insurance contract is ENTIRE or INDIVISIBLE, not

severable, or divisible, as to the items insured.

TITLE 8 - PREMIUM

It is immaterial that they are shipped or transported

separately.

Sec. 77- An Insurer is entitled to payment of the premium

as soon as the thing insured is exposed to the peril insured
against.
PREMIUM

Notwithstanding any agreement to

he contrary, no policy or contract of
nsurance issued by an insurance
company is valid and binding unless
and until the premium thereof has
been paid, except in the case of life
or an industrial life policy whenever
he grace period provision applies, or
whenever under the broker and
agency agreements with duly
icensed intermediaries, a ninety (90)day credit extension is given.

Levied and paid to

meet anticipated
losses

Assessment
ASSESSMENT
Collected to meet
actual losses

A sum specifically levied by mutual

insurance companies or associations,
upon a fixed and definite plan, to pay
losses and expenses.

After first payment

Legally enforceable once
of premium, not
levied, unless agreed Payment of Premium ordinarily
not a debt or obligation
enforceable against otherwise
the insured
1. In fire, casualty, and
marine insurance
Not a debt
A debt, unless other
wise expressly agreed
The premium payable becomes a
debt as soon as the risk attaches
No credit extension to a duly licensed
ntermediary should exceed ninety (90) days from date of
In suretyship as soon as the contract or bond is
ssuance of the policy. (Modified)
perfected and delivered to the obligor.

Sec. 78 Employees of the Republic of the Philippines,

ncluding its political subdivisions and instrumentalities, and
government-owned or controlled-corporations may pay their
nsurance premiums and loan obligations through salary
deduction:

Provided, that the treasurer, cashier, paymaster or official of

he entity employing the government employee is
authorized, notwithstanding the provisions of any existing
aw, rules, and regulations to the contrary, to make
deductions from the salary, wage or income of the latter
pursuant to the agreement between the insurer and the
government employee and to remit such deductions to the
nsurer concerned, and collect such reasonable fee for its
services. (New section)

the thing insured is exposed to the peril

insured against assumes that the contract is
perfected which takes place when the applicants
offer is accepted by the insurer.
2. In Life Insurance
The premium becomes a debt only when in the case
of the:
1.
First premium, the contract has become
binding;
2.
Subsequent premiums, when the insurer has
continued the insurance after maturity of the
premium, in consideration of the insureds
express or implied promise to pay.

Insurance Premium

Effect of nonpayment of premium

General rules of law applicable to the payment of

money obligation are applicable.

The agreed price for assuming and carrying

the risk- that is, the consideration paid an
insurer for undertaking to indemnify the insured
against a specified peril.

NOTE: where only one premium is paid for several

things not separately valued or separately insured, the

General rule:
The time specified for the payment of premiums is of
the essence of the contract.

1.

First Premium

- nonpayment of the first premium unless waived,

prevents that contract from becoming binding
notwithstanding the acceptance of the application nor
the issuance of policy.

* Nonpayment of the balance of premium due does

not produce the cancellation of contract.
2. Subsequent Premiums
- nonpayment of subsequent premiums does not affect
the validity of the contracts unless, by express
stipulation, it is provided that the policy shall in that
event be suspended or shall lapse.

* In individual life or endowment insurance and group

life insurance the policyholder is entitled to a grace
period of either (30) days or one (1) month within
which the payment of any premium after the first may
be made.

* Industrial life insurance the grace period is four

(4) weeks, if payable monthly, either thirty (30) days or
1 month.

Excuses for nonpayment of premiums

1.

Fortuitous Events
rendering the payment of the premium by the
insured wholly impossible will not prevent the
forfeiture of the policy when the premium remains
unpaid.
The insurer must have some efficient means of
enforcing punctuality.

2.

Condition, conduct or default of insurer

-no excuse whatever will avail to prevent forfeiture
except only when the nonpayment has in some
way been induced by the condition, conduct or
default, of the insurer.
Nonpayment is excused:

a. Where the insurer has become insolvent,

suspended business, or has refused
without justification a valid tender of
premiums.
b. Where the failure to pay was due to the
wrongful conduct of the insurer as when
the insurer induced the beneficiary under a
policy to surrender it for cancellation by
falsely representing that the insurance was
illegal and void, and returning the
premiums paid.
c. Where the insurer has in any wise waived
his right to demand payment.

Validity of policy where credit extension

granted to insured
In Makati Tuscany Condominium Corp. vs. Court of
Appeals
SC RULING:
An Insurance policy other than life issued originally or
on renewal is not valid and binding until actual
payment of the premium.
The parties may not agree expressly or impliedly on
the extension of credit or time to pay the premium and
consider the policy before actual payment.

Credit extension agreement is valid:

1. Mere acknowledgement in the policy of
receipt of premium makes the policy
binding
2. The familiar principle is that what the law
prohibits to be done directly cannot be
done indirectly.
3. The new rule is susceptible to the
constitutional objection that it unduly
restricts the freedom of contract
4. Ruling of the SC in UCPB General
Insurance Co. is unduly favorable to the
insurer who may grant an extension to the
insured and easily lull the latter into a false
sense of security and then deny liability
should the event insured against takes
place.

When policy valid and binding notwithstanding

nonpayment of premium

4.

When there is an agreement to grant the

insured credit extension for the payment of the
premium and loss occurs before the expiration of
credit term

5.

When estoppels bars the insurer from

invoking sec 77 to avoid recovery on a policy
providing credit term for the payment of the
premium, as against the insured who relied in
good faith on such extension.

Exceptions to Section 77:

1.

In a life or an industrial policy whenever the

grace period provision applies

2.

When there is an acknowledgement in a

policy or contract of insurance of receipt of
premium

3.

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

Sec. 79 An acknowledgement in a policy or contract

of insurance of the receipt of premium is conclusive
evidence of its payment, so far as to make the policy
binding, notwithstanding any stipulation therein that it
shall not be binding until the premium is actually paid.