THE INSURANCE CODE OF

THE PHILIPPINES
REPUBLIC ACT NO. 10607
AMENDING PD 612 AND PD 1460
 CONCEPT OF INSURANCE
 A contract of insurance is an agreement whereby one who
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 a 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
1. Insured - 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.
2. Insurer – the person who assumes the risk of loss and undertakes for a
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.
3. Assured – the insured is also the assured when the proceeds are payable
to him.
4. Beneficiary – the third person designated by the insured to receive the
proceeds
 Elements of an Insurance Contract
1. The insured possesses insurable interest capable of pecuniary
estimation
2. The insurer assumes the risk of loss
3. The insured pays a premium which is his ratable contribution
to the general insurance fund
4. The insured is subject to a risk of loss upon the happening of
the designated peril.
5. The assumption of risk is part of a general scheme to distribute
actual losses among a large group or substantial number or
persons bearing similar risks.
Characteristics and Nature of Insurance Contracts

1. Uberrimae Fides Contract

The contract of insurance is one of perfect good faith, not for the
insured alone, but equally so for the insurer. In fact, it is more so for
the latter since the insurer’s dominant bargaining position carries
with it stricter responsibility

2. Contract of Indemnity
The insured is entitled to recover only the amount of total loss
sustained, and the burden is upon him to prove the amount of such
loss.
Characteristics and Nature of Insurance Contracts
3. Risk Distributing Device
The risk of economic loss is distributed among a large group of
people bearing the same risk.

4. Aleatory
The obligation of the insurer to pay the proceeds of the insurance
arises only upon the happening of an event which is uncertain. It
does not depend upon some contingent event.

5. Contract of Adhesion
An insurance contract is a ready-made form of contract, which the
other party may accept or reject, but which the latter cannot modify.
Characteristics and Nature of Insurance Contracts

6. Personal
The law presumes that the insurer considered the personal
qualification of the insured in approving the insurance
application. The insured cannot assign, before the happening of
the loss, his rights under a property policy without the consent of
the insurer.

7. Voluntary
A contract of insurance is not compulsory, and the parties may
incorporate such terms and conditions as they may deem
convenient. This is allowed provided that they do not contravene
any provision of law and are not against public policy.
 Classes/Types of Insurance
1. Life insurance contracts 3.
Contracts of suretyship
a. Individual life
b. Group life
c. Industrial life

2. Non-life insurance contracts

a. Marine
b. Fire
c. Casualty
 Variable Contracts
 The term variable contract shall mean any policy or contract on either
a group or on an individual basis issued by an insurance company
providing for benefits or other contractual payments or values
thereunder to vary so as to reflect investment results of any
segregated portfolio of investments or of a designated separate
account in which amounts received in connection with such contracts
shall have been placed and accounted for separately and apart from
other investments and accounts. This contract may also provide
benefits or values incidental thereto payable in fixed or variable
amounts, or both.

 Variable contracts or investment-linked insurance products is

regulated by Sections 238 to 246 of the Amended Insurance Code. In
the US, it is known as variable life or variable universal life. In the UK,
it is known as unit linked. In Asia, it is known as investment-linked, or
 Insurable Interest
 It is that interest which the law requires the owner of
an insurance policy to have in the person or thing
insured. A person is deemed to have an insurable
interest in the subject matter insured where he has a
relation or connection with or concern in it that he will
derive pecuniary benefit or advantage from its
preservation and will suffer pecuniary loss or damage
from its destruction, termination, or injury by the
happening of the event insured against.
Perfection of the Contract of Insurance
As a consensual contract, the contract of
insurance is perfected from the moment there is
a meeting of the minds with respect to the object
and the cause or consideration. Under the
Cognition Theory, an insurance contract is
perfected only when the applicant-insured has
knowledge of the acceptance and approval by
the insurer of his application.
 Premium
 It is a consideration paid to an insurer for
undertaking to indemnify the insured against a
specified peril. As a rule, no policy or contract
of insurance is valid and binding unless and
until the premium thereof has been paid. This is
the “cash and carry rule” under the Insurance
Code. The payment of the premium is
imperative for the validity of the policy.
 Cash and Carry Rule
No policy or contract of insurance issued by an
insurance company is valid and binding unless and until
premium thereof has been paid. Any Agreement to the
contrary is void.
Exception:
 A policy is valid and binding even there is non-payment of premium:

1. When there is an agreement allowing the insured to pay the premium in

installments and partial payment has been made at the time of loss.
2. When there is an agreement to grant the insured credit extension for the
payment of the premium and loss occurs before the expiration of the credit term.
3. When estoppel bars the insurer to invoke non-recovery on the policy
4. In case of life or industrial life policy whenever the grace period provision applies,
or whenever under the broker and agency agreements with duly licensed
intermediaries, a 90- day credit extension is given.
5. When there is acknowledgement in a policy of the receipt of the premium which
the law declares to be conclusive evidence of payment, even if there is
stipulation therein that it shall not be binding until the premium is actually paid,
without prejudice however to the right of insurer to collect corresponding
premium.
Rescission/Cancellation of Insurance Contracts
The following are grounds for the cancellation of a non-life policy insurance:
 1. Non-payment of premium
 2. Fraud or material misrepresentation
 3. Physical changes in the property insured which result in the property
becoming uninsurable
 4. Conviction of a crime arising out of acts increasing the hazard insured
against
 5. Willful or reckless acts or omissions increasing the risk insured against.
 6. Determination by the Insurance Commissioner that the policy would
violate the Insurance Code.
Rescission/Cancellation of Insurance Contracts
The following are the requisites for a valid cancellation of an
insurance policy:
1. Prior notice of cancellation, in writing, is given to the
insured.
2. 2. Notice must be based on any of the grounds mentioned in
Sec. 64 of the Insurance Code
3. 3. Upon request of the insured, the insurer must furnish
facts on which cancellation is based.
 INCONTESTABILITY CLAUSE
 “After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two (2) years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
 Basically, it means that after a life insurance policy has been in force for two years from
its issue or its last reinstatement, the insurer can no longer rescind the policy or refuse
payment of the proceeds on the ground that the insured committed concealment or
misrepresentation. The life insurance policy becomes “incontestable.”
 Section 48 gives the insurer the two-year period within which to make the necessary
investigation on whether there was concealment or misrepresentation on the part of
the insured or his agent and to rescind the policy. After the two-year period, the insurer
is barred from rescinding or refusing to honor the policy, even if the insured was guilty
of concealment or misrepresentation.
 Claims Settlement and Subrogation
In life insurance, the proceeds shall be paid
immediately upon the maturity of the policy if there is
such a maturity date. If the policy matures by the death
of the insured, the proceeds shall be paid within 60 days
from filing of the claim and upon the proof of the death
of the insured.
In property insurance, the proceeds must be paid
within 30 days after proof of loss is received by the
insurer and ascertainment of the loss or damage is
made. If no such ascertainment is made within 60 days
after receipt by the insurer of the proof of loss, the
 NOTICE OF LOSS
 It is more or less formal notice given to the insurer by the insured or
claimant under the policy, of the occurrence of the loss insured against.
 SUBROGATION
 Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or right, so that he who
is substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities. This right
attaches upon payment by the insurer of the insurance claims
of the assured. As subrogee, the insurer steps into the shoes of
the assured and may exercise only those rights that assured
may have against the wrongdoer who caused the damage.
Payment by the insurer to the assured operates as an equitable
assignment of all remedies the assured my have against the
third party who caused the damage.
 Prescriptive Period
Actions arising from insurance contracts
prescribe in 10 years. However, the parties
may validly stipulate on a shorter period
provided it is not less than one year from
the time the cause of action accrues. The
prescriptive period commences from the
final rejection of the claim.