What is Life Insurance?

            Life insurance provides protection against economic loss by enabling the policy owner to share the loss with others exposed to similar risk.

            It is a financial tool designed to protect individuals against financial hardship in the event of a loss occurs.

            According to the Insurance Code or IC, life insurance is insurance on human lives… or connected therewith. (Section 181, Insurance Code). The insurance benefit may be made payable upon the death of the person, or on his surviving a specified period… (Section 182)

What can you insure in a person?

In general, Insurance Code provides that you can get an insurance against any unknown event, whether past or future, which may damnify you having an insurable interest, or create a liability against you (Section 3, Insurance Code)

Types of insurance

Life insuranceis just one of the classes of insurance. Chapter II of IC provides for 7 classes of insurance, to wit:

  1. Marine Insurance – insurance against loss or damage to vessels, cargoes, effects, etc. while in transit or while docked.
  2. Fire insurance – insurance against loss by fire, lightning, storm, tornado, earthquake or allied risks.
  3. Casualty insurance – this is commonly known as non-life insurance which covers loss or liability arising from accident, employer’s liability, motor vehicle liability (such as Third Party Liability, Own Damage, Property Damage), theft insurance, personal accident, hospital reimbursement, and health insurance; but of course excluding those covered by marine and fire insurance.
    1. Under casualty insurance, Motor Vehicle Liability Insurance (MVLI) or TPL, is mandatory by law for all vehicle owners – The law says that“it is unlawful for any motor vehicle owner to operate in the public highways unless there is an insurance or guaranteed cash to indemnify the death, bodily injury, and/or damage to property of a third-party or passenger.” (Section 387)
  4. Life insurance – Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith. There are also different types of life insurance which I will be discussing here and in the link above.
  5. Microinsurance – those that meet the risk protection needs of the poor and has certain limitations as to premiums and benefits. These are usually offered in pawnshops, shopee, GCash, and lending companies.
  6. Mutual company – An insurance company which is owned and controlled by the policy owners who also share in the earnings of the insurance company in the form of dividends.
    1. Here, the insured themselves benefit from the payments they give, instead of just benefiting a private corporation.
  7. Bancassurance – these are insurance products presentedand sold by the bank to its customers within the premises the bank duly licensed by the Bangko Sentral ng Pilipinas. (Section 375 of IC)

Insurable interest

Who can be insured?

Basically, anyone in the Philippines can be insured except a public enemy. (Section 7, IC) Who are public enemies? In the case of Filipinas Compañia de Seguros vs. Christern Co. Inc., the Supreme Court ruled that “All individuals who compose the belligerent powers during a state of war… are public enemies.” Belligerent means hostile. The citizens or aliens serving the hostile country during war is a public enemy. This is consistent with the law of nations where all trading, all acts that increase income, transmit money, and insurance on the lives of aliens in service of the enemy are prohibited. The purpose of war is to cripple the resources of the enemy. It will be absurd if your enemy destroyed your property, or was killed, and will then be enriched because of your pooled money from insurance.”

But before a person can be insured, it is important that the owner has an insurable interest in that person to be insured.

What is insurable interest?

It means that there is a genuine risk between the insured and the policy owner or beneficiary. This is satisfied when the insured is financially indebted or dependent to the beneficiary.

  • It is deemed to exist if there is substantial economic or financial loss on the part of the owner or beneficiary upon the death of the insured
  • It exists by virtue of a relationship by blood, also called by consanguinity, or by marriage, or known as affinity.
  • It must exist at the inception of the policy or at the time of the application for life insurance.

Who has a legitimate insurable interest?

Legitimate insurable interest is a precondition before a person can be considered a policy owner or beneficiary of the insured. What are the examples of persons with legitimate insurable interest? Section 10 of the Insurance Code enumerates the following:

  • An individual on his own life – everyone has an insurable interest in his own life. When you want to insure your own life, the law looks upon this as valid. Even without beneficiaries or if your beneficiaries can no longer be found, the benefits will go to an entity which is called an “estate” under your name. If a certain period of time, still no one claims it, under the law, there is a so-called “escheat” proceedings where property may revert back to the State.
  • An individual on the life of his spouse – this is very obvious because without the working spouse, the couple or the family may not make ends meet. If the insured is the non-working spouse, the working spouse may use the proceeds to pay for deathcare, burial, and raising up of the children.
  • An individual on the life of the person who supports his education
  • An individual on the life of the person who has legal obligation to pay the former, or to render service, such as parent and child relationship
  • An individual on the life of the person whom he has interest or estate. An example of this is…
  1. – a creditor can also insure the life of his debtor to protect himself. This arrangement may be called a “collateral assignment.” For example, before a bank releases a loan to the borrower, the bank may require the client to get a life insurance policy where the latter makes a collateral assignment in favor of the bank. In other cases, this is so-called a Mortgage Redemption Insurance or MRI – wherein when the home-borrower dies, the life insurance proceeds will pay the creditor the total price of the insured’s house.