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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE
- An insurance premium is the agreed price for assuming and carrying the risk, which is the consideration paid to an insurer for undertaking to indemnify the insured against a specified peril.
- Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding.
- The non-payment of the balance of the premium due does not produce the cancellation of the contract unless, by express stipulation, it is provided that the policy shall in that event be suspended or shall lapse.
An insurance premium is the agreed price for assuming and carrying the risk, which is the consideration paid to an insurer for undertaking to indemnify the insured against a specified peril.
When is the insurer entitled to the payment of premiums?
The law says:
An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. (Section 77, Republic Act No. 10607 also known as The Insurance Code)
Is the insurance company valid and binding without the payment of premium?
As a general rule, no. The law says:
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding. (Section 77, R.A. No. 10607)
What are the exceptions to the rule?
Jurisprudence says:
(1) in case of life or industrial life policy, whenever the grace period provision applies, as expressly provided by Section 77 itself;
(2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of premium, even if premium has not been actually paid, as expressly provided by Section 78 itself;
(3) where the parties agreed that premium payment shall be in installments and partial payment has been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;
(4) where the insurer granted the insured a credit term for the payment of the premium, and loss occurs before the expiration of the term, as held in Makati Tuscany Condominium Corp.; and
(5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term for the payment of premiums. (Jaime T. Gaisano v. Development Insurance and Surety Corporation, G.R. No. 190702, February 27, 2017)
What is the effect of the non-payment of premiums?
As to the non-payment of the first installment, it prevents the contract from becoming binding notwithstanding the acceptance of the application or the issuance of policy unless waived. (Section 77, R.A. No. 10607)
As to the non-payment of subsequent installments, jurisprudence says:
We can not agree with appellant’s theory that non-payment by it of the premium due, produced the cancellation of the contract of insurance. Such theory would place exclusively in the hands of one of the contracting parties the right to decide whether the contract should stand or not. Rather the correct view would seem to be this: as the contract had become perfected, the parties could demand from each other the performance of whatever obligations they had assumed. (Philippine Phoenix Surety & Insurance, Inc. vs. Woodworks, INC. G.R. No. L-22684, August 31, 1967)
Thus, the non-payment of the balance of the premium due does not produce the cancellation of the contract unless, by express stipulation, it is provided that the policy shall in that event be suspended or shall lapse.
Related article: What is the effect of delay in accepting the application for insurance?
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