Premium payment –consideration paid an insurer for undertaking to indemnify the insured against a

specified peril.

Basis of the right of the insurer to collect premiums: Assumption of risk.

General rule: No policy issued by an insurance company is valid and binding until actual payment of
premium. Any agreement to the contrary is void. (Sec. 77)

Exceptions ;

1. In case of life or industrial life insurance, when the grace periods applies;(Sec.77)
2. When the insurer makes a written acknowledgment of the receipt premium; (Sec.78)
3. Section 77 may not apply if the parties have agreed to the payment of the premium in
installments and partial payment has been made at the time of the loss.( Makati Tuscany
Condominium Corp. v. CA 215 SCRA 462)
4. Where credit term has been agreed upon. (UCPB V. Masagana Telemart, 308 SCRA 259)
5. Where the parties are barred by estoppel. (UCPB v. Masagana Telemart, 356 SCRA 307)

 Section 77 merely precludes the parties from stipulating that the policy is valid even if the
premiums are not paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)

Effect of Acknowledgment of Receipt of Premium in Policy: 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. (Sec. 78)

Entitlement of Insured to Return of Premiums Paid

A. Whole :
1. If the thing insured was never exposed to the risks insured against; (Sec. 79)
2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents;
(Sec.81)
3. If contract is voidable because of the existence of facts of which the insured was
ignorant without his fault; (Sec.81)
4. When by any default of the insured other than actual fraud, the insurer never
incurred liability; (Sec. 81)
5. When rescission is granted due to the insurer’s breach of contract. (Sec. 74)
B. Pro rata:
1. When the insurance is for a definite period and the insured surrenders his policy before
the termination thereof;
Exceptions:
a. Policy not made for a definite period of time
b. Short period rate is agreed upon
c. Life insurance policy
 2. When there is over-insurance(Sec. 82);

Instances when premiums are not recoverable:

1. When the risk has already attached and the risk is entire and indivisible.
2. In life insurance.
3. When the contract is rescindable or rendered void ab initio by the fraud of the insured.
4. When the contract is illegal and the parties are in pari delicto.

PREMIUM ASSESSMENT
Levied and paid to meet anticipated losses. Collected to meet actual losses.
Payment is not enforceable against the Payment is enforceable once levied unless
insured. otherwise agreed upon.
Not a debt. It becomes a debt once properly levied unless
otherwise agreed.