REVIEW QUESTIONS AND ANSWERS IN INSURANCE CODE (SEC.

1-25)

1. What is a Contract of Insurance?

a. A contract of insurance is whereby a person undertakes
to indemnify another against loss, damage, or
liability against an unknown or contingent event.

2. What is “doing an insurance” or “transacting an insurance business”?

a. A person is doing or transacting an insurance business
if he performs any of the following:
i. Making or proposing to make as an insurance, an
insurance contract;
ii. Making or proposing to make as a surety, any
contract of surety as a vocation, and not as a
mere incident of a legitimate business of a
surety;
iii. Doing any insurance business like reinsurance and
similar acts;
iv. Doing or proposing to do any business equivalent
to those previously mentioned.

3. What are the characteristics of a contract of insurance?

a. Insurance as a risk-spreading device;
i. It serves to distribute the risk of economic loss
among as many possible to those who are subject
to the same kind of risk.
b. Contract of adhesion;
i. The terms of the contract do not result from a
mutual negotiation between the parties as they
are prescribed by the insurer in a printed form
to which the insured may “adhered” if he chooses
but which he cannot change.
ii. Interpreted strictly against the insurer and
liberally in favor of the insured.
c. Aleatory;
i. The obligation of the insurer to pay the proceeds
of the insurance arises only upon the happening
of an event, which is uncertain, or which is to
occur at an indeterminate time.
d. Contract of indemnity;
i. Applicable only to property insurance; An insured
who has insurable interest over a property is
only entitled to recover the amount of actual
loss and the burden is upon him to establish the
amount of such loss.
e. Uberrimae Fides Contract;
i. Requires the parties to the contract of insurance
to disclose conditions affecting the risk of
which he is aware, or material fact, which the
applicant knows, and those, which he ought to
know.
f. Personal Contract;
i. Presumption that the insurer considered the
personal qualifications of the insured.

4. What are the elements of insurance? (PARIS)

a. Payment of premiums;
 b. Assumption of risks;
c. Risk of Loss;
d. Insurable interest exists; and
e. Scheme to distribute loss.

5. When is an insurance contract perfected?

a. An insurance contract is a consensual contract. Hence,
the contract is perfected upon the meeting of the
minds of the parties with respect to the object and
the cause or consideration.

6. Who are the parties to an insurance?

a. Insurer
i. The person who undertakes to indemnify another.
ii. May be partnerships, associations or
corporations.
b. Insured
i. The person with the capacity to contract and
having insurable interest in the life or property
of the insured.
ii. Affects not only individuals but also
corporations.
c. Beneficiary
i. Person designated to receive proceeds of policy
when risk attaches.

7. Who is a public enemy? Can he/she be insured?

a. A public enemy is a nation, including its citizens or
subject, with whom the Philippines is at war.
b. No, he cannot be insured as provided in Section 7, of
the I.C.

8. Can a minor enter into insurance contracts?

a. No. Under the Civil Code, a contract entered between
an incapacitated and a capacitated person is voidable.
b. However, a minor may be insured by another who has an
insurable interest over the life of the minor.

9. Can a spouse enter into an insurance contract without the consent of the
other?
a. Yes. Section 3 of the IC states that the consent of
the spouse is not necessary for the validity of a
contract of insurance taken out by a married person on
the life of the spouses themselves or his or her
children.

10. What is the effect of death of owner of the policy?

a. Section 3 of the IC states that all rights, title and
interest in the policy of insurance taken out by the
original owner on the life or health of the insured,
shall automatically vest to the latter upon the death
of the original owner, unless otherwise provided in
the policy.

11. Who are not qualified as a beneficiary?

a. Applying the principles in Article 793 on donations,
considering that a life insurance policy is no
 different from that of a donation with respect to
beneficiaries, the following are disqualified as
beneficiaries:
i. Those made between persons who were guilty of
adultery or concubinage at the time of the
donation;
ii. Those made between persons found guilty of the
same criminal offense, in consideration thereof;
and
iii. Those made to a public officer or his wife,
descendants or ascendants by reason of his
office.

12. When is the interest of a beneficiary in a life insurance policy forfeited?

a. When the beneficiary is the principal, accomplice, or
accessory in willfully bringing about the death of the
insured.

13. What is the effect if the interest of the beneficiary is forfeited?

a. The share shall pass on to:
i. The other beneficiaries, unless otherwise
disqualified;
ii. In the absence of other beneficiaries, the
proceeds shall be paid in accordance with the
policy contract; or
iii. If the policy is silent, the proceeds shall be
paid to the estate of the insured.

14. Can the designation of beneficiary be revoked?

a. Yes, unless the right to revoke had been expressly
waived in the policy.

15. In life insurance, who are persons who has insurable interest on the life
and health of the insured?
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 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.

16. In what does insurable interest in property consist? (EIEce)

a. Insurable interest in property is any interest
therein, or liability in respect thereof, and it may
consist in an existing interest, an inchoate interest
founded on an existing interest, or any expectancy
coupled with an existing interest.

17. Differentiate insurable interest in property vs insurable interest in life.

a. As to extent
i. In life, it is unlimited;
ii. In property, limited to the actual value of the
interest thereon;
b. As to time when insurable interest must exist
 i. In life, enough that it exists at the time the
policy takes effect and need not to exist at the
time of the loss;
ii. In property, necessary that it exists when the
insurance takes effect and when the loss occurs,
but need not exist in the meantime.
c. As to expectation of benefit to be derived
i. In life, need not have any legal basis;
ii. In property, there must be a legal basis.
d. As to beneficiaries interest
i. In life, beneficiary’s interest is not necessary
as long as the insured himself secured the
policy. If obtained by the beneficiary, must have
insurable interest in the insured.
ii. In property, it is necessary that the beneficiary
has an insurable interest.

18. Should the mortgagor have an insurable interest in the mortgaged

property?
a. Yes. The mortgagor has an insurable interest over the
mortgaged property to the extent of its value, even
though the mortgage debt equals such value.

19. Should the mortgage have an insurable interest in the mortgaged property?
a. Yes. The mortgagee as such has an insurable interest
in the mortgaged property to the extent of the debt
secured. Such interest continues until the mortgage
debt is extinguished.

20. Differentiate standard or union mortgage clause from open or loss payable
mortgage clause.
a. In a standard or union mortgage clause, the subsequent
acts of the mortgagor cannot affect the rights of the
mortgagee.
b. In an open or loss payable mortgage clause, the
mortgagor does not cease to be a party to the
contract.

21. What is the effect of change of interest in the thing insured unaccompanied
by a change of interest in insurance?
a. It suspends the insurance to an equivalent extent,
until the interest in the thing and the interest in
the insurance are vested in the same person.
b. Exceptions:
i. In life, health and accident insurance; (Sec 20)
ii. After the occurrence of an injury which results
in a loss; (Sec 21)
iii. Change in interest in one or more of several
distinct things, separately insured by one
policy; (Sec 22)
iv. A change of interest by will or succession on the
death of the insured; (Sec 23)
v. A transfer of interest by one of several
partners, joint owners, or owners in common, who
are jointly insured, to the others. (Sec 24)

22. What are risks that can be insured?

a. May be any contingency or unknown event the happening
of which will damnify a person having insurable
interest or will create liability against him.