We’re all familiar with the insurance due to being a popular demand offered mostly by

the financial advisors nowadays. Since we’re talking about insurance, let’s define what an
insurance is. Insurance is an agreement or contract where one undertakes the consideration of
indemnity against another loss, damage, or liability arising from the unknown or contingent
event. It is also a contractual relationship (suretyship) which is a type of insurance policy that
the surety pledges the lender that in case the obligor (principal debtor) fails to fulfill, the surety
would perform in good faith instead and shall deemed to be an insurance contract within the
Code, only if made by the surety who or which doing such an insurance business. How can we
say that doing an insurance business is as it is? Well, there are 4 factors to determine whether
an insurance business is doing as itself: (1) making or proposing to make, as insurer, any
insurance contract; (2) making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity of the surety;
(3) doing any kind of business, including reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code; and (4) doing
or proposing to do any business in substance equivalent to any foregoing in a manner designed
to evade the provisions of this Code. The next part is the parties who are involved in insurance
contract. Normally, an insurance contract is a two-party contract: (1) insured – this is the one
who pays the premiums to avoid the risks; and (2) insurer – this is the one (a person or
company) undertakes to pay compensation to the insured. Let’s say you’re insured and then
you include a beneficiary other than yourself, that is the time it becomes a three-party contract.
Anyone may be subjected to be insured except the public enemy – a citizen of other country in
which the Philippines is at war. As we all know, the goal of wars is to exhaust the resources and
it doesn’t make sense if we allow a public enemy to be insured since it’s the opposite of what
an insurance business is doing. The following are the characteristics of an insurance contract:
(1) risk distributing device – the risk is not being shifted towards the insurer instead the insurer
distributed the potential liability (risk-distributing) among the group of persons bearing the
same risk; (2) contract of adhesion – drafted by only one party in a take-it-or-leave-it basis
where the other party has a little opportunity to bargain/alter the contract in which there is a
form to be signed who wants to be insured and its goal is interpreted in favor of the insured or
the other party who doesn’t involve in the contract; (3) aleatory – value to either or both
parties depending on the chance or future events and the monetary values of the parties’
performance are unequal due to having a small premium but greater indemnity; (4) contract of
indemnity – insurers pays no more than the actual loss suffered and the purpose of this is to
maintain a status quo except life insurance (the value of life is immeasurable and doesn’t have
an exact value) and personal accident insurance; (5) uberrima fides contract – it is a contract of
utmost good faith that needs a full disclosure of all material facts relative to the risk; (6)
personal contract – it only binds the parties, meaning it doesn’t attach to the property; and (7)
executory and conditional – there is partial performance of the insured because of the payment
of premium (executory) and it will become conditional only when the insurer’s performance
happens of the risk covered or peril stipulated. Now that the characteristics have been
discussed, let’s proceed to the elements of an insurance contract: (1) the insured has an
insurable interest – legal right to insure in any type of property or nay event that may cause a
financial loss create a legal liability, in short, there must be a value on the person or property
before subjecting it to be insured; (2) the insured is subject to a risk of loss by the happening of
a designated peril; (3) the insurer assumes the risk; (4) such assumption of risk is part of general
scheme to distribute the actual losses among a large group of persons bearing the same risk;
and (5) in consideration of the insurer’s promise, then insured pays the premium. Every person
has an insurable interest in life and health: (a) of himself, of his spouse and of his children; (b)
of any person on whom he depends wholly or in part for education or support, or in whom he
has a pecuniary interest – a person that matters due to being a reasonable likelihood or
expectation of appreciable financial gain or loss with whom he is been associated with; (c) of
any person under a legal obligation to him for the payment of money, or respecting property or
services, of which death or illness might delay or prevent the performance; and (d) of any
person whose life any estate or interest vested in him depends. The insurable interest
(beneficiary) of the life and health insurance is revocable unless waived. For example, your
beneficiary is your spouse/wife then you discovered that he/she cheated on you, you can
change the beneficiary maybe it could be your mother or even your children. Beneficiary in life
and health insurance policy shall be forfeited if then beneficiary himself/herself is the principal,
accessory, or accomplice in a willful manner to the death of the insured. Share forfeited shall
pass: (1) to the other beneficiaries unless otherwise disqualified; (2) accordance with the policy
contract; or (3) estate of the insured – the death benefits will be distributed according to the
instructions of his/her last will and testament.