INSURANCE COMPANIES

Insurance

There are no certainties or guarantees in life. There is no guarantee that the business will not suffer an
unexpected loss or damages. So, while we cannot protect our interests against all risks, we can opt for some
insurance.

Insurance is defined as a contract, which is called a policy, in which an individual or organization

receives financial protection and reimbursement of damages from the insurer or the insurance company. At a
very basic level, it is some form of protection from any possible financial losses.

The basic principle of insurance is that an entity will choose to spend small periodic amounts of money
against a possibility of a huge unexpected loss. Basically, all the policyholders pool their risks together. Any loss
that they suffer will be paid out of their premiums which they pay.

An insurer is the company or person who promises to reimburse. The insured

(sometimes called the assured) is the one who receives the payment, except in the case of life insurance, where
payment goes to the beneficiary named in the life insurance contract. The premium is the consideration paid by
the insured—usually annually or semiannually—for the insurer’s promise to reimburse. The contract itself is
called the policy. The events insured against are known as risks or perils.

Functions of Insurance Company

Provides Reliability

The main function of insurance is that eliminates the uncertainty of an unexpected and sudden
financial loss. This is one of the biggest worries of a business. Instead of this uncertainty, it provides the
certainty of regular payment i.e. the premium to be paid.

Protection
Insurance does not reduce the risk of loss or damage that a company may suffer. But it provides
a protection against such loss that a company may suffer. So at least the organization does not suffer
financial losses that debilitate their daily functioning.

Pooling of Risk
In insurance, all the policyholders pool their risks together. They all pay their premiums and if
one of them suffers financial losses, then the payout comes from this fund. So the risk is shared between
all of them.

Legal Requirements
In a lot of cases getting some form of insurance is actually required by the law of the land. Like
for example when goods are in freight, or when you open a public space getting fire insurance may be a
mandatory requirement. So, an insurance company will help us fulfill these requirements.

Capital Formation
The pooled premiums of the policy holders help create a capital for the insurance company. This
capital can then be invested in productive purposes that generate income for the company.

Principles of Insurance

Utmost Good Faith

A contract of insurance must be made based on utmost good faith. It is important that the
insured disclose all relevant facts to the insurance company. Any facts that would increase his premium
amount, or would cause any prudent insurer to reconsider the policy must be disclosed.

If it is later discovered that some such fact was hidden by the insured, the insurer will be within
his rights to void the insurance policy.

Insurable Interest
This means that the insurer must have some pecuniary interest in the subject matter of the
insurance. This means that the insurer need not necessarily be the owner of the insured property but he
must have some vested interest in it. If the property is damaged the insurer must suffer from some
financial losses.
Indemnity
Insurances like fire and marine insurance are contracts of indemnity. Here the insurer undertakes
the responsibility of compensating the insured against any possible damage or loss that he may or may
not suffer. Life insurance is not a contract of indemnity.

Subrogation
This principle says that once the compensation has been paid, the right of ownership of the
property will shift from the insured to the insurer. So the insured will not be able to make a profit from
the damaged property or sell it.

Contribution
This principle applies if there is more than one insurer. In such a case, the insurer can ask the
other insurers to contribute their share of the compensation. If the insured claims full insurance from one
insurer, he loses his right to claim any amount from the other insurers.

Proximate Cause
This principle states that the property is insured only against the incidents that are mentioned in
the policy. In case the loss is due to more than one such peril, the one that is most effective in causing the
damage is the cause to be considered.
Types of Insurance

Public and Private Insurance

Sometimes a distinction is made between public and private insurance. Public (or social)
insurance includes Social Security, Medicare, temporary disability insurance, and the like, funded
through government plans. Private insurance plans, by contrast, are all types of coverage offered by
private corporations or organizations.

Types of Insurance for the Individual

Life Insurance
Life insurance provides for your family or some other named beneficiaries on your death. Two
general types are available: term insurance provides coverage only during the term of the policy and pays
off only on the insured’s death; whole-life insurance provides savings as well as insurance and can let the
insured collect before death.

Health Insurance
Health insurance covers the cost of hospitalization, visits to the doctor’s office, and prescription
medicines. Usually, the policy will contain a deductible amount; the insurer will not make payments until
after the deductible amount has been reached.

Disability Insurance
A disability policy pays a certain percentage of an employee’s wages (or a fixed sum) weekly or
monthly if the employee becomes unable to work through illness or an accident.

Homeowner’s Insurance

A homeowner’s policy provides insurance for damages or losses due to fire, theft, and other
named perils. No policy routinely covers all perils. The homeowner must assess his needs by looking to
the likely risks in his area—earthquake, flooding, and so on.

Automobile Insurance
Automobile insurance is perhaps the most commonly held type of insurance.. The typical
automobile policy covers liability for bodily injury and property damage, medical payments, damage to
or loss of the car itself, and attorneys’ fees in case of a lawsuit.
Other Liability Insurance
In this litigious society, a person can be sued for just about anything: a slip on the walk, a harsh
and untrue word spoken in anger, an accident on the ball field. A personal liability policy covers many
types of these risks and can give coverage in excess of that provided by homeowner’s and automobile
insurance
Types of Business Insurance

Workers’ Compensation
Almost every business must insure against injury to workers on the job. Some may do this
through self-insurance—that is, by setting aside certain reserves for this contingency. Other businesses
purchase workers’ compensation policies, available through commercial insurers.

Automobile Insurance
Any business that uses motor vehicles should maintain at least a minimum automobile
insurance policy on the vehicles, covering personal injury, property damage, and general liability.
Property Insurance
No business should take a chance of leaving unprotected its buildings, permanent fixtures,
machinery, inventory, and the like. Various property policies cover damage or loss to a company’s own
property or to property of others stored on the premises.

Malpractice Insurance
Professionals such as doctors, lawyers, and accountants will often purchase malpractice
insurance to protect against claims made by disgruntled patients or clients.

Business Interruption Insurance

Depending on the size of the business and its vulnerability to losses resulting from damage to
essential operating equipment or other property, a company may wish to purchase insurance that will
cover loss of earnings if the business operations are interrupted in some way—by a strike, loss of power,
loss of raw material supply, and so on.
Liability Insurance
Businesses face a host of risks that could result in substantial liabilities. Many types of policies
are available, including policies for owners, landlords, and tenants (covering liability incurred on the
premises); for manufacturers and contractors (for liability incurred on all premises); for a company’s
products and completed operations (for liability that results from warranties on products or injuries
caused by products); for owners and contractors (protective liability for damages caused by independent
contractors engaged by the insured); and for contractual liability (for failure to abide by performances
required by specific contracts).

Republic Act No. 10607

An Act Strengthening The Insurance Industry, Further Amending Presidential Decree No. 612,
Otherwise Known As The Insurance Code, As Amended By Presidential Decree Nos. 1141, 1280,
1455, 1460, 1814 And 1981, And Batas Pambansa Blg. 874, And For Other Purposes

Excerpts From R.A. 10607

A contract of insurance is an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event.

A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this
Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter
provided.

Parties to the Contract

Section 6. Every corporation, partnership, or association, duly authorized to transact insurance business
as elsewhere provided in this Code, may be an insurer.
Section 7. Anyone except a public enemy may be insured.

Insurable Interest

Section 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might delay or prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him depends.

Section 14. An insurable interest in property may consist in:

(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.

Concealment

Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.

Section 27. A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance.

The Policy

Section 49. The written instrument in which a contract of insurance is set forth, is called a policy of
insurance.
Section 50. The policy shall be in printed form which may contain blank spaces; and any word, phrase,
clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance
shall be written on the blank spaces provided therein.

Section 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium is only determinable
upon the termination of the contract, a statement of the basis and rates upon which the final
premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.
Section 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior
notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the
occurrence, after the effective date of the policy, of one or more of the following:
(a) Nonpayment of premium;
(b) Conviction of a crime arising out of acts increasing the hazard insured against;
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions increasing the hazard insured
against;
(e) Physical changes in the property insured which result in the property becoming
uninsurable;
(f) Discovery of other insurance coverage that makes the total insurance in excess of the value of
the property insured; or
(g) A determination by the Commissioner that the continuation of the policy would violate or
would place the insurer in violation of this Code.

Classes of Insurance

Section 101. Marine Insurance includes:

(a) Insurance against loss of or damage to:
(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities, choses in action, instruments of debts,

valuable papers, bottomry, and respondentia interests and all other kinds of property and interests
therein, in respect to, appertaining to or in connection with any and all risks or perils of
navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed
or similarly prepared for shipment or while awaiting shipment, or during any delays, storage,
transhipment, or reshipment incident thereto, including war risks, marine builder’s risks, and all
personal property floater risks;
(2) Person or property in connection with or appertaining to a marine, inland marine, transit or
transportation insurance, including liability for loss of or damage arising out of or in connection
with the construction, repair, operation, maintenance or use of the subject matter of such
insurance (but not including life insurance or surety bonds nor insurance against loss by reason
of bodily injury to any person arising out of ownership, maintenance, or use of automobiles);
(3) Precious stones, jewels, jewelry, precious metals, whether in course of
transportation or otherwise; and
(4) Bridges, tunnels and other instrumentalities of transportation and communication (excluding
buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers,
wharves, docks and slips, and other aids to navigation and transportation, including dry docks
and marine railways, dams and appurtenant facilities for the control of waterways.

Section 169. As used in this Code, the term fire insurance shall include insurance against loss by
fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered
by extension to fire insurance policies or under separate policies.

Section 176. Casualty insurance is insurance covering loss or liability arising from accident or
mishap, excluding certain types of loss which by law or custom are considered as falling exclusively
within the scope of other types of insurance such as fire or marine. It includes, but is not limited to,
employer’s liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance.

Section 177. A contract of suretyship is an agreement whereby a party called the surety guarantees the
performance by another party called the principal or obligor of an obligation or undertaking in favor of a
third party called the obligee. It includes official recognizances, stipulations, bonds or undertakings
issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No.
2206.
Section 181. Life insurance is insurance on human lives and insurance appertaining thereto or
connected therewith. Every contract or undertaking for the payment of annuities including contracts for
the payment of lump sums under a retirement program where a life insurance company manages or acts
as a trustee for such retirement program shall be considered a life insurance contract for purposes of this
Code.
Section 182. An insurance upon life may be made payable on the death of the person, or on his
surviving a specified period, or otherwise contingently on the continuance or cessation of life.

Section 183. The insurer in a life insurance contract shall be liable in case of suicide only when it is
committed after the policy has been in force for a period of two (2) years from the date of its issue
or of its last reinstatement, unless the policy provides a shorter period: Provided, however, That suicide
committed in the state of insanity shall be compensable regardless of the date of commission.

Section 187. Microinsurance is a financial product or service that meets the risk protection needs of
the poor where: (a) The amount of contributions, premiums, fees or charges, computed on a daily basis,
does not exceed seven and a half percent (7.5%) of the current daily minimum wage rate for
nonagricultural workers in Metro Manila; and (b) The maximum sum of guaranteed benefits is not more
than one thousand (1,000) times of the current daily minimum wage rate for nonagricultural workers in
Metro Manila.

Section 190. For purposes of this Code, the term insurer or insurance company shall include all
partnerships, associations, cooperatives or corporations, including government-owned or - controlled
corporations or entities, engaged as principals in the insurance business, excepting mutual benefit
associations. Unless the context otherwise requires, the term shall also include professional
reinsurers defined in
Section 288. Domestic company shall include companies formed, organized or existing under the
laws of the Philippines. Foreign company when used without limitation shall include companies
formed, organized, or existing under any laws other than those of the Philippines