An Insurance premium may be defined as the

agreed price for assuming and carrying the

risk- that is, the consideration paid an insurer
for undertaking to indemnify the insured
Assessment, in the law of insurance, is a sum
specifically levied by mutual insurance
companies or association, upon a fixed and
definite plan, to pay losses and expenses.
 In theory, all payments of premiums and
assessment are but contributions from all the
members of the insuring organization to make
good the losses of individual members.
 The chief distinction, however, between
premiums and assessments lies in the fact that
the former are levied and paid to meet
anticipated losses, while the latter are collected
to meet actual losses. The payment of
premium, after the first, is not enforceable
against the insured; while assessments, unless
otherwise agreed, are legally enforceable once
levied. Hence, while premium is not a debt, an
assessment, properly levied, unless otherwise
expressly agreed, is a debt.
1. In fire, casualty, and marine insurance – The
premium payable becomes a debt as soon as the
risk attaches, and in suretyship, as soon as the
bond is perfected and delivered to the obligor.

Non-payment of the balance of the premium due

does not produce the cancellation of the contract of
insurance in the sense that it can no longer be
enforced. A contrary rule would place exclusively
in the hands of the insured the right to decide
whether the contract should stand or not.
2. In life insurance- The premium becomes a
debt only when in case of the first premium,
the contract has become binding, and in the
case of subsequent premiums, when the insurer
has continued the insurance after the maturity
of the premium, in consideration of the
insured’s express or implied promise to pay.
 The general rule of law applicable to payment
of money obligations are, of course, applicable
to payment of insurance premiums.
1. First premium- Nonpayment of the first
premium unless waived, prevents the contract
from becoming binding notwithstanding the
acceptance of the application nor the insurance
policy. But non-payment of the balance of the
premium due does not produce the
cancellation of the contract.
2. Subsequent premiums- Nonpayment of subsequent
premiums does not affect the validity of the contracts
unless, by express stipulation, it is provided that the
policy shall in that event be suspended or shall lapse

In case of individual life or endownment insurance and

group life insurance, the policy holder is entitled to a
grace period of either 30 days or 1 month within which
the payment of any premium after the first may be
made.
In case of industrial life insurance, the grace period is 4
weeks, and where premiums are payable monthly,
either 30 days or 1 month.
1. Fortuitous events- Even the act of God,
rendering the payment of the premium by the
insured wholly impossible, will not prevent the
forfeiture of the policy when the premium
remains unpaid.
2. Condition, conduct or default of insurer-
Indeed, no excuse whatever will avail to
prevent a forfeiture except only when the non-
payment has in some way been induced by the
condition, conduct or default of the insurer.
Thus, non-payment is excuse:
(1) When the insurer has become insolvent and
has suspended business, or has refused
without justification a valid tender of
premiums (Gonzales vs. Asia Life Insurance
Co. 92 Phil. 197)
(2) Where the insurer has in any wise waived
his right to demand payment.
1. In the case of a life or an industrial policy,
whenever the grace period provision applies;
2. Whenever under the broker or agency agreements
with duly licensed intermediaries, a 90-day
extension is given;
3. When there is an acknowledgement in a policy or
contract of insurance of receipt of premium even if
there is a stipulation therein that it shall not be
binding until the premium is actually paid;
4. Where there is an agreement allowing the insured
to pay the premium in instalments and partial
payment has been made at the time of loss;
5. Where there is an agreement to grant the
insured credit extension for the payment of
premium, and loss occurs before the expiration
of the credit term; and
6. When estoppel bars the insurer from invoking
section 77 to avoid recovery on policy
providing a credit term for the payment of
premiums, as against the insured who relied in
good faith of such extension
1. Waiver of condition of payment- Where the
policy or contract of insurance contains an
acknowledgement of receipt of premium, the
insurer cannot deny the truth of the receipt of
the premium in an action against him on the
policy even if it is actually unpaid and
notwithstanding any stipulation making
prepayment of the premium a condition
precedent to the binding effects of the policy.
2. Recovery of premium if unpaid- It must be
noted, however, that the conclusive
presumption extends only to the question of
the binding effect of the policy. As far as
payment of the premium itself is concerned,
the acknowledgement is only a prima facie
evidence of the fact of such payment. In other
words, the insurer may still dispute its
acknowledgement but only for the purpose of
recovering the premium due and unpaid.
Whether payment was indeed made is a
question of fact.
 Acceptance of premium within the stipulated
period for payment thereof, including the
agreed grace period, merely assures continued
effectivity of the insurance policy in accordance
with its terms. Such acceptance does not stop
the insurer from interposing any valid defence
under the terms of the insurance policy, where
such insurer is not guilty of any inequitable act
or representation.
(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.
Since premiums are paid in consideration of
the assumption of specified risks by insurers,
and since no premium is due unless the risk
attaches, if the risk insured against does not or
cannot attach, or if no part of the interest is
subject to any of the specified perils, the insurer
cannot claim or retain the premium thus paid,
in the absence of any fraud or fault on the part
of the insured.
1. Approval of application or acceptance of policy
absent – Where the application for a policy was
not approved, no premium can be recovered,
and with respect to a policy requiring
acceptance to be effective, the insured cannot
be held liable for accruing premiums if the
policy is not accepted.
And if the premium has previously been paid,
it must be returned as no risk whatsoever has
ever attached.
2. Loss occurs before effective date – Where the
insured pays in advance the annual premium
on a certain property insured by him, the
insurance to take effect on a certain date and
the loss occurs before said date, the insured is
entitled to a return of the whole premium
3. Insured and insurer become public enemies –
Where the parties in a contract of insurance
have become public enemies because of the
existence of a state of war, justice requires that
premiums paid after the declaration of war
between the belligerent states be returned to
the insured.
 War abrogates insurance contracts between
citizens of belligerent states, and therefore, the
insured is not entitled, notwithstanding the
payment of premiums, to indemnity for loss
occurring after such declaration of war.
 Section 80(b) does not apply (1) where the
insurance is not for a definite period; or (2)
where a short period rate has been agreed
upon; or (3) where the policy is a life insurance
policy.
Example:
X insures his house for one year and pays the
amount of 16,000 corresponding to the
premium for one year. If after the lapse of three
months, X surrenders his policy, he shall be
entitled to collect ¾ of the premium paid or
12,000 representing the portion of the premium
for the unexpired period of the policy.
If the policy is cancelled by the insured, the pro
rata return of premium will not be followed if
the policy stipulates a short period rate, in
which case, the insured is entitled to return of
the premium in the proportion stipulated.
 Recovery of premiums paid is not allowed in
life insurance if the insured surrenders his
policy.
The reason is that life insurance is not a
divisible contract.
However, the insured will be entitled to receive
the “cash surrender value” of his policy “after
three (3) full annual premiums shall have been
paid.
1. Whole premium considered as earned - If the
risk has attached by reason of the contract’s
becoming binding upon the insurer, the whole
premium must be considered as earned and,
therefore, cannot be apportioned in case the
risk terminates before the end of the term for
which the insurance was granted.
Example:
X procures insurance upon a certain vessel
against the perils of the sea for a voyage from
Manila to London. The voyage is to last for 5
days. X cancels the policy two days after the
voyage has commenced. Is X entitled to return
of premiums?
Answer:

No portion of the premium is returnable

because the thing insured has already been
exposed to perils.
2. Where insurance divisible – If the contract of
insurance is divisible, consisting of several
distinct risks for which different amounts of
premiums have been paid, the premium paid
for any particular risk is not earned until that
risk attached.
Example:
Suppose the insurance procured by X upon his
vessel contemplates a voyage in three different
stages – from Port A to Port B, then to Port C,
and finally, to Port D – and X paid a different
amount of premium as regards each portion.

In this case, the contract of insurance is

divisible. If X cancels the policy after the vessel
reaches Port A, he can recover the premiums
corresponding to the two other stages of the
voyage as to which no risk has been assumed
by the insurer.
1. Fraud of the insurer or his agent – If the policy
is induced by the fraud or misrepresentation of
the insurer, or his agent, the insured may, by
timely action, rescind the contract and demand
the return of the premiums paid by him
2. Other grounds – The insured is also entitled to
a return of the premiums when the contract is
voidable “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 liability under the policy”
3. Fraud of the insured – The insured is not
entitled to a return of the premium paid if the
policy is annulled by reason of fraud or
misrepresentation of the insured. Section 82
impliedly prohibits the return of the premium
where the policy is annulled by reason of the
fraud of the insured.
The insurer is not liable for the total amount of
insurance taken, his liability being limited to
the amount of the insurable interest on the
property insured. Hence, he is not entitled to
that portion of the premium corresponding to
the excess of the insurance over the insurable
interest of the insured
 The premiums to be returned where there is
over- insurance by several insurers shall be
proportioned to the amount by which the
aggregate sum insured in all the policies
exceeds the insurable value of the thing at risk
Example:
Suppose X insures his house which has an
insurable value of 1.5m as follows:
Insurer Amount of insurance Premiums paid
A Co. 1,200,000 24,000
B Co. 600,000 12,000
1,800,000 36,000
In this case, there is an over-insurance of 300,000,
the amount by which the aggregate sum
insured in the two policies exceeds the
insurable value of the house(1.5m).
The proportion is 300,000 to 1,800,000 or 1/6.
Hence, 1/6 of 24,000 or 4,000 is what A Co.
must return; and 1/6 of 12,000 or 2,000 is what
B Co. must return.
Since the insurable interest of X is only 1,500,000;
he cannot recover the whole of the amount
insured in case of loss.
When the insurance is void because it is illegal,
the general rule is that the premiums cannot be
recovered.
But if the parties are not in pare delicto, the law
will allow an innocent insured to take against
his premiums as when the insured was
ignorant of the facts which rendered the
insurance illegal
 It is also held that where one, having no
insurable interest in the life insured, paid
premiums in the bona fide belief induced by
the fraudulent statement of the insurer, that
such insurance was valid, he may recover the
premiums paid despite the fact that the
contract was illegal. But it is otherwise when
the insured was a conscious party to the
wrong.
 With regard to return of premium for short
interest, over-insurance, and double insurance,
the basis is this:
(1) Insurer could have been called to pay the
whole sum insured – If the insurer could at any
time, and under any conceivable
circumstances, have been called on to pay the
whole sum on which he has received premium,
in such case the whole premium is earned and
there shall be no return
(2) Insurer could have been called to pay only
part of the whole sum insured – If, on the other
hand, he could never in any event have thus
been called on to pay the whole, but only a part
of the amount of his subscription, he ought not
to retain a larger proportion that one-half or
one-fourth of the premium and must return the
residue.
 Under Section 84, the insurer may contract
with the insured whereby the insured may
make and the insurer, “accept payments, in
addition to regular premiums, for the purpose
of paying future premiums on the policy or to
increase the benefit thereof.”