TITLE 8 - PREMIUM

THE CONTRACT OF INSURANCE

SECTION 77
An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except in the
case of a life or an industrial life policy whenever under the grace period provision
applies or whenever under the broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extension is given. No credit extension to a
duly licensed intermediary should exceed ninety (90) days from date of issuance of
the policy.

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

 PREMIUM
- the agreed price for assuming and carrying the risk-that is, the
consideration paid an insurer for undertaking to indemnify the insured
against a specified peril.

-Basis of the right of the insurer to collect premiums: Assumption of

Risk

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

 PREMIUM distinguished from
ASSESSMENT

ASSESSMENT
- a sum specifically levied by mutual insurance
companies or associations, upon a fixed and definite plan,
to pay losses and expenses.

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

 GENERAL RULE

No policy issued by an insurance company is valid and binding until actual payment of
premium. Any agreement to the contrary is void. (Sec.77)

CASE: Tibay, et.al, v Court of Appeals, GR No. 119655, 24 May 1996

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

 EXCEPTIONS

1. In case of life or industrial life insurance, when the grace periods applies (Sect. 77);

2. Whenever under the broker and agency agreements with duly licensed intermediaries, a
ninety (90)-day credit extension is given (Sect. 78);

3. When the insurer makes a written acknowledgment of the receipt premium; (Sec. 79);

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

 EXCEPTIONS
4. When the parties have agreed to the payment of the premium in installments and partial
payment has been made at the time of the loss.
CASE: Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462

5. Where a credit term has been agreed upon.

6. Where the parties are barred by estoppel.

CASE: UCPB vs. Masagana Telemart, Inc. , 356 SCRA 307

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

SECTION 78
Employees of the Republic of the Philippines, including its political subdivisions and
instrumentalities, and government-owned or – controlled corporations, may pay their
insurance premiums and loan obligations through salary deduction: Provided , That the
treasurer, cashier, paymaster or official of the entity employing the government
employee is authorized, notwithstanding the provisions of any existing law, rules and
regulations to the contrary, to make deductions from the salary, wage or income of the
latter pursuant to the agreement between the insurer and the government employee and
to remit such deductions to the insurer concerned, and collect such reasonable fee for
its services.

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

SECTION 79
An acknowledgement in a policy or contract of insurance of the receipt of premiums is
conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium is
actually paid.

CASE: Capital Insurance & Surety CO., Inc. v Plastic Era Co., Inc., 65 SCRA 134

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

EFFECT OF ACKNOWLEDGEMENT
OF RECEIPT OF PREMIUM IN POLICY
1. Waiver of condition of prepayment.
-The insurer cannot deny the truth of the receipt of the premium in an action against him
on the policy even if it is actually unpaid and notwithstanding any stipulation making
prepayment of the premium a condition precedent to the binding effect of the policy.
-Legal fiction of payment.
-Acknowledgement- conclusive evidence of premium payment.

2. Recovery of premium if unpaid.

- Conclusive presumption extends only to the question of the binding effect of the policy.

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

SECTION 80

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

(a) To the whole premium if no part of his interest in the thing insured be exposed to any
of the perils insured against;

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

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

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

SECTION 81

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

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

SECTION 82

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

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

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

WHERE THE CONTRACT IS VOIDABLE

1. Fraud of the insurer or his agent

2. Other grounds
3. Fraud of the insured

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

SECTION 83

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

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

WHERE THERE IS OVER-INSURANCE

• The insurer is not liable for the total amount of insurance taken, his liability is limited to the
amount of the insurable interest on the property insured.

• The premiums to be returned shall be proportional to the amount by which the aggregate
sum insured in all the policies exceeds the insurable value of the thing at risk.

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

EXAMPLE: Over insurance = 400,000 (the
amount by which the aggregate sum
insured in the two policies exceed
Suppose X insures his house which has insurable value of P the insurable value of the house)
1,600,000.00 as follows:

INSURER AMOUNT OF PREMIUMS PAID

INSURANCE The proportion:
400,000/ 1,600,000 or 1/4
EY Co. P 1, 300, 000 P 25,000

BI Co. P 700,000 P 13,000

Thus:
P 2, 000, 000 P 38,000 ¼ of 25,000 = 6, 250 (EY Co.)
¼ of 13, 000= 3, 250 (BI Co.)

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

SECTIONS 80- 83: ENTITLEMENT OF INSURED
TO RETURN PREMIUMS PAID
• When the insured is entitled to return of the entire premium paid:

1. When no part of the thing insured has been exposed to any perils insured against (Sec.80,
a);
2. When the contract is voidable and subsequently annulled because of the fraud or
misrepresentations of the insurer or his agent (Sec. 82);
3. When the contract is voidable because of the existence of facts of which the insured was
ignorant without his fault (Sec. 82);
4. When the insurer never incurred any liability under the policy because of the default of the
insured other than actual fraud

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

 • When the insured is entitled of the return of premium paid at a pro rata rate:

1. When the insurance is for a definite period and the insured surrenders his policy before
the termination thereof (Sec.80,b);

2. When there is over- insurance (Sec. 83);

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

NOTE:
• Person insured is not entitled to a return of premium if the policy is annulled, rescinded, or if a
claim is denied by reason of fraud (Sec. 82).

• Where loss occurs before effective date, the insured is entitled to a return of the whole premium.

• After declaration of war between belligerent states where parties are subjects of, premiums paid
shall be returned to the insured.

• If the risk has never attached, the insurer cannot claim or retain the premium paid, in the absence
of any fraud or fault on the part of the insured.

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM

SECTION 84

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

THE CONTRACT OF INSURANCE: TITLE 8 - PREMIUM