Saint Louis College

City of San Fernando, La Union

Insurance Code of the Philippines

Submitted by:

OMO, Felisha Mea A.

ORDINARIO, Nicole P.
PARNADA, Miven Joart V.
PICAR, Anel Rose J.
PURISIMA, Ellen Pearl

Course / Year / Section

BSA 2C

Submitted to:
Atty. May Angelica M. Teneza, CPA, MBA.
 Insurance Code of the Philippines
Presidential Decree 612, as amended by RA No. 10607

● A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. The risk insured against may
be any contingency or unknown event, the happening of which will damnify a person having an insurable
interest or will create liability against him. Even fortuitous events may be insured against.

● As a rule, only future events may be covered by an insurance contract. An exception would be marine
insurance where a past event may be insured if the loss of the vessel in the past could not have been known
by ordinary means of communication.

Parties to a Contract of Insurance

[Link]- the person whose loss is the occasion for the payment of the insurance proceeds by the insurer. He
must have the capacity to enter into a contract and he must not be a public enemy.
[Link]- the person who assumes the risk of loss and undertakes for consideration to indemnify the insured
upon the happening of the designated peril. Any person may be an insurer provided he obtains a certificate of
authority to transact insurance business from the Insurance Commission.
[Link]- the insured is also the assured when the proceeds are payable to him.
[Link]- the third person designated by the insured to receive the proceeds.

Concept of Insurance

(1) Insurance is a type of contract.

- The term “assurance” is used instead of “Insurance” although the former is seldom employed. Many
modern writers use “assurance” instead of “insurance” to describe the life insurance business, the former
referring to an event like death, which must happen and the latter to a contingent event which may or may
not occur, As used in the Code the term “insurance” covers “assurance”.

- The definition of the law is subject to criticism. For instance, it does not include life insurance which is a
contract upon condition rather than indemnification for no recovery can fully repay a beneficiary for loss of
life which is beyond pecuniary value.
-
(2) Contract of Insurance
- Is an agreement by which one party (Insurer) for a consideration (premium) paid by the other party
(insured), promises to pay money or its equivalent or to do some act valuable to the latter (or his nominee),
upon the happening of a loss, damage, liability, or disability arising from unknown or contingent event.

(3) Insurance as a assurance

- In general, an insurance contract is a promise by one person to pay another, money or any other thing of
value upon the happening of a fortuitous event beyond the effective control of either party in which the
promise has an interest apart from the contract. In insurance, the insurer for a stipulated consideration
undertakes to compensate the insured for a future loss, damage or liability on a specified subject caused by
a specified event or peril. A written insurance contract is called policy.

Several viewpoints of insurance:

(1) Economic - In this sense, insurance is a method which reduces risk by a transfer and combination (or
“pooling”) of uncertainty in regard to financial loss.
 (2) Business - As a business institution, it has been defined as a plan by which large numbers of people
associate themselves and transfer may also be looked upon as an important part of the financial world,
where insurance serves as a basis fro credit and a mechanism for savings and investments.

(3) Mathematical - In this sense, insurance is the application of certain actuarial (insurance mathematics).
Thus, in life insurance the principles of probability are applied to statistical results of past experience
represented by a mortality table by way of illustration.

(4) Social - In this sense, insurance has been defined as a social device whereby the uncertain risks of
individuals may be combined in a group and thus made more certain, with small periodic contributions by
the individuals providing a fund out of which those who suffer losses may be reimbursed.

Elements of an Insurance Contract

[Link] contract of insurance made between the parties usually called the insured and the insurer, is distinguished
by the presence of five (5) elements, namely:

a.) The insured possesses an interest of some kind susceptible to pecuniary estimation, known as "insurable
interest".
b.) The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening
of designated perils
c.) The insurer assumes the risk of loss
d.) Such assumption of risk is part of a general scheme to distribute actual losses among a large group or
substantial number of persons bearing a similar risk.
e.) As consideration for the insurer's promise, the insured makes a ratable contribution called "premium", to a
general insurance fund.

2. All the elements must be present, otherwise there can be no contract of insurance, and even if the contract
contains all the elements, it is not an insurance contract within the context of the Insurance Code if the primary
purpose of the parties is the rendering of service and not the indemnification of a party for loss, damage, or liability
incurred by the latter.

Characteristics and Nature of Insurance Contract

A contract of insurance has the following characteristics:

1. Consensual – perfected by the meeting of the minds of the parties.
2. Voluntary – it is not compulsory, and the parties may incorporate such terms and conditions as they may
deem convenient which will be binding provided, they are not against the law or public policy.
3. Aleatory – depends upon some contingent event.
4. Executed – as to the insured after the payment of the premium.
5. Executory – as to the insurer as it is not executed until payment for a loss.
6. Conditional – subject to conditions the principal one of which is the happening of the event insured against
7. Personal – each party in the contract have in view the character, credit and conduct of the other.
 8. Risk Distributing – a mechanism by which all members of a group exposed to a particular risk contribute
premiums to an insurer.
9. Ubirrimae Fidei (Utmost Good Faith) – Both parties are bound by a duty of honesty and full disclosure.
The insured is obligated to provide all relevant information truthfully, and the insurer must be transparent
about the terms and conditions of the policy. Failure to uphold this principle can lead to the nullification of
the contract.
10. Contract of Indemnity – Parties have a right to impose such reasonable conditions at the time of
the making of the contract as they deem wise and necessary.

The Nature of the Insurance Contract

An insurance contract has a number of common properties within the framework of the provisions of the law on
civil contracts, in addition, it also has a number of specific properties associated with the economic – technical
characteristics of the insurance industry. Specifically:

Reciprocity: An insurance contract is established based on the consent of both parties on the principle of
voluntariness, equality and freedom to enter into contracts within the framework of law and social ethics.

Bilateral contract: The contracting parties have rights and obligations, the rights of one party are the obligations
of the other party and vice versa. The insurer must cover the risks and the insured must pay the premium.

Nature of chance: If there is no risk (insured event), there is no conclusion and validity of the Insurance Contract.

The nature of absolute trust: The relationship between the policyholder and the insurer is established in a
situation that creates risks for each other. Therefore, in order to exist and be able to perform, the two parties must
have mutual trust. Absolute trust and the principle of maximum honesty are only two sides of the same coin.

Nature of payable: The relationship of rights and obligations between the two parties is expressed in the monetary
relationship. The policyholder is obliged to pay the premium, the insurer is obliged to pay the insurance/indemnity
when the insured event occurs.

Nature of accession: An insurance contract is a model contract. Insurance rules (the main content of the Contract)
are first drafted by the insurer, then the insurance buyer reads it and joins it when it is suitable for his/her needs.

Mixed civil – commercial: The insurance buyer can be a civil or commercial natural or legal person, the insurer
can also be a civil (mutual association) or commercial legal entity (insurance company). Therefore, the relationship
between them, in particular the insurance contract, can be of a purely civil or commercial character or a mixed
civil-commercial.

Classes of Insurance

Under the Insurance Code, insurance contracts are classified according to the nature of the risk involved as follows:
1. Life insurance contracts - Life insurance is insurance on human lives and insurance appertaining thereto
or connected therewith. (Sec. 179)
 a. Individual life - Individual life insurance is a policy purchased by an individual to cover themselves
alone. This type of insurance is designed to meet the financial needs of a surviving spouse or family
members in the event of the policyholder’s death.
b. Group life - a single contract for life insurance coverage that extends to a group of people.
c. Industrial life - form of life insurance either (a) under which the premiums are payable weekly, or
(b) under which the premiums are payable monthly as oftener, but less often than weekly, if the face
amount of insurance provided in any policy is two thousand pesos or less and if the words
"industrial policy" is printed upon the policy as part of the descriptive matter.

2. Non-life insurance contracts

a. Marine Insurance - meaning insurance against, or against legal liability of the insured for loss,
damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or
construction of any vessel, craft or instrumentality in use of ocean or inland waterways, including
liability of the insured for personal injury, illness or death or for loss of or damage to the property of
another person.
b. Fire Insurance - include insurance against loss by fire, lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are covered by extension to fire insurance policies or under
separate policies.
c. Casualty - insurance covering loss or liability arising from accident or mishap, excluding certain
types of loss which by law or custom are considered as falling exclusively within the scope of other
types of insurance such as fire or marine. It includes, but is not limited to, employer’s liability
insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance,
personal accident and health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance.

3. Contracts of suretyship or bonding

● Suretyship - is a contract where a person binds himself solidarity to the creditor to fulfill the obligation of
the debtor in case the latter should fail to do so.
● Contract of suretyship - contract of suretyship is an agreement whereby a party called the surety guarantees
the performance by another party called the principal or obligor of an obligation or undertaking in favor of
a third party called the obligee.

Variable Contracts Section 238 of the Insurance Code of the Philippines

● Variable contracts refer to any policy or contract issued by an insurance company providing for benefits
under such contract that reflects investment results. Variable contracts can either be investment-linked or
equity-linked. The Insurance Commissioner shall have the sole and exclusive authority to regulate the
issuance and sale of variable life insurance.

*These contracts are not considered securities under Philippine law.

● Insurance companies must prove to the Commissioner that their financial condition and operations,
including the sale of variable contracts, are not harmful to the public or policyholders before offering
variable contracts in the Philippines. Foreign insurance companies must also comply with their home
country laws.

When evaluating a company’s request to issue, deliver, sell or use variable contracts, the Commissioner considers:
 1. The history, financial and general condition of the company: Provided, in the case of foreign companies,
must deposit government bonds worth P2,000,000 for the benefit of contract owners in the Philippines.

2. The character, responsibility and fitness of the officers and directors of the company; and

3. The law and regulation under which the company is authorized in the state of domicile to issue such
contracts.

● If the Commissioner determines a company is qualified, they will issue an authorization for the company to
sell variable contracts. If denied, the decision must provide clear reasons.

Variable Insurance Defined

Variable insurance is a form of life insurance contract under which benefits, payable upon surrender or death,
and/or the premiums vary with the performance of the investment of the assets derived from the sale of those
contracts.

There is a must to distinguish life insurance contracts with benefits dependent on some index.

E.g. Consumer Price Index

Variable Life Insurance is a modern insurance product designed to combine traditional life insurance
protection with the growth potential of equities, especially common stock. It was created in response to rising
incomes, inflation concerns, and greater consumer interest in alternative savings and investment options. Unlike
traditional life insurance, where the insurer pays a stated value, whose problem is that specified face value does not
attempt to guarantee purchasing power for the consumer, variable life insurance links its value to stock market
performance. This allows the policy’s value and death benefit to increase alongside rising stock values, helping to
preserve purchasing power. While the death benefit is usually guaranteed not to fall below a minimum amount, it
can increase if stock investments perform well. This type of insurance appeals to consumers looking for a policy
that adapts to market changes while offering the security of a guaranteed minimum benefit.

Underwriting and Administrative Aspects

The following are partial list of the administrative functions and the impact of the variable features on such
functions:

1. Accounting

2. Reporting to Policy Owners

3. Payment of claims

4. Reinstatement and Change

Reference:
Patangan, M. N. (2025). De-Leon-Insurance-Code-of-the-Philippines. Scribd.

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