Open/Valued/Running Policy
Ian Soganda insured his laptop under an open policy with a maximum coverage of ₱50,000. When the laptop was stolen, its actual value was only ₱30,000. Can Ian Soganda claim the full ₱50,000?
No. Under an open policy, only the actual value of the loss can be claimed.
Junelle bought a fire insurance policy but never paid the premium. Is the insurance policy valid and binding? Why or why not?
No, the insurance policy is not valid and binding. Under Section 77 of the Insurance Code, no insurance contract becomes valid unless the premium is paid, except in limited cases like life insurance with a grace period.
A policyholder stops paying premiums after paying for 3 years. What option allows them to receive money from the policy?
The policyholder may choose the cash surrender value option. This means the policyholder can voluntarily terminate the policy and receive money from the insurance company based on the policy’s reserve value after deductions.
Liza’s premium was due on January 1, 2023. She had a 31-day grace period, so her coverage actually lasted until February 1, 2023. She finally went to the insurer to reinstate her policy on January 15, 2026. The insurer denied her, saying she is "out of time." Liza argues that the 3-year limit should count from the end of the grace period (Feb 2023), not the due date. Is Liza correct?
No. Under Section 233(j), the 3-year period starts from the "date of default of premium payment." In insurance law, the "default" happens on the original due date (Jan 1, 2023), hindi sa pagtatapos ng grace period. Therefore, her 3-year window expired on Jan 1, 2026. Late na siya ng 14 days.
Dina insured her restaurant against fire for one year. After one week, no loss had occurred, but she canceled the policy and demanded a full refund of the premium. Is Dina entitled to a refund?
No. The insurer already assumed the risk for one week. Under Section 81, once the risk attaches, the premium cannot be returned.
Ian Ganda insured her delivery van under a valued policy. The policy clearly states that the van is valued at ₱1,200,000. Several months later, the van was completely destroyed in a major flood. At the time of the loss, the market value of the van had already dropped to ₱950,000 because of depreciation. Ian Ganda filed a claim based on the agreed amount written in the policy. Can Ian Ganda still recover the ₱1,200,000 agreed upon in the valued policy despite the lower market value of the van?
Yes. In a valued policy, the value of the property is agreed upon in advance, so the insurer generally pays the agreed amount in case of total loss, subject to the policy limit and absence of fraud.
Sarah paid ₱5,000 out of ₱10,000 premium and the policy was issued. Is the contract valid?
Yes, the insurance contract is valid and binding. Once the contract is perfected and the insurer accepts partial payment, the policy becomes effective. The insured is still liable for the unpaid balance, but the contract is not automatically invalidated.
Maria has a cash surrender value of ₱50,000. If she chooses paid-up insurance, what happens to her future premium payments?
She no longer needs to pay future premiums. Under paid-up insurance, the policy remains active even without additional payments. However, the insurance coverage becomes smaller compared to the original amount.
Ben applied for reinstatement. His medical exam was perfect—he’s as healthy as an athlete. However, the insurer found out that Ben recently declared bankruptcy and has several unpaid high-stakes gambling debts. The insurer denied his reinstatement, fearing a "moral hazard" (risk of suicide or foul play). Ben sued, saying "evidence of insurability" should only refer to his health. Will Ben’s case prosper?
No. This is a common misconception. "Evidence of insurability" is not synonymous with "good health." It is a broader term that includes the insured’s occupation, hobbies, and even their financial standing. Kung ang financial situation ng insured ay "high risk" na for the company, they have the right to deny reinstatement because the evidence is not "satisfactory to the company."
Eric obtained marine insurance for goods to be shipped abroad. Neither Eric nor the insurer knew that the ship had already sunk before the policy was issued. Can Eric recover the premium?
Yes, the premium may be returned. The ship had already sunk before the policy began, and Eric did not know this. The insured was ignorant of the fact without fault under Section 82.
IanTheGanda Co., a large supermarket chain, keeps thousands of products in different warehouses across the country. The value of the inventory changes every week depending on sales and new deliveries. To avoid constantly cancelling and replacing insurance contracts, IanTheGanda Co. decided to obtain a running policy. Every month, IanTheGanda Co. submits updated inventory reports to the insurer so the coverage can match the actual value of the goods. Does the running policy allow the insurance coverage to adjust according to the updated inventory reports submitted by IanTheGanda Co.?
Yes. A running policy is designed for changing properties or inventories, and the coverage adjusts based on the actual values reported over time.
Jazzer house was destroyed by fire on June 10, but he paid the remaining premium only on June 12. Is the insurer liable?
No, the insurer is not liable. Full premium payment must be made before the loss occurs for the policy to take effect. Payment after the loss does not revive or validate coverage.
Carlo’s policy reserve is ₱100,000 and the surrender charge is ₱15,000. How much cash surrender value will he receive?
The cash surrender value is ₱85,000. The cash surrender value is computed by subtracting the surrender charge from the reserve: 85,000 = 100,000 - 15,000. Therefore, the policyholder will receive ₱85,000 upon cancellation of the policy.
The insurance company allowed Mr. Cruz to reinstate his policy after 2 years of lapse. However, due to inflation and a change in company policy, the insurer charged him a 12% interest on his overdue premiums. Mr. Cruz checked his original policy contract and saw that the interest rate for loans/defaults was only 8%. Can Mr. Cruz legally demand that the insurer lower the interest to 8%?
Yes. Section 233(j) is very specific: the interest rate for reinstatement must not exceed that which would have been applicable to the premiums and indebtedness in the policy years prior to reinstatement. Hindi pwedeng taasan ng company ang interest rate just because "reinstatement" na ang usapan; they must stick to the rate agreed upon before the policy lapsed.
Hannah insured her building for one year. After four months, she canceled the policy. The contract contained a short period rate clause, and the insurer had already covered a minor damage claim during the policy period. Is Hannah entitled to a full return of premium?
No, partial refund only. The policy was canceled early, but there was a short-period rate clause, and a claim had already been paid. So the refund is reduced under Section 80(b).
Ian Maganda insured her jewelry collection under an open policy with a maximum coverage of ₱500,000. One night, thieves broke into her mansion and stole several expensive items. Ian Maganda immediately filed a claim with the insurer and demanded payment. However, during the claims process, she could not provide receipts, photographs, appraisals, or any proof showing the actual value and ownership of the jewelry. Can the insurer require Ian Maganda to present proof of ownership and value before approving the claim?
Yes. Under an open policy, the insured must prove both the existence and actual value of the property lost through supporting evidence.
Suzanne failed to pay her premium due May 1 but died on May 25. The policy has a 30-day grace period. Is it covered?
Yes, the policy is still in force and beneficiaries can claim. Yes, the policy is still in force and beneficiaries can claim.
A policyholder forgot to choose an option after defaulting on premium payments. What will the insurance company most likely do with the policy?
The policy will automatically be converted into one of the available options, usually paid-up insurance. If the policyholder fails to choose an option, the insurance company automatically applies a non-default option so the policyholder will not lose all benefits.
Sofia’s policy lapsed in 2024. In 2025, she suffered a financial crisis and signed a document to "surrender" her policy to get the Cash Surrender Value (CSV). The company processed it, but Sofia never went to the office to pick up the check. A month later, she changed her mind and tried to reinstate the policy instead. Can she?
No. The law states reinstatement is available "unless the cash surrender value has been duly paid." Legally, once the surrender is processed and the funds are made available/allocated to her, the contract is considered terminated. The fact that she hasn't physically touched the money doesn't "undo" the surrender.
Karl insured his cargo shipment. Before the goods were transported, the sale was canceled, and the cargo never left the warehouse. Karl requested a refund, but the insurer argued that the policy had already been issued. Is Karl entitled to a full return of premium?
Yes, full refund. The goods were never transported, so there was no risk. Under Section 80(a), the whole premium must be returned.
Pretty Ian Inc., a trading company, insured its goods under a running policy because its shipments constantly move from one city to another. At the start of the month, Pretty Ian Inc. reported that the value of the goods in transit was ₱8 million. Two weeks later, Pretty Ian Inc. shipped additional products, increasing the total value of the cargo to ₱15 million, but it failed to update the insurer. Shortly after, the shipment was destroyed in an accident. Pretty Ian Inc. then claimed the entire ₱15 million loss from the insurer. Can the company’s failure to report the updated cargo value affect the amount recoverable from the insurer?
Yes. Since the Pretty Ian Inc. failed to update the insurer regarding the increased value of the goods, the policy may only cover the previously reported amount, which can result in underinsurance and lower recovery.
Is a member required to pay an assessment even if he already paid a premium?
Yes, the member is required to pay the assessment. Premium is a pre-paid contribution for potential future risks, while assessment is a post-loss contribution imposed to cover actual losses. In mutual insurance, members are required to contribute through assessments when losses occur, regardless of prior premium payments. The two are different obligations.
Ramon’s original insurance coverage was ₱1,000,000. After stopping premium payments, he chose paid-up insurance using his cash surrender value. How will this affect his insurance coverage and premium payments?
His insurance coverage will be reduced, but he will no longer pay premiums. The cash surrender value is used to purchase a smaller amount of fully paid insurance. This allows Ramon to continue having insurance protection without making future premium payments.
Cardo applied for reinstatement on a Monday. He submitted his health declaration, paid all premiums, and settled his interests. On Wednesday, while the insurance company was still reviewing his papers (but before they officially "approved" it), Cardo died in a car accident. Is the insurer liable to pay the death benefit?
It depends (but usually No). This is the "Approval Gap." Reinstatement is a conditional right, not automatic. The insurer has the right to "satisfactory evidence." If the insurer can prove they had not yet finished evaluating his insurability, or if they find a valid reason they would have denied him, they aren't liable. The policy is not considered "active" until the company accepts the evidence and approves the reinstatement.
Lena purchased fire insurance through an agent who falsely assured her that earthquake damage was included in the coverage. Lena later discovered that earthquakes were excluded under the policy. Can Lena demand the return of the premium?
Yes, refund allowed. The agent misrepresented the coverage. Under Section 82, premium may be returned because of fraud or misrepresentation by the insurer or its agent.