your risk of
loss to the insurance company. You pay a relatively small certain amount (the insurance
premium) in exchange for a promise from the insurance company that it till reimburse you if
you suffer a covered loss.
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Why are insurance companies willing to accept risk? They combine the loss experiences of
large numbers of people and use statistical information, called actuarial data, to estimate the
risk – frequency and magnitude – of loss for the given population. They set and collect
premiums, which they invest and use to pay out losses and expenses. If they pay out less
than the sum of the premiums and the earnings on them, they make a profit. The following
types of insurance are health, life, disability income, automobile and home.
HEALTH INSURANCE
The next best thing to good health is a good health insurance plan. In recent years, the price
of medical treatment has risen dramatically. The cost of a major illness can easily total tens
or hundreds or even millions of pesos in expense due to hospital, medical care, and loss of
income. Health insurance helps you pay both routine and major medical care costs.
Health insurance coverage can be obtained from (1) private sources and (2) government-
sponsored programs. In 2018, total health expenditures (THE) grew by 8.3% amounting to ₱
799.1 billion from ₱ 737.8 billion in 2017. It contributed 4.6% to the Gross Domestic Product
or GDP of the country. The household (household-out-of-pocket payment or OOP) spent the
highest health expenditures at 53.9% or equivalent to ₱ 413 billion. Health spending financed
through government schemes and compulsory contributory health care financing schemes
was at ₱ 260.6 billion or 34%. Voluntary health care payment schemes contributed ₱ 93.3
billion or 12.2%.
[CATEGORY
NAME]
[PERCENTAGE
] [CATEGORY
[CATEGORY NAME]
NAME] [PERCENTAGE]
[PERCENTAGE
]
Household-out-of-pocket payment
Government schemes and compulsory contributory health care financing schemes
Voluntary health care payment schemes
Figure 1. Current Health Expenditures by Financing Scheme, Philippines: 2018
Private Health Insurance Plans
Private companies sell a variety of health insurance plans to both groups and individuals.
Group health insurance is a contract written between a group (such as an employer, union,
credit union, or other organization) and the health care provided: a private insurance
company (such as Sun Life of Canada- Philippines, Pru Life Insurance Corp. of UK,
Philippine AXA Life Insurance, Corp. etc.) or a managed care organization. Most private
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health insurance plans fall into one of two categories: traditional indemnity (fee-for-service)
plans and managed care plans, which include health maintenance organizations (HMOs),
preferred provider organizations (PPOs), and similar plans. Both categories of plans cover, in
somewhat different ways, the medical care costs arising from illness or accidents. The table
below compares the differences among the three most common types of health plans.
Choices of
Premium Out-of-Pocket Annual
Type Service
Cost Costs Deductible
Providers
Low if high-
Usually 20% of
deductible
medical
Indemnity Yes plan; high if Yes
expenses plus
low-deductible
deductible
plan
Health
Maintenance
No Low Low co-pay No
Organization
(HMO)
Low if using
network
Preferred
providers,
Provider Higher than
Some higher if No
Organization HMO
provider is
(PPO)
outside the
network
Table 1. How the Most Common Types of Health Plans Compare
1. Traditional Indemnity (Fee-for-Service) Plans – the health care provider is

separate from your insurer. Your insurer either pays the provider directly or
reimburses your expenses when you submit claims for medical treatment.
2. Managed Care Plans – subscribers/users contract with and make monthly payments
directly to the organization that provides the health care service. Managed care plans
members receive comprehensive health care services from a designated group of
doctors, hospitals, and other providers. The insured pays no deductibles and only a
small fee, or co-payment, for office visits and medications.
a. Health Maintenance Organization (HMO) – is an organization of hospitals,
physicians, and other health care providers that provides comprehensive
health care services to its members. HMO members pay a monthly fee that
varies according to the number of people in their family. The advantages of
HMO membership include a lack of deductibles, few or no exclusions, and not
having to file insurance claims. The primary disadvantages are that HMO
members can’t always choose their physicians and they may face limitations
on care outside of the geographic area of the HMO.
b. Preferred Provider Organization (PPO) – is a managed care plan that has
the characteristics of both an individual practice association (IPA) and an
indemnity plan. An insurance company or provider group contracts with a
network of physicians and hospitals that agree to accept a negotiated fee for
medical services provided to the PPO members. Unlike the HMO, however, a
PPO also provides insurance coverage for medical services not provided by
the PPO network, so you can choose to go to other doctors or hospitals. You
will, however, pay a higher price for medical services provided by network
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doctors and hospitals.
Government Health Insurance Plans
In addition to health insurance coverage provided by private sources, government agencies

(such as Philippine Health Insurance Corporation) provide health care coverage to eligible
individuals. The Philippine government has enacted the Universal Health Care Act or
Republic Act No. 11223 that automatically enrol all Filipino citizens in the National Health
Insurance Program and prescribes complementary reforms in the health system.
 Philippine Health Insurance Corporation
Philippine Health Insurance Corporation or Philhealth is a tax-exempt government

corporation attached to the Department of Health for policy and guidance. It is primarily
designated to provide health insurance coverage and ensure affordable, acceptable,
available and accessible health care services for all citizens of the Philippines. It shall serve
as the means for the healthy to help pay for the care of the sick and for those who can afford
medical care to subsidize those who cannot.
Medical Expense Coverage and Policy Provisions
To evaluate different insurance plan options you should compare and contrast what they
cover and how each plan’s policy provisions may affect you and your family. By doing so,
you can decide which health plan offers the best protection at the most reasonable cost.
Types of Medical Expense Coverage
1. Hospitalization insurance policy – reimburse you for the cost of your hospital stay.
Hospitalization policies usually pay for a portion of: (1) hospital’s daily semiprivate
room rate, which typically includes meals, nursing care, and other routine services
and (2) the cost of ancillary services such as laboratory tests, imaging, and
medications you receive while hospitalized. Many hospitalization plans also cover
some outpatient and out-of-hospital services once you’re discharged, such as in-
home rehabilitation, diagnostic treatment, and preadmission testing. Some
hospitalization plans merely pay a flat daily amount for each days of hospitalization
and a maximum peso amount on ancillary services that they will reimburse.
2. Surgical Expense insurance – covers the cost of surgery in or out of hospital. Usually,
surgical expense coverage is provided as part of hospitalization insurance policy or
as a rider to such a policy. Most plans reimburse reasonable and customary surgical
expenses based on a survey of surgical costs during the previous year. They may
also cover anesthesia, nonemergency treatment using imaging, and a limited
allowance for diagnostic tests. Some plans still pay according to a schedule of
benefits, reimbursing up to a fixed maximum for a particular surgical procedure.
3. Physicians expense insurance – also called regular medical expense insurance,
covers the cost of visits to a doctor’s office or for a doctor’s hospital visits, including
consultation with a specialist. Also covered are imaging and laboratory tests
performed outside of a hospital. Plans are offered on either a reasonable and
customary or schedules benefit basis. Sometimes, the first few visits with the
physician for any single cause are excluded. This exclusion serves the same purpose
as the deductible and waiting-period features found in other types of insurance.
Often, these plans specify a maximum payment per visit as well as maximum number
of visits per injury or illness.
4. Major medical insurance plans – provide broad coverage for nearly all types of
medical expenses resulting from either illnesses or accidents. The amounts that can
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be collected under this coverage are relatively large and some policies have no limits
at all. Because hospitalization, surgical, and physicians expense coverage meets the
smaller medical costs. Many people buy major medical with a high deductible to
protect against a catastrophic illness.
5. Comprehensive major medical insurance plan – combines basic hospitalization,
surgical, and physicians expense coverage with major medical protection into a single
policy, usually with a low deductible. Comprehensive major medical insurance is often
written under a group contract, although efforts have been taken to make this type of
coverage available to individuals.
6. Dental insurance – covers necessary dental care and some dental injuries sustained
through accidents. Expenses for accidental damage to natural teeth are normally
covered under standard surgical expense and major medical policies. Covered
services may include examinations, X-rays, dental cleanings, fillings, extractions,
dentures, root canal therapy, orthodontics, and oral surgery. The maximum coverage
under most dental policies is often low so these plans don’t fully protect against high
dental work costs.
The types of health plans discussed above are sufficient to meet the protection needs of
most individuals and families. But insurance companies offer other options that provide
limited protection against certain types of perils:
 Accident policies that pay a specified sum to an insured injured in a certain type of
accident.
 Sickness policies, sometimes called dread disaster policies, that pay a specified
sum for a named disease, such as cancer.
 Hospital income policies that guarantee a specific daily, weekly, or monthly
amount as long as the insured is hospitalized.
Remember that sound insurance planning seldom dictates the purchase of such
policies. The cost of purchasing these insurance options typically outweighs the limited
coverage they provide. Accident and sickness policies, for example, usually cover only one
type of accident or illness, and hospital income policies generally exclude illnesses that could
result in extended hospitalization and health conditions existing at the time of purchase.
The problem with buying policies that cover only a certain type of accident, illness, or
financial need is that major gaps in coverage will often occur. Financial loss can be just as
great regardless of whether the insured falls down a flight of stairs or contracts cancer, lung
disease, or heart disease. Most limited-peril policies should be used only to supplement a
comprehensive insurance program if the coverage is not overlapping.
DISABILITY INCOME INSURANCE

When a family member becomes sick for an extended period, the effect on the family goes
beyond medical bills. In 2018, the percentage of Filipinos who have life insurance passed the
halfway mark of the country’s total population wherein out of the estimated 104.9 million
Filipinos, 52.07% of it are now reported to have availed life insurance coverage. Although
most Filipinos have life insurance, few have taken steps to protect their family should a
serious illness or accident prevent them from working for an extended period.
The best way to protect against the potentially devastating financial consequences of a
health-related disability is with disability income insurance. Disability income insurance
provides families with weekly or monthly payments to replace income when the insured is
unable to work because of a covered illness, injury, or disease. Some companies also offer
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disability income protection for a spousal homemaker; such coverage helps pay for the
services that the spouse would normally provide.
Social Security System in the Philippines offer disability benefits but there are some
conditions that should be met before one can avail those benefits. Like for example, only the
totally and permanently disabled members are entitled to the lifetime monthly pension
however this pension ceases the moment the pensioner recovers from such disability,
resumes employment, or fails to report for annual physical examination when notified by
SSS.
The need for disability income coverage is great. Although most workers receive some
disability insurance benefits from their employer, in many cases, the group plan falls short
and pays only about 60% of salary for a limited period. The first step in considering disability
income insurance is to determine the peso amount your family would need (typically monthly)
if an earner becomes disabled. Then you can buy the coverage you need or supplement
existing coverage if necessary.
Disability Income Insurance Provisions and Costs
The scope and cost of your disability income coverage depend on its contractual provisions.
Although disability income insurance policies can be complex, certain features are important:
(1) definition of disability, (2) benefit amount and duration, (3) probationary period, (4) waiting
period, (5) renewability, and (6) other provisions.
Definition of disability
Disability policies vary in the standards you must meet to receive benefits. Some pay
benefits if you’re unable to perform the duties of your customary occupation – the own
occupation definition – whereas others pay only if you can engage in no gainful employment
at all – the any occupation definition. Under the “Own occupation” definition, a professor who
lost his voice – yet could still be paid to write or do research – would receive full benefits
because he couldn’t lecture, a primary function of his occupation. With a residual benefit
option, you would be paid partial benefits if you can only work part-time or at a lower salary.
The “Any occupation” definition is considerably less expensive because it gives the insurer
more leeway in determining whether the insured should receive benefits.
Benefit Amount and Duration
Most individual disability income policies pay a flat monthly benefit, which is stated in the
policy, whereas group plans pay a fixed percentage of gross income. In either case, insurers
normally won’t agree to amounts of more than 60% to 70% of the insured’s gross income.
Insurers won’t issue policies for the full amount of gross income because this would give
some people an incentive to fake a disability (for example, “bad back”) and collect more in
insurance benefits than they normally would receive as take-home pay.
Monthly benefits can be paid for a few months or a lifetime. If you’re ensured a substantial
pension, Social Security System, or other benefits at retirement, then a policy that pays
benefits until age 65 is adequate. Most people, however, will need to continue their
occupations for many more years and should consider a policy offering lifetime benefits.
Many policies offer benefits for periods as short as 2 or 5 years. Although these policies may
be better than nothing, they don’t protect against the major financial losses associated with
long-term disabilities.
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Probationary Period
Both group and individual disability income policies are likely to include a probationary
period, usually 7 to 30 days, which is a time delay from the date the policy is issued until
benefit privileges are available. Any disability stemming from an illness, injury, or disease
that occurs during the probationary period is not covered – even if it continues beyond this
period. This feature keeps costs down.
Waiting Period
The waiting, or elimination, period provisions in a disability income policy are similar to those
discussed for long-term care insurance. Typical waiting periods range from 30 days to 1
year. If you have an adequate emergency fund to provide family income during the early
months of disability, you can choose a longer waiting period and substantially reduce your
premiums.
Renewability
Most individual disability income insurance is either guaranteed renewable or non-

cancelable. As with long-term care policies, guaranteed renewability ensures that you can
renew the policy until you reach the age stated in the clause, usually age 65. Premiums can
be raised over time if justified by the loss experience of all those in the same class (usually
based on age, sex, and occupational category). Non-cancelable policies offer guaranteed
renewability, but they also guarantee that future premiums will remain the same as those
stated in the policy at issuance. Because of this stable premium guarantee, non-cancelable
policies generally are more expensive than those with only a guaranteed renewability
provision.
Other Provisions
The purchasing power of income from a long-term, disability policy that pays, say ₱10,000
per month could severely be affected by inflation. In fact, a 3% inflation rate would reduce the
purchasing power of this ₱10,000 benefit to less than ₱7,500 in 10 years. To counteract such
a reduction, many insurers offer a cost-of-living adjustment (COLA). With a COLA provision,
the monthly benefit is adjusted upward each year, often in line with the CPI, although these
annual adjustments are often capped at a given rate (say, 8%). Although some financial
advisors suggest buying COLA riders, others feel the 10% to 25% additional premium is too
much to pay given for it.
Although COLA provision applies only once the insured is disabled, the guaranteed
insurability option (GIO) can allow you to purchase additional disability income insurance in
line with inflation increases while you are still healthy. Under the GIO, the price of this
additional insurance is fixed at the contract’s inception, and you don’t have to prove
insurability.
A waiver of premium is standard in disability income policies. If you’re disabled for a

minimum period, normally 60 or 90 days, then the insurer will waive any future premiums that
come due while you remain disabled. In essence, the waiver of premium gives you additional
disability income insurance in the amount of your regular premium payment.
“Remember that disability income insurance is just one part of your overall personal
financial plan. You’ll need to find your own balance between cost and coverage.”
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HOME INSURANCE
The homeowner’s policy offers property protection, accompanying structures, and personal
property of homeowners and their families. Coverage for certain types of loss also applies to
lawns, trees, plants, and shrubs. However, the policy excludes structures on the premises
used for business purposes (except incidentally), animals (pets or otherwise), and motorized
vehicles not used in maintaining the premises (such as autos, motorcycles, golf carts, or
snowmobiles). Business inventory (for example, good held by an insured who is a traveling
salesperson, or other goods held for sale) is not covered. Although the policy doesn’t cover
business inventory, it does not cover business property (such as books, computers, copiers,
office furniture, and supplies), while it is on the insured premises.
Factors Affecting Home Insurance Costs
Several influences have an impact on premiums for home and property insurance.
 Type of structure. The construction materials used, the style, or age of your home
affect the cost of insuring it. For example, a home built from brick costs less to insure
than a similar home of wood, yet the reverse is true when it comes to earthquake
insurance – brick homes are more expensive to insure.
 Location of home. Local crime rates, weather, and proximity to a fire hydrant all affect
your home’s insurance premium costs. If many claims are filed from your area,
insurance premiums for all the homeowners there will be higher.
 Other factors. If you have a swimming pool, trampoline, large dog, or other potentially
hazardous risk factors on your property, your homeowner’s premium will be higher.
Deductibles and the type and amount of coverage also affect the cost.
Coverage: What Type, Who, and Where?
Homeowner’s policies define the types of losses they cover and the person and locations
covered.
Types of Losses Covered
Homeowner’s insurance contracts offer compensation for each type of loss. There are three
types of property-related losses when misfortune occurs:
1. Direct loss of property

2. Indirect loss occurring due to loss of damaged property
3. Additional expenses resulting from direct and indirect losses
Persons Covered
A homeowner’s policy covers the persons named in the policy and members of their families
who are residents of the household. A person, such as a college student, can be a resident
of the household even while temporarily living away from home. The college student’s
parents’ homeowner’s policy may cover their belongings at school – including such items as
stereo equipment, TVs, personal computers, and microwave ovens, but there could be limits
and exceptions to the coverage. The standard homeowner’s contract also extends limited
coverage to guests of the insured.
Locations Covered
Most homeowner’s policies offer coverage worldwide. For example, an insured’s personal
property is fully covered when lent to the next-door neighbor or kept in a hotel room in
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Malaysia. The only exception is property left at a second home where coverage is reduced
unless the loss occurs while the insured is residing here.
Limitations on Payment
Other factors that influence the amount an insurance company will pay for a loss include
replacement cost provisions, policy limits, and deductibles.
Replacement Cost
The amount necessary to repair, rebuild, or replace an asset at today’s prices is the
replacement cost. When replacement cost coverage is in effect, a homeowner’s
reimbursement for damage to a house or accompanying structures is based on the cost of
repairing or replacing those structures, without taking any deductions for depreciation.
However, for homeowners to be eligible for reimbursement on a full replacement cost basis,
they must keep their homes insured for at least 80% of the amount it would cost to build
them today, not including the value of the land. Because inflation could cause coverage to
fall below the 80% requirement, at a small cost, homeowners can purchase an inflation
protection rider that automatically adjusts the amount of coverage based on prevailing
inflation rates. Without the rider, maximum compensation for losses would thus be based on
a specified percentage of loss.
Deductibles
Each of the preceding limits on recovery constrains the maximum amount an insurance
company must pay under the policy. Deductibles, which limit what a company must pay for
small losses, help reduce insurance premiums, by doing away with the frequent small loss
claims that are proportionately more expensive to administer. Deductibles don’t apply t
liability and medical payment coverage because insurers want to be notified of all claims in
order to properly investigate and prepare adequate defenses for resulting lawsuits.
Homeowner’s Premiums
As you might expect, the size of insurance premiums varies widely depending on the
insurance provider (company) and the location of the property (neighborhood/city/state). It
pays to shop around! When you’re shopping, be sure to clearly state the type of insurance
you’re looking for and to obtain and compare the cost, net of any discounts, offered by a
number of agents or insurance companies. Remember, each type of property damage
coverage can be subject to a deductible that would cost more.
Most people need to modify the basic package of coverage by adding an inflation rider and
increasing the coverage on their homes to 100% of the replacement cost. Changing the
contents protection from actual cash value to replacement cost and scheduling some items
of expensive personal property may be desirable. Most insurance professionals also advise
homeowners to increase their liability and medical payments limits. Each of these changes
results in an additional premium charge.
And to reduce your total premium, you can increase the amount of your deductibles.
Because it’s better to budget for small losses than to insure against them, larger deductibles
are a popular strategy. You may also qualify for discounts for deadbolt locks, monitored
security systems, and other safety features such as smoke alarms and sprinkler systems.
Indeed, there are a number of steps you can take to keep your homeowner’s insurance
affordable.
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AUTOMOBILE INSURANCE
Automobiles also involve risk because damage to them or negligence in their use result in
significant loss. Fortunately, insurance can protect individuals against a big part of these
costs. Automobile insurance includes several types of coverage packaged together. Here we
begin by describing the major features of a private passenger automobile policy.
Types of Auto Insurance Coverage
The personal automobile policy (PAP) is a comprehensive automobile insurance policy

designed to be easily understood by the “typical” insurance purchaser. Made up of six parts,
the policy’s first four parts identify the coverage provided.
 Part A: Liability coverage

 Part B: Medical payments coverage
 Part C: Uninsured motorists coverage
 Part D: Coverage for damage to your vehicle
Part E pertains to your duties and responsibilities if you’re involved in an accident, and Part F
defines basic provisions of the policy, including the policy coverage period and the right of
termination.
Part A: Liability Coverage
Most countries require you to buy at least a minimum amount of liability insurance. Under the
typical PAP, the insurer agrees to:
1. Pay damages for bodily injury and/or property damage for which you are
legally responsible as a result of an automobile accident.
2. Settle or defend any claim or suit asking for such damages.
The provision for legal defense is important and could save thousands of dollars, even if
you’re not at fault in an automobile accident. Note, the policy doesn’t cover defense of
criminal charges against the insured due to an accident (such as drunk driver who’s involved
in an accident). Part A also provides for certain supplemental payments (not restricted by the
applicable policy limits) for expenses incurred in settling the claim, reimbursement of
premiums for appeal bonds, bonds to release attachments of the insured’s property, and bail
bonds required as a result of an accident.
Persons insured. Two basic definitions in the PAP determine who is covered under Part A:
insured person and covered auto. Essentially, an insured person includes you (the name
insured) and any family member, any person using a covered auto, and any person or
organization that may be held responsible for your actions. The named insured is the person
named in the declarations page of the policy. The spouse of the person named is considered
a named insured if he or she resides in the same household. Family members are persons
related by blood, marriage, or adoption and residing in the same household. An unmarried
college student living away from home usually is considered a family member. Covered
autos are the vehicles shown in the declarations page of your PAP, autos acquired during
the policy period, any trailer owned, and any auto or trailer used as a temporary substitute
while your auto or trailer is being repaired or serviced. An automobile that you lease for an
extended time can be included as a covered automobile.
The named insured and family members have part A liability coverage regardless of the
automobile they are driving. However, for persons other than the named insured and family
members to have liability coverage, they must be driving a covered auto.
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Part B: Medical Payments Coverage
Medical payments coverage insured a covered individual for reasonable and necessary
medical expenses incurred within 3 years of an automobile accident in an amount not to
exceed the policy limits. It provides for reimbursement even if other sources of recovery,
such as health or accident insurance, also make payments. What’s more, in most cases, the
insurer reimburses the insured for medical payments even if the insured proves that another
person was negligent in the accident and receives compensation from that party’s liability
insurer.
A person need not be occupying an automobile when the accidental injury occurs to be
eligible for benefits. Injuries sustained as a pedestrian, or on bicycle in a traffic accident, are
also covered. (motorcycle accidents are not normally covered.)
Persons insured. Coverage under an automobile medical payments insurance policy

applies to the named insured and to family members who are injured while occupying an
automobile (whether owns buy the named insured or not) or when struck by an automobile or
trailer of any type. Part B also applies to any other person occupying a covered automobile.
Part C: Uninsured Motorists Coverage
Uninsured motorists coverage is available to meet the needs of “innocent” victims of

accidents who are negligently injured by uninsured, underinsured, or hit-and-run motorists.
Nearly all countries require uninsured motorists insurance to be included in each liability
insurance policy issued, but the coverage can be rejected in most of these countries.
Rejecting uninsured motorists coverage is not a good idea. Under uninsured motorists
coverage, an insured is legally entitles to collect an amount equal to the sum that could have
been collected from the negligent motorist’s liability insurance, had such coverage been
available, up to a maximum amount equal to the policy’s stated uninsured motorists limit.
Three points must be proven to receive payment through uninsured motorists insurance: (1)
another motorist must be at fault, (2) the motorist has no available insurance or is
underinsured, and (3) damages were incurred. With uninsured motorists coverage, you can
generally collect only for losses arising from bodily injury.
Persons insured. Uninsured motorists protection covers the named insured, family
members, and any other person occupying a covered auto.
Underinsured Motorists Coverage. In addition to uninsured motorists, in some places, for a

small premium, you can obtain underinsured motorists coverage, which protects against
damages caused by being in an accident with an underinsured motorist who is found liable.
Underinsured motorists insurance has become increasingly popular and can be purchased
for both bodily injury and property damage. If an at-fault driver causes more damage to you
than the limit of his liability, your insurance company makes up the difference (up to the limits
of your coverage) and then goes after the negligent driver for the deficiency. Clearly, if
available in your place, you should consider purchasing this optional coverage.
Part D: Coverage for Physical Damage to a Vehicle
This part of the PAP provides coverage for damage to your auto. The two basic types of
coverage are collision and comprehensive (or “other than collision”).
Collision insurance is an automobile insurance that pays for collision damage to an insured
automobile regardless of who is at fault. The amount of insurance payable is the actual cash
value of the loss in excess of your deductible. Remember that actual cash value is defined as
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replacement cost less depreciation. So, if a car is demolished, the insured is paid an amount
equal to the car’s depreciated value minus any deductible.
Comprehensive Automobile Insurance
Protects against loss to an insured automobile caused by any peril (with a few exceptions)
other than collision. The maximum compensation provided under this coverage is the actual
cash value of the automobile. Coverage includes, but not limited to, damage caused by fire,
theft, glass breakage, falling objects, malicious mischief, vandalism, riot, and earthquake.
The automobile insurance policy normally does not cover theft of personal property left in the
insured vehicle, but rather it may be covered by the off-premises coverage of the
homeowner’s policy if the auto was locked when the theft occurred.
No-Fault Automobile Insurance
No-Fault Automobile Insurance is a system under which each insured party is compensated
by his or her own company, regardless of which party caused the accident. In return, legal
remedies and payments for pain and suffering are restricted. Under the concept of pure no-
fault insurance, the driver passengers, and injured pedestrians are reimbursed by the insurer
of the car for economic losses stemming from bodily injury. The insurer doesn’t have to cover
claims for losses to other motorists who are covered by their own policies.
Automobile Insurance Premiums
The cost of car insurance depends on many things, including your age, where you live, the
car you drive, your driving record, the coverage you have, and the amount of your deductible.
Consequently, car insurance premiums – even for the same coverage – vary all over the
map.
Factors Affecting Premiums
Factors that influence how auto insurance premiums are set include (1) rating territory, (2)
amount of use the automobile receives, (3) personal characteristics of the driver, (4) type of
automobile, and (5) insured’s driving record.
 Rating Territory. Rates are higher in geographic areas where accident

rates, number of claims filed, and average cost of claims paid are higher.
Rates reflect auto repair costs, hospital and medical expenses, jury
awards, and theft and vandalism in the area. Even someone with a perfect
driving record will be charged the going rate for the area where the
automobile is garaged. Some jurisdictions prohibit the use of rating
territories, age, and sex factors because they believe these factors unfairly
discriminate against the urban, the young, and the male.
 Use of the automobile. Rates are also lower if the insured automobile
isn’t usually driven to work or is driven less than 3 miles one way.
Premiums rise slightly if you drive more than 3 but fewer than 15 miles to
work and increase if your commute exceeds 15 miles away.
 Driver’s personal characteristics. The insured’s age, sex, and marital
status can also affect automobile insurance premiums. Insurance
companies base the premium differentials on the number of accidents
involving certain age groups.
 Type of automobile. Insurance companies charge higher rates for
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automobiles classified as intermediate-performance, high-performance,
and sports vehicles and also for rear-engine models. Some places even
rate four-door cars differently from two-door models. If you’re thinking of
buying, say, a Corvette or a Porsche, be prepared for some hefty
insurance rates.
 Driving record. The driving records – traffic violations and accidents – of
those insured and the people who live with them affect premium levels.
More sever traffic convictions – driving under the influence of alcohol or
drugs, leaving the scene of an accident, homicide or assault arising from
the operation of a motor vehicle, and driving with a revoked or suspended
driver’s license – result in higher insurance premiums.
LIFE INSURANCE
As most people discover, life is full of unexpected events than can have far-reaching
consequences. Your car is sideswiped on the highway and damaged beyond repair. A family
member falls ill and can no longer work. A fire or other disaster destroys your home. Your
spouse dies suddenly. Although most people don’t like to think about possibilities like this,
protecting yourself and your family against unforeseen events is part of sound financial
planning. Insurance plays a central role in providing that protection. Life insurance helps
replace lost income if premature death occurs, providing funds so that your loved ones can
keep their home, maintain an acceptable lifestyle, pay for education, and meet other special
needs. Health insurance covers medical costs when you get sick or become disabled.
Property insurance, for example, reimburses you if your car or home are destroyed or
damaged.
All of these types of insurance are intended to protect you and your dependents from the
financial consequences of losing assets or income when an accident, illness, or death
occurs. By anticipating potential risks to which your assets and income could be exposed
and by weaving insurance protection into your financial plan, you lend a degree of certainty
to your financial future.
Why Buy Life Insurance
Life insurance planning is an important part of every successful financial plan. Its primary
purpose is to protect your dependents from financial loss in the event of your untimely death.
Life insurance protects the assets you’ve accumulated during your life and provides funds to
help your family reach important financial goals, even after you die.
Benefits of life insurance
People don’t like to talk about death or the things associated with it, so they often delay
addressing their life insurance needs. Life insurance is intangible and its benefits typically
occur after you die. The key benefits of life insurance include the following:
 Financial protection for dependents. The most important benefit of life

insurance is providing financial protection for your dependents after your
death.
 Protection from creditors. A life insurance policy can be structured so that
death benefits are paid directly to a named beneficiary, so that creditors
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cannot claim, the cash benefits from your life insurance policy.
 Tax benefits. Life insurance proceeds paid to your heirs, as a rule, are not
subject to income taxes, and under certain circumstances can pass to named
beneficiaries free of any estate taxes.
 Vehicle for savings. Some types of life insurance policies can serve as a
savings vehicle, particularly for those who are looking for safety principal.
What Kind of Policy is Right for You?
The three major types of policies account for 90% to 95% of life insurance sales: term life,
whole life, and universal life.
1. Term Life Insurance – provides a specified amount of insurance protection for a set
period, is the simplest type of insurance policy. If you die while the policy is in force,
your beneficiaries will receive the full amount specified in your policy. Term insurance
can be bought for many different time increments, such as 5 years, 10 years, even 30
years. Premiums can be typically annually, semiannually, or quarterly.
Types of Term Insurance
a. Straight term – is written for a set number of years during which the amount of
coverage remains unchanged. The annual premium on a straight term policy
can increase each year on an annual renewable term policy or remain level
throughout the policy period on a level premium term policy.
b. Decreasing term – the amount of protection decreases over its life.
Decreasing term is used when the amount of needed coverage declines over
time. This policy maintains a level premium throughout all periods of coverage
while the amount of protection decreases.
Advantages and Disadvantages of Term Life Insurance

One of the biggest advantages of term life is that its initial premiums
are lower than other types of insurance, especially for younger people. Term
life is an economical way to buy a large amount of life insurance protection
over a relatively short period to cover needs that will disappear over time.
The main disadvantage, however, is that term insurance offers only
temporary coverage. If you need more coverage when the policy expires,
renewal can be a problem if you then have factors that make it difficult to
qualify for insurance. Term policies that offer a renewability provision give you
the option to renew your policy at its expiration, even if you have become
uninsurable due to an accident or other illness during the original policy
period.
Other option that overcomes some of the limitations of term insurance
is a convertibility provision, which at stated times allows you to convert your
term policy into a comparable whole life policy.
2. Whole Life Insurance – provides permanent insurance coverage during an

individual’s entire life. In addition to death protection, whole life insurance has a
savings feature, called cash value, that results from the investment earnings on paid-
in insurance premiums. Thus, whole life provides not only insurance coverage but
also a modest return on your investment. The savings rates on whole life policies are
normally fixed and guaranteed to be more than a certain rate.
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If a policy holder cancels his contract prior to death, then that portion of the assets
set aside to provide payment for the death claim is available to him. This right to a
cash value is termed the policyholder’s non-forfeiture right. By terminating their
insurance contracts, policyholders forfeit their rights to death benefits.
Types of Whole Life Policies
a. Continuous Premium – commonly called straight life, under this policy,

individuals pay a level premium each year until they either fie or exercise a
non-forfeiture right. The earlier in life the coverage is purchased, the lower the
annual premium. Whole life should seldom be purchased by anyone simply
because the annual premium will be lower now than if it’s purchased later. Of
the various whole life policies available, continuous premium/straight life offers
the greatest amount of permanent death protection and the least amount of
savings per premium peso.
b. Limited Payment – covers your entire life but the premium payment is based
on a specified period – for example, 20 or 30 years during which you pay a
level premium. For stipulated age policies such as those paid up at age 55 or
65, you pay premiums until you reach the stated age. In all cases, on
completion of the scheduled payments, the insurance remains in force at its
face value for the rest of the insured’s life.
c. Single Premium – is purchased with one cash premium payment at the
inception of the contract, thus buying life insurance coverage for the rest of
your life. Because of its investment attributes, single premium life insurance,
or SPLI for short, has limited usefulness for most families but appeals to those
looking for a tax-sheltered investment vehicle. Like any whole life insurance
policy, interest/investment earnings within the policy are tax-deferred;
however, any cash withdrawals or loans taken against the SPLI cash value
before age 59 ½ are taxed as capital gains and subject to the 10% penalty for
early withdrawal.
Advantages and Disadvantages of Whole Life Insurance
The most noteworthy advantage of whole life insurance is that
premium payments contribute toward building an estate, regardless of how
long the insured lives. And the insured can borrow against the policy or
withdraw cash value when the need for insurance protection has expired.
Another benefit (except for SPLI) is that individuals who need coverage can
budget their premium payments over a relatively long period, thereby avoiding
affordability and uninsurability problems. Also, earnings build up on a tax-
sheltered basis which means that the underlying cash value of the policy
increases at a much faster rate than it otherwise would.
One disadvantage of whole life insurance is its cost. It provides less
death protection per premium peso than does term insurance. Another
frequently cited disadvantage of this policy is that its investment feature
provides lower yields than many otherwise comparable vehicles. A whole life
policy should not be used to obtain maximum return on investment. However,
if a person wishes to combine a given amount of death protection for the
entire life of the insured (or until the policy is terminated) with a savings plan
that provides a moderate tax-sheltered rate of return, then whole life insurance
may be a wise purchase.
3. Universal Life Insurance – is permanent cash-value insurance that combines term

insurance, which provides death benefits, with a tax-sheltered savings/investment
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account that pays interest, usually at a competitive money market tests. The death
protection (or pure insurance) portion and the savings portion are identified
separately in its premium. This is referred to as unbundling.
With universal life, part of your premium pays administrative fees, and the
remainder is put into the cash-value (savings) portion of the policy, where it earns a
certain rate of return. This rate of earnings varies with market yields but is guaranteed
to be more than some stipulated minimum rate. Universal life policies enjoy the same
favorable tax treatment as do other forms of whole life insurance: death benefits are
tax free and, prior to the insured’s death, amounts credited to the cash value
(including investment earnings) accumulate on a tax-deferred basis. The insurance
company sends the insured an annual statement summarizing the monthly credits of
interest and deductions of expenses.
Advantages and Disadvantages of Whole Life Insurance

There are two principal disadvantages:
 Flexibility. The annual premium you pay can be increased or
decreased from year to year, because the cost of the death protection
may be covered from either the annual premium or the accumulation
account (i.e., the cash value). If the accumulation account is adequate,
you can use it to pay the annual premium. The death benefit also can
be increased (subject to evidence of insurability) or decreased, and
you can change from the level benefit type of policy to the cash value
plus a stated amount of insurance.
 Savings feature. A universal life insurance policy credits cash value at
the “current” rate of interest, and this current rate of interest may well
be higher than the guaranteed minimum rate.
Universal life’s flexibility in making premium payments, although an
attractive feature, is also one of its two major drawbacks:
 Changing premiums and protection levels. A policyholder who

economizes on premium payments in early years may find that
premium must be higher than originally planned in later policy years to
keep the policy in force. Indeed, some policyholders expect their
premiums to vanish once cash value builds to a certain, but often the
premiums never disappear or they reappear when interest rates fall.
 Charges or fees. Universal life carries heavy fees compared to other
policy types. Most states require the insurance company to issue an
annual disclosure statement spelling out premiums paid, all expenses
and mortality costs, interest earned, and beginning and ending cash
values.
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Exercise 2.1
Directions: Answer the following items on the space provided.
Test I. Identify the company on the types of insurance and the services they offered.
1. Philippine American Life and General Insurance Company –
2. Sun Life of Canada (Philippines) Inc.-
3. Philippine AXA Life Insurance. –
4. Manufacturers Life Insurance Company (Philippines), Inc.-
5. BDO Life Assurance Company, Inc (Generali Pilipinas Life)-
Test II. Discussion

1. How does the primary function of an insurance company compare with that of a
depository institution?
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Exercise 2.2
Directions: Search the top 10 insurance companies in the Philippines in the internet and
provide its total revenues and assets.
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MODULE 3

Rural Banks and Insurance Companies

LESSON 1 Rural Banks

REPUBLIC ACT NO. 7353

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

Accept saving and time deposit;

Allied undertaking shall include:

banks, financial institutions and non-bank financial intermediaries;

Any officer, employee, or agent of a rural bank who shall:

Approved : April 02, 1992

1. A ___________________________ is one established and located in a rural area that

______3. A rural bank may act as collection agent.

______5. Rural banking is a government priority.

Test III. Match column A with column B.

_____1. The qualifications of the directors and officers of rural bank.

_____2. To open checking accounts

_____3. Equities in leasing

_____4. Lands without Torrens title

_____5. Make collections and payments for the account of others

_____6. Agricultural production

_____7. Rural banks

_____8. The fundamental purpose of the existence of rural banks

_____9. Current accounts

_____10. Redemption of foreclosed property

A. A power vested on rural banks

Insurance services offered by financial institutions (FIs) compensate individuals and

The Idea of Insurance

Figure 1. Current Health Expenditures by Financing Scheme, Philippines: 2018

Private Health Insurance Plans

1. Traditional Indemnity (Fee-for-Service) Plans – the health care provider is

In addition to health insurance coverage provided by private sources, government agencies

 Philippine Health Insurance Corporation

Philippine Health Insurance Corporation or Philhealth is a tax-exempt government

Medical Expense Coverage and Policy Provisions

Types of Medical Expense Coverage

DISABILITY INCOME INSURANCE

Disability Income Insurance Provisions and Costs

Benefit Amount and Duration

Most individual disability income insurance is either guaranteed renewable or non-

A waiver of premium is standard in disability income policies. If you’re disabled for a

Factors Affecting Home Insurance Costs

Types of Losses Covered

1. Direct loss of property

Types of Auto Insurance Coverage

The personal automobile policy (PAP) is a comprehensive automobile insurance policy

 Part A: Liability coverage

Part A: Liability Coverage

Persons insured. Coverage under an automobile medical payments insurance policy

Part C: Uninsured Motorists Coverage

Uninsured motorists coverage is available to meet the needs of “innocent” victims of

Underinsured Motorists Coverage. In addition to uninsured motorists, in some places, for a

Part D: Coverage for Physical Damage to a Vehicle

Comprehensive Automobile Insurance

No-Fault Automobile Insurance

Automobile Insurance Premiums

Factors Affecting Premiums

 Rating Territory. Rates are higher in geographic areas where accident

Why Buy Life Insurance

Benefits of life insurance

 Financial protection for dependents. The most important benefit of life

What Kind of Policy is Right for You?

Advantages and Disadvantages of Term Life Insurance

2. Whole Life Insurance – provides permanent insurance coverage during an