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Marian Camille E. Chavez

When insurable interest in life must exist

Sec 181 A policy of insurance upon life or health may pass by transfer, ill or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered

All life insurance policies are declared by law to be assignable regardless of whether the assignee has an insurable interest in the life of the insured or not.

To deny the right to assign a life insurance except to a person having an insurable interest, is to diminish appreciably the investment value of the contract to the owner

An assignment is to be distinguished from a change in the designated beneficiary (Sec. 11).

Why is it necessary that there is the consent of the beneficiary to assignment?

Right to change acquires a vested and absolute interest

No waiver: insured may assign policy without consent of beneficiary, who has a mere expectancy


Sec 11 The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy

Insured retains the right to receive the cash value of the policy, to take out loans against the cash value, to assign

the policy, or to surrender it without the consent of the beneficiary

Beneficiary only those persons, whether natural or juridical, who, though not parties to the contract, are mentioned in it as the intended recipients of the proceeds or benefits of the insurance if the insured risk occurs

Kinds of Beneficiary

1. Insured himself the assured

2. Third person who paid a consideration the insured may have take the policy for the benefit of a creditor or to secure some other obligation

3. Third person through mere bounty of insured the one who gives no consideration for any right that may be acquired in the policy but is designated as recipient of the proceeds of the policy

2 nd and 3 rd Beneficiary not part of the contract All 3 Proceeds of the life insurance policy become the exclusive property of the beneficiary upon the death of the insured

Limitations in the Appointment of Beneficiary

Art 2012 Any person who is forbidden from receiving donation under Art 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him according to said article

Art 739 The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of the donation

2. Those made between persons found guilty of the same criminal offense, inconsideration thereof

Marian Camille E. Chavez

3. Those made to public officers or his wife, descendants and ascendants by reason of his office

A life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded on the same consideration: liberality.

Insured’s power to extinguish the beneficiary’s interest ceases at his death, and cannot be exercised by his personal reps or assignees.

When beneficiary dies before insured, the estate of the insured should be entitled to the proceeds of the insurance, especially where the designation is subject to the express condition to pay the beneficiary if he survives the insured or “if surviving”

Designation of beneficiary:

Children includes adopted child, adult child not forming part of the household of the insured, after-born children even of a marriage subsequently contracted; descendant of the 1 st degree and never intended to include grandchildren Wife the fact that one who otherwise answers the description does not have the legal status of the wife of the insured does not prevent her from taking as beneficiary, as when she is designated by name, although the words “his wife” are added Their children beneficiaries are limited to children common to both Wife and children deemed for the benefit of all children of the insured, whether by the named wife or those of another Family whether that person was so regarded by the insured

Heirs or legal heirs not ordinarily merely the heirs at law but that class of persons who would take the property of the insured in case he died intestate; includes widow, as well as children of the deceased Estate or legal representatives of deceased construed in strict technical sense, used to mean executors or administrators

If no beneficiary is designated, the proceeds will go to his legal heirs in accordance with law.

Forfeiture of interest of beneficiary

Sec 12 The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice or accessory in wilfully bringing about the death of the insured; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified

Interest here means right of the beneficiary to receive the proceeds of the life insurance policy

Nearest relatives:

1. Legitimate children

2. The father and the mother, if living

3. The grandfather and grandmother, or ascendants nearest in degree, if living

4. The illegitimate children

5. The surviving spouse

6. The collateral relatives

a. Brothers and sisters of the full blood

b. Brothers and sisters of the half blood

c. Nephews and nieces

7. In default of the above, the State shall be entitled to receive the insurance proceeds

Marian Camille E. Chavez

In the absence of a valid policy exception, death of the insured at the hands of the law, as by legal execution, is one of the risks assumed by the insurer under a life insurance policy.

Death by suicide is not by implication exempted from the risks assumed by the insurer, especially where the insurance is for the benefit of another rather than the insured.

Death caused by beneficiary public policy prohibits anyone from profiting by his own wrong

Except where the killing is self-defense

Death caused by violation of law does not warrant denial of liability To avoid liability, the insurer must further establish the violation of law was the cause or had a causal connection with the accident

Insurable Interest in property insurance

Sec 13 Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof of such nature that a contemplated peril might directly damnify the insured, is an insurable interest

It is not necessary that the interest is such that the event insured against would necessarily subject the insured to loss

Although a person has no title, legal or equitable, yet he has an insurable interest if he so situated with respect to the property that he will suffer loss as the proximate result of its damage or destruction. Mortgagor sells mortgaged premises to vendee who assumes the payment of the mortgaged debt, mortgagor yet had an insurable interest in the property because of his personal liability for the debt Vendor who retains lien retains an insurable interest (retains ownership merely to insure that the buyer will pay the price

Insurable interest in property is not necessarily an interest in property, but a concern in the preservation of the property.

Such expectation not arising from any legal right or duty in connection with the property does not constitute an insurable interest. Factual expectation, which will suffice in life insurance

Property itself (ownership), any relation thereto (interest of a trustee or a commission agent), or liability in respect thereof (interest of a carrier or depository of goods)

of a trustee or a commission agent), or liability in respect thereof (interest of a carrier
of a trustee or a commission agent), or liability in respect thereof (interest of a carrier

Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction.

Sec 14 An insurable interest in property may consist in:

Sec 14 An insurable interest in property may consist in:




Existing interest

An inchoate interest founded on an existing interest; or

An expectancy, coupled with an existing interest in that out of which the expectancy arises

Need not be an existing interest!

Marian Camille E. Chavez

More than one insurable interest may exist over the same property

Existing interest

a. Legal title mortgagor of the property mortgaged Where legal title held in a rep capacity, the rep has sufficient insurable interest of taking out insurance on property under his control, but any proceeds are to be held for the benefit of those for whose benefit the rep is acting

b. Equitable title purchaser of property before delivery

Inchoate Interest Stockholder existing interest from his ownership of shares in the corporation; insurable interest limited to the extent of the value of his interest or to his share in the distribution of the corporate asets upon dissolution

Expectancy Farmer may insure future crops if they are to be grown on land owned by him at the time of the issuance of the policy, or if on land of another, provided the crops will belong to him when produced

Insurable interest of carrier or depository

Sec 15 A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof

Reason: the loss of the thing may cause liability to the carrier or depository to the extent of its value

Contingent or expectant interest not an insurable interest

Sec 16 A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable

A father cannot insure his son’s property nor can a son insure the property that he expects to inherit from his father as his interest is merely an expectancy of inheriting

One named as beneficiary in a will has no insurable interest in a property designated before the testator’s death

Measure of insurable interest

Sec 17 The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof

Any property insurance contract that gives the insured more than indemnity against his actual loss suffered is in the nature of a wagering policy contrary to public policy and void.

Effect where no insurable interest exists

Sec 18 No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.

An insurance taken out by a person on property in which he has no insurable interest is void.

Marian Camille E. Chavez

The premium is ordinarily returned to the insured, unless he is in pari delicto with the insurer.

Doctrine of estoppels cannot be invoked since the public has an interest in the matter independent of the consent or concurrence of the parties.

Measure of indemnity in insurance contracts Marine or fire insurance not the exact measure of indemnity, but the maximum indemnity which he might obtain, and cannot recover in excess of his actual loss; amount may be determined after the loss or is previously fixed in the contract Liability insurance contracts if the insured suffers no loss because his liability to a third person cannot be enforced, the insurer has no obligation to pay the proceeds; insurer’s promise is to pay the proceeds of the policy on behalf of the insured to a third person to whom the insured is liable Life insurance contracts the amount for which a person is governed by the amount of premium that he contracted to pay; the amount fixed payable at the death of the insured is not considered as the true value of the thing insured because the life of a person is priceless, but is simply the measure of indemnity which the insurer has bound himself to pay the insured Personal accident insurance contracts often impossible exactly to assess the injury suffered and a policy with mixed benefits may be issued; not contracts of indemnity for life and limb are not susceptible to exact or uniform valuation Health insurance contracts only medical expenses incurred by the insured are paid Health care agreement payment should be made to the party who incurred the expenses; non-life insurance, contract of indemnity

When insurable interest must exist

Sec 19 An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime; and interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

General rule is applicable only to insurance on property and not to life insurance except that on the life of the debtor.

In life insurance, the insurable interest

requirement is satisfied if the interest exists at the time the policy is procured, even if it has

ceased to exist at the time of the insured’s death.

In liability insurance, questions of insurable

interest are not important. It necessarily exists when the liability of the insured to a third party attaches.

Need not exist during intervening period purpose of provision is to prevent the issue of wagering policies

D insured house on May 15 for 1 year. Without

assigning his policy, he sold the house to B on July 10. If house was accidentally burned on Sept 15, D cannot recover because his insurable interest was no longer existing when the loss occurred. However if on Sept 11, D reacquired the house from B, D may recover on the policy because insurable interest need not exist during intervening period from July 10 when he sold the house to Sept 10.

Marian Camille E. Chavez

Existence of an insurable interest at the inception of the contract is not at all necessary to its validity. It is sufficient that insurable interest exists at the time the risk attaches.

Insurable interest in life

Insurable interest in property

Extent is unlimited

Limited to the value of the interest thereon

Enough that insurable interest exists at the time the policy takes effect and need not exist at the time of the loss

Must exist when insurance takes effect and when the loss occurs, but need not exist in the meantime

The expectation of benefit to be derived from the continued existence of life need not have any legal basis; reasonable probability sufficient

The expectation of




afford a sufficient insurable interest unless that expectation has a basis of legal right.

Change in interest in property

Sec 20 Except in cases specified in the next four sections, and in the cases of life, accident, and health insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance, suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the insurance are vested in the same person.

Exception: In life, health and accident insurance

In accordance with Sec 19 that an insured must have an insurable interest in the property insured at the time of loss.

Contract is not rendered void, but is merely suspended by a change of interest.

Purpose: To provide against changes which might supply a motive to destroy the property or might lessen the interest

Sec 21 A change of interest in the thing insured, after the occurrence of an injury which results in a loss, does not affect the right of the insured to indemnity for the loss.

Another exception

After a loss, the liability of the insurer becomes fixed. The insured has an absolute right to assign his claim against the insurer as freely as any other money claim.

Sec 22 A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the others

Another exception

Divisible vs. Indivisible contract Made up of several parts vs. Entire and single

Sec 23 A change of interest, by will or succession, on the death of the insured, does not avoid an insurance; and his interest in the insurance passes to the person taking his interest in the thing insured.

Another exception

The insurance on property passes automatically, on the death of the insured.

Sec 24 A transfer or interest by one of several partners, joint owners, or owners in common,

Marian Camille E. Chavez

who are jointly insured, to the others, does not avoid an insurance, even though it has been agreed that the insurance shall cease upon an alienation of the thing inured.

Another exception

Such transfer will not avoid the insurance. Principle is that each partner is interested in the whole property and the hazard is not increased because the purchasing partner has acquired a greater interest in the property by a transfer of his co-partner’s share.

But a policy will be avoided by a sale of an interest in partnership property by the partner to one of his co-partners, without the consent of the insurer and before the loss occurs

It is alienation to a stranger that will avoid the policy.

Prohibited in an insurance policy

Sec 25 Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void.

Wager policy a pretended insurance where the insured has no interest in the thing insured and can sustain no loss by the happening of the misfortunes insured against; policy of law does not admit of such however willing the parties may be to enter it

The insurer can always show lack of insurable interest after the issuance of a policy of insurance.