Sec. 77.

An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.

Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid,

EXCEPT IN THE -case of a life or an 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.

PREMIUM- Is the consideration paid to an insurerfor undertaking to indemnify the insured against a
specified peril.
G.R. Payment of premium is a condition precedent to and essential for the policy of the contract of insurance.
-policy shall not be valid and binding unless there is payment of premium
STATUTORY EXCEPTIONS:
1. Insurance coverage relates to life or industrial life insurance when grace period applies.
2. 90 day credit extension is given for the premium due
3. When the insurer makes a written acknowledgement of the receipt of premium.
the acknowledgement being a conclusive evidence of payment of premium.
4. Obligee has accepted the bond in which case the bond becomes valid and enforceable ---irrespective
of whether or not the premium has been paid by the obligor to the surety.

5. (Industrial life insurance and life insurance)

Shall not lapse for non-payment of premium- if non-payment was due to the failure of the insurer to
send its representative or agent to the insured at the residence of the insured or someplace indicated by him
for the purpose of collection.
DOES NOT APPLY when premium remains unpaid for a period of 3 months or 12 weeks after the
grace period has expired.

6. Payment of premium to the agent of the insurer.

EFFECT OF NON-PAYMENT OF PREMIUMS- puts an end to an insurance contract, since time of payment is
peculiarly of the essence of the contract.
-Burden of the insured to keep the policy in force.
-Continuance of the insurers obligation is conditioned upon the payment of premiums,
--so that no recovery upon a lapsed policy- contractual relation ceased.

e.g. Philamgen sued Valenzuela for non-payment of premiums-answer- Valenzuela not liable, the remedy for non-payment is to
put an end to and render the insurance policy not binding. Since premiums had not been paid, the policy issued had lapsed.
RATIO: to allow Philamgen , which had no more liability under the lapsed and inexistent policies would be the height of injustice
and fair dealings.
EFFECT OF PAYMENT BY INSTALLMENT
a) Parties have not agreed or payment by instalment is not an established practice- Part payment will not
keep the policy in force (obligation indivisible)
b) Parties agreed or instalment is an established practice- Acceptance of the payment by instalment would
suffice to make the policy binding.

-Insurer is not allowed to continue collecting the premiums paid on instalments and later deny liability on
the ground that the premiums were not paid in full. (Principles of equity and fairness)
Although it is provided under Sec. 77 that the parties may not agree to make the insurance contract valid
and binding without the payment of premiums, it is not provided in the said section which suggest that the
parties may not agree to allow payment in instalment or to consider the contract binding after the
payment of first premium.
RISK IS ENTIRE AND CONTRACT INDIVISIBLE- the insured is not entitled to a refund of the premiums paid
if the insurer was exposed to the risk insured for any period, however brief or momentary. The insured
was liable to pay the balance of the premium.

CREDIT AGREEMENT
-When insured was granted credit extension of the premium due or given a period of time to pay the
premiumPolicy is binding although premiums had not been paid.
-90 DAY credit extension limit
(e.g. It would be unjust and inequitable if recovery on the policy would not be permitted if the insurer granted a credit
extension. Estoppel bard the insurer from taking refuge under Section 77, since the insured relied in good faith on such
practice.)
PREMIUM PAYMENT IN BONDS
(An agreement whereby a party called the surety guarantees the performance by another called the principal or obligor of an obligation or
undertaking in favour of a third party called the obligee)
Bonds and suretyship contract are deemed to be insurance contracts- when issued by a surety doing an
insurance business as defined by law.
G.R.- Surety is entitled to the payment of premium as soon as the contract of suretyship or bond is
perfected and delivered to the obligor
HOWEVER- When accepted (bond and suretyship) by the oblige or creditor, said bond or suretyship
contract shall be valid and enforceable notwithstanding the non-payment of premium.
(e.g. defense: claimed that the checks issued by its principal, Sagum which were supposed to pay for the premiums bounced and hence there
was no contract of suretyship answer: Defense was untenable, the oblige had already accepted the bonds and thus, the said bonds became
valid and enforceable irrespective whether or not the premiums had been paid by the principal.)

PROMISSORY NOTES AND POST-DATED CHECKS

-Premiums may be paid by promissory notes or post-dated checks- in the absence of any provision to the
contrary
POLICY NOT FORTFEITED- even if the promissory notes were not paid on time or the post-dated check
covering the premium was subsequently dishonoured.
(Since the policy is silent as to the mode of payment, the insurer is deemed to have accepted the promissory note as payment
of the premium. This rendered the policy immediately operative on the date it was delivered)
Contrary provision under Art. 1249- It must be borne in mind that the Insurance code has priority
application over insurance cases and the Civil Code applies only in a suppletory character.
EXCUSE FOR NON-PAYMENT- cannot be excused by sickness or incapacity of the insured or war. (payment
of premium is peculiarly of the essence)
NON-PAYMENT DUE TO WAR- United States rule- the contract is not merely suspended, but is abrogated
by reason of non-payment of premiums, since the time of the payment is peculiarly of the essence.

PAYMENT AFTER LOSS

1. Acceptance and retention by the insurer of the overdue premium with knowledge of the fact---
evidences a waiver of the right to forfeit the policy---insurer bound to the policy

2. Insurer at the time of payment of premium did not know of the loss and subsequently returned the
premium to the insured--- insurer may still raise the defense of non-payment of premiums.

EFFECT OF REFUSAL TO ACCEPT PAYMENT- will necessarily estop the insurer from claiming a forfeiture of
the policy for non-payment of premiums.
 DEVICES TO AVOID FORFEITURE OF LIFE INSURANCE
1. Period of grace
2. Payment of the cash surrender value
3. Giving options to the insured after payment of the three full annual premiumsSUCH AS a) extended insurance and b) paid-
up insurance.
4. Automatic loan clause
5. Reinstatement of lapsed policies

PERIOD OF GRACE
-after payment of the first premium
-ensured is entitled to a grace period of 30 days or one month within which to pay the succeeding
premiums.
-Policy is in force within the period
-premium due and interest thereon may be deducted from the amount payable to the beneficiary
CASH SURRENDER VALUE
-Sum of money the company agrees to pay to the holder of the policy if he surrenders it and releases his
claim upon it.
-More premiums paid the greater the surrendered value
-Surrender value is always lesser than the total amount of premiums.

Sources of cash surrender value- arises from the fact that the fixed annual premium is much in excess of the annual risk during
the earlier years of the policy. An excess made necessary in order to balance the deficiency the premium will meet for the
annual risk during the later days of the policy.
-Options available- the law require the insurer to provide in the policy the option to which the insured is
entitled in the event of default in payment after three full annual premiums have been paid.
EXTENDED INSURANCE
-When the insurance originally contracted for is continued for such period as the amount available
therefore will pay when it will terminate.
-Insurance will be for the same amount as the original policy but for a period shorter than the period in the
original contract.
PAID-UP INSURANCE
-No more payments are required and consist of insurance for life in such an amount as the sum available
therefore, considered as single and final premium will purchase.
-Results to a reduction of the original amount of insurance, but for the same period originally stipulated.
AUTOMATIC LOAN CLAUSE
-Upon default in the payment of premium
- The same shall be paid from the loan value of the policy until the value is consumed
REINSTATEMENT
-Life insurance must contain a provision for reinstatement
-that the holder of the policy shall be entitled to reinstatement of the contract at any time within 3 years
from the date of default in the payment of premium.
-UNLESS- Cash value has been duly paid, extension period expires
Not an absolute right- the insured must comply with the conditions imposed-Discretionary on the part of
the insurer.
 Sec. 78
Employees of the Republic of the Philippines, including its political subdivisions and instrumentalities and
government owned or controlled corporations may pay their insurance premium and loan obligations through
salary deduction;

PROVIDED, that the treasurer, cashier, paymaster or official of the entity employing the government employee is
authorized (notwithstanding the provisions of any existing law, 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 insurer concerned and collect such reasonable
fee for its services.

-to make the transaction between the insurer and the government employee easier
FAILURE TO REMIT PREMIUMS- In case the insured died after the deduction from his salary of the
premiums due but before the same can be remitted to the insurer--- Insurer should be made liable.
- (The treasurer, cashier, paymaster, or official of the entity employing government employees)- is acting
as agent of the insurer. Act of the principal.

Sec. 78.
An acknowledgment in a policy or contract of insurance or 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.

Acknowledgement of receipt of premium- Policy issued with an acknowledgement that premiums were
paid
-Only for the purpose of making the policy binding
-Not for the purposes of collecting premiums---The insurer may still collect the premiums due from the
insured.
-EXCEPTION to Sec. 77

Sec. 80 A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against;

(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium
as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face
of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued;
Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as
otherwise provided by law.

Sec. 81. If a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not
entitled to return of premiums, so far as that particular risk is concerned.

Sec. 82. A person insured is entitled to return of the premium when the contract is voidable, on account of fraud or
misrepresentation of the insurer, or of his agent, or on account of facts, the existence of which the insured was ignorant without his
fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.

Sec. 83. In case of an over-insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to
the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.
RETURN OF PREMIUM- insured is entitled to a return of the premium in the following circumstances:

1. When no part of the interest in the thing insured is exposed to any of the perils insured against.
2. Where the insurance is made for a definite period of time and the insured surrenders his policy before the
expiration of that period
3. When the contract is voidable and subsequently annulled under the provisions of the Civil Code on account
of fraud or misrepresentation of the insurer or his agent.
4. on account of facts, the existence of which the insured was ignorant and without fault
5. When by any default of the insured than actual fraud, the insurer never incurred any liability under the
policy.
6. Policy is annulled, rescinded or if the a claim is denied by reason of fraud.
7. Over-insurance.

NOT EXPOSED TO PERIL INSURED

-Premium and risk are inseparable from the otherif the risk has not attached, or if no part of the interest
is exposed to the peril insured against, the insurer has no claim to the premium. Insured entitled to refund.
-Same effect when no valid contract was effected due to the absence of any one of the essential requisites
of contract- consent, subject matter.

a) When an application for insurance was rejected by the insurer, the applicant is entitled to a return of the whole premium
paid
b) When the voyage insured never commences, the insured is entitled to return of the premium paid.
c) When the applicant for insurance withdraws his application before it accepted, he is entitled to a return of premium.

SURRENDER OF POLICY
- Where the insurance is made for a definite period of time and the insured surrenders his policy before the
expiration of that period
-entitled to a return of premium corresponding to the unexpired portion of the period
E.G.- A, obtained insurance for one year, he paid premium amounting to 2,400 a year. On the sixth month, he surrendered the policy. He is
entitled to the unexpired period of six months or one half of the premium.

EFFECT OF SHORT PERIOD RATE

-Stipulation in the policy stating the amount or rate of premium for specified short times, or premiums at
short-time rate.
-Reflected in a table
-Amount recoverablenot the amount corresponding to the unexpired portion, but only the balance
after deducting the percentage to be retained by the insurer as stated in the short period rate table.
-Applies only to surrendered policy and not when the insurer cancels the policy.

Effect of loss before surrender- the amount of the loss paid by the insurer shall be deducted from the
whole premium and only the balance shall be the basis of the return of the premium

INSURERS FRAUD
-where the insurer represented that the contract entered into contained a certain provision but issued the
policy not containing such provision.
-The insurer can withhold the return of premium until the contract is annulled.
IGNORANCE OF FACTS
- E.g. when at the time the insurance was taken the insured did not have insurable interest in the thing
insured.
INSUREDS DEFAULT
-By any default of the insured other than actual fraud, the insurer never incurred any liability under the
policy.
-Where insurance was procured on the life of another without the consent of the latter, the person
procuring the policy believing it to be valid. Insureds default in obtaining the consent of the person whose
life was insured prevented the insurer from incurring any liability under the policy.
ANNULMENT OR RESCISSION ON FRAUD- Insured not entitled to a return of premium if the policy is
annulled or rescinded on grounds other than those attributable to the insurer

OVER INSURANCE
-Insurance in excess of the amount of the insurable interest of the insured, by several insurers, the insured
entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum
insured in all policies exceeds the insurable value of the thing at risk

TO WHOM RETURNED- Unless otherwise stated in the policy, premiums should be returned to the insured
that paid them.
PREMIUM NOT RECOVARABLE
1. If the peril insured against has existed, and the insurer has been liable for any period, the peril being
entire and indivisible.
2. Life insurance.
3. When the insured is guilty of fraud or misrepresentation
4. When the policy is annulled or rescinded upon grounds other than those attributable to the insurer of if
a claim is denied by reason of fraud.

RISK ENTIRE AND INDIVISIBLE

-Insured not entitled to a return of the premium if the insurer was exposed to liability for any period
however short.
-Based upon just and equitable principles, for the insurer has, by taking upon himself the peril, become
entitled to premium and although it may result to a profit it is but a just compensation for the dangers or
peril assumed.
LIFE INSURANCE
-It is indivisible
-not an assurance for a single year, with a privilege of renewal from year to year by paying the annual
premium but it is an entire contract of assurance for life.
INSUREDS FRAUD
RESCISSION OF CONTRACT

ACCEPTANCE OF FUTURE PREMIUMS

Sec. 84. An insurer may contract and accept payments, in addition to regular premium for the purpose of
paying future premiums on the policy or to increase the benefits thereof.