Pre need plans

Presented by:
Mike Edem
Raymond Hernando
Rolan Jeff Lancion
JemaiTulliao
Definition
They are contracts, agreements, deeds or plans for the benefit of the plan
holders which provides for the performance of future service/s, payment of
monetary considerations or delivery of other benefits at the time of actual
need or agreed maturity date, as specified therein, in exchange for cash or
installment amounts with or without interest coverage and includes life,
pension, education, retirement and other plans, instruments, contracts or
deed as may in the future be determined by the Commission.
A pre-need plan covers a specific need of the plan holder in the future. The
plan holder will invest to cover such future need therefore the plan holder will
save pre-need or before need.
Governing Law and State Policy
RA 9829 or otherwise known as Pre-Need Code of the Philippines
Sec 2- Objectives
(1) Regulate the establishment of pre-need companies and place their operation
on sound, efficient and stable basis
(2) Derive the optimum advantage from them in the mobilization of savings
(3) Prevent and mitigate as far as practicable for the protection of plan holders
practices prejudicial to public interest
(4) Regulate, through and empowered agency, pre-need companies based on
prudential principles to promote soundness, stability and sustainable growth
of the pre-need industries.
Brief History
In December 2009, then President Gloria Macapagal-Arroyo signed into law Republic
Act No. 9829, or the Pre-Need Code of the Philippines, which laid down the
guidelines for operations of preneed companies and sanctions on violators.
The law also designated the Insurance Commission (IC) as the industrys main
regulator, in lieu of the Securities and Exchange Commission (SEC).
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RA 9829 raised hopes about the recovery of the preneed industry, which had been
plagued by the decline in sales of preneed firms due to loss of confidence in the
wake of the College Assurance Plans collapse after the 1997 East Asian financial
crisis
Kinds of Pre Need Plans
A) Educational Plans
Educational plans start releasing benefits when the child reaches the age of
17. It will be paid over four, five or seven years depending on the plan. The
benefits of most plans increase by 10-25% every year to keep pace with
inflation. Extra features may include cash for elementary and high school
education, insurance coverage, a graduation gift and a cash reward for honor
students.
B) Pension/Retirement plans
It is a tool to accumulate funds for your retirement it can actually be used to
save for other goals such as buying a new house or car, vacation
abroad, your childs wedding or initial capital for a business.
Additional features of pension plans may include life and accident insurance
coverage, hospitalization benefit, transfer of ownership, a low-interest cash
loan facility and dividend payments.
C) Life/Memorial plans
Fixed value life plans provide your family with a specific sum which they can
use as they see fit. The plan benefit usually increases every year. Add-on
benefits of life plans include transferability, assignment to any deceased
person you chose, insurance coverage, hospitalization benefit, and return of
premium.

Pre-Need Plan vs Life Insurance Policy

Parties in a pre-need plan

Pre-need company

It refers to any corporation registered with the Commission and

authorized/licensed to sell or offer to sell pre-need plans.
o It also refers to schools, memorial chapels, banks, nonbank financial
institutions
and
other
entities
which
have
also
been
authorized/licensed to sell or offer to sell pre-need plans insofar as
their pre-need activities or business are concerned.
Plan holders
o It refers to any natural or juridical person whom purchases pre-need
plans from a pre-need company for whom or for whose beneficiaries
benefits are to be delivered as stipulated and guaranteed by the preneed company.
Beneficiary
o It refers to the person designated by the plan holder as the recipient of
the benefits in the pre-need plans.
o

Pre-Need Contract
According to Sec 17 of the Pre-Need Code: All forms, including
amendments thereto, relating to the pre-need plans shall be approved
by the Insurance Commission. No pre-need contracts or certificates
shall be issued or delivered within the Philippines unless in the form
previously approved by the Insurance Commission.
There should be an approval coming from the Insurance Commissions
regarding the existence of a pre-need plan entered into by parties.
Interpretation
According to Sec 3 of the Pre-Need Code: Any doubts in the
interpretation and implementation of any in this code shall be
interpreted in favor of the rights and interest of the plan holders.
According to Sec 4 of the Pre-Need Code: The terms not otherwise
defined under this code shall be construed in their usual and
commonly understood trade, business, commercial or investment
meaning.
Disclosure of Information
Pre-Need Plans are no longer securities that are within the power of the Securities
and Exchange Commission; the regime of full disclosure of information to investors
is carried over to the Pre-Need Code.
Legal Basis: Sec 14, 18 and 19 of the Pre-Need Code
Sec 14. Registration of Pre-Need Contracts/Plans.
Within a period of forty-five 45 days after the grant of a license to do business as a
pre-need company and for every pre-need plan which the pre-need company
intends to offer for sale to the public, the pre-need company shall file with the
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Commission a registration statement for the sale of pre-need plans

pursuant to this Code.

Sec 18. Pre-need Advertising Rules.

Pre-need plans shall be advertised and sold in appropriate non-misleading
manner in accordance with the rules to be prescribed by the Commission.
It shall be unlawful for any pre-need company to advertise itself or its pre-need
plans unless the Commission has approved such advertising material.
Any person who sells or offers to sell any pre-need plan or contract or offers to sell
any pre-need plan or contract by any means or instruments of communication in
violation of this section shall be liable to the person purchasing such pre-need
contract may sue to recover the consideration paid for such pre-need contract with
interest thereon.
Sec 19.Disclosures to Prospective Plan holders.
No registered pre need plan shall be sold to prospective plan holders
unless in the information brochure. Which has been filed with the Commission,
has been provided to purchasers.
Explanation:
A) No pre-need company can offer plans to the public unless the same is
registered with the Commission. Disclosure of information is the function of
Registration Statements that are submitted to the Commission. Misleading
statements in advertisement are likewise prohibited.
B) Within forty five (45) days after the grant of license to business as a pre-need
company and for every pre-need plan which the company intends to offer for
sale to the public, the pre-need company must file with the Commission the
following:
a. Duly accomplished Registration Statement
b. Board Resolution authorizing the registration of the applicants preneed plan
c. Opinion of independent counsel on the legality of the issue
d. Supporting documents such as Articles and By-Laws, Trust Agreement,
related contracts and other documents specified by the Commission.
e. Audited Financial Statement accompanied by an audit report of the
certifying auditors as of date not more than 90 days prior to the date of
filing of the registration statement.
f. Actuarial Feasibility Study
Consideration

Pre-Need Companies are obligation to pay the benefits under the Plan so long
as the consideration agreed upon is paid by the plan holder in the form of
cash or installment amounts.

Legal Basis:
Sec 23- Default; Reinstatement Period- The pre-need company must provide in
all contracts issued to plan holders a grace period of at least sixty (60) days
within which to pay accrued installments, counted from the due date of the
first unpaid installment. Nonpayment of a plan within the grace period shall render
the plan a lapsed plan. Any payment by the plan holder after the grace period shall
be reimbursed forthwith, unless the plan holder duly reinstates the plan. The plan
holder shall be allowed a period of not less than two (2) years from the
lapse of the grace period or a longer period as provided in the contract
within which to reinstate his plan.

Termination of the Plan

It can be at the instance of the plan holder or the pre-need company.
Plan holder
Termination is a matter of right and with corresponding right to demand the
termination value of the plan.
A pre-need plan shall contain a schedule of termination values to which the
plan holder is entitled to upon termination.
The termination value of the pre-need plan shall be pre-determined by
actuary of the pre-need company upon application for registration of the preneed plans with the Commission and shall be disclosed in the contract.
Pre-need company
Termination is always subject to the consent of the planholder.
Any offer by the pre-need company to terminate the pre-need plan for
consideration exceeding the termination value provided in the plan contract
shall not require the prior approval of the Commission, provided that the
following concur:
o The consideration shall be below the pre-need services for the specific
plan
o The offer is accepted by the plan holder
o The offer shall no prejudice the plan holder who do not avail of such
offer.
Claims Settlement
The plan holder is entitled to the benefits or proceeds of the plan within the
following period:

Scheduled benefit plan- The proceeds of the plan shall be paid

immediately upon maturity of the contract unless such proceeds are
made payable in installments or an annuity, in which they will be paid
as they become due.
-Refusal or failure to pay the claim within fifteen (15) days from
maturity or due date will entitle the beneficiary to collect interest on
the proceeds of the plan for the duration of the delay at the rate twice
the legal interest unless such failure or refusal to pay is based on the
ground that the claim is fraudulent.

Contingent benefit plan- The benefits shall be paid by the pre-need

company thirty (30) days upon submission of all necessary documents.
Delay in the payment will entitle the plan holder to damages.
o

Unfair Claims Settlement

Sec 25 provides that no pre-need company shall refuse, without just cause,
to pay or settle claims arising under coverage provided by its plans nor shall
any such company engage in unfair claim settlement practices.
Any of the following acts by a pre-need company, if committed without
just cause shall constitute unfair claims settlement practices and may
result in the revocation of the companys certificate or authority:
o Knowingly misrepresenting to claimants pertinent facts or plans
provisions relating to coverage at issue.
o Failing to acknowledge with reasonable promptness pertinent
communications with respect to claims arising under its plan.
o Failing to adopt and implement reasonable standards for the prompt
investigation of claims arising under its plan.
o Failing to provide prompt, fair and equitable settlement of claims
submitted in which liability has become reasonably clear.
o Compelling plan holders to institute suits or recover amounts due
under its plan by offering, without justifiable reason, substantially less
than the amounts ultimately recovered in suits brought about them.
Trust Fund
It is a fund setup from the plan holders payments to pay for the cost of
benefits and services, termination values payable to plan holders and other
costs necessary to ensure the delivery of benefits or services to plan holders
as provided for in the contracts.
Legal BasisSec 30 Trust fund.-To ensure the delivery of the guaranteed benefits and services
provided under a pre-need plan contract, a trust fund per pre-need plan shall
be established.A portion of the installment payment collected shall be
deposited by the pre-need company in trust fund, the amount of which will be
as determined by the actuary based on the viability study of the pre-need plan
approved by the Commission. Assets in the trust fund shall at all times
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remain for the sole benefit of the plan holders. At no time shall any part of the
trust fund be used for or diverted to any purpose other than for the exclusive
benefit of the plan holders.
The benefits received by the plan holders shall be exempt from all taxes
and trust fund shall not be held liable for attachment, garnishment, levy
or seizure by or under any legal or equitable processes except to pay for the
debt of the plan holders to pay for the debt of the plan holder to the benefit
plan or that arising from criminal liability imposed on criminal action.
Regulation of Pre-Need Companies
It is for the protection of the plan holders in order get their benefits.
(a) Regulation on the management of the pre-need company
(b) Rules on Licensing of Sales Counselors and General Agents
(c) Rules for Accreditation of Actuaries
(d) Reportorial Requirements of Pre-need companies
(e) Examination of Pre-need companies by the commission at least
once a year and whenever the need of public interest so
demands.
(f) Imposition of Financial Accounting Standards by the
Commission.
(g) Rules on Conservatorship and proceeding upon insolvency
(h) Imposition of Administrative and Criminal Penalties.