Insurance Code of the Philippines (R.A. No. 10607) CPA Board Exam Review

Comprehensive vocabulary flashcards covering key definitions, doctrines, classifications, formulas, and statutory provisions under the Insurance Code of the Philippines (R.A. No. 10607) for CPA Board Exam review.

Contract of Insurance

An agreement whereby one party undertakes for a consideration to indemnify another against loss, damage, or liability arising from an unknown or contingent event (Sec. 2a, R.A. No. 10607).

Insurable Interest

A legally recognized stake or interest in the subject matter, such that the person benefits from its preservation and suffers economic damage or liability from its loss or destruction.

Risk of Loss

An essential element of insurance wherein the insured is subject to a peril that may cause economic harm upon its occurrence.

Distribution of Risk

The mechanism of an insurance pool where contributions collected from many insureds are used to pay covered losses, spreading the risk across multiple participants.

Insurance Premium

The agreed consideration paid by the insured to the insurer in exchange for undertaking the transfer and distribution of risk.

Aleatory Contract

A contract characteristic where the obligation of performance by the insurer depends upon the occurrence of an uncertain or contingent event.

Contract of Adhesion

A contract whose terms are pre-drafted by one party (the insurer) and accepted by the other, requiring ambiguous provisions to be construed strictly against the insurer and liberally in favor of coverage.

Utmost Good Faith

The legal standard requiring full disclosure of all material facts prior to policy issuance, where concealment or material misrepresentation permits rescission and fraud defeats recovery.

Contract of Indemnity

A contract principle applicable to property insurance establishing that the insurer restores the insured's actual pecuniary loss up to the policy limit without generating a profit.

Substance-Over-Form Rule

The regulatory rule stating that any conduct or equivalent activity designed to evade the Insurance Code is still covered under the law, regardless of the absence of profit or direct separate consideration.

Insurer

A duly authorized corporation, partnership, or association that obtains a certificate of authority from the Insurance Commissioner to undertake insurance business or commercial suretyship.

Insured

The party whose life, health, or property is covered by an insurance policy; any person except a public enemy may be insured.

Beneficiary

The person designated to receive policy proceeds upon the occurrence of the covered event, subject to valid designation and legal disqualification rules.

Irrevocable Beneficiary Designation

A designation where the beneficiary acquires a vested interest in the policy proceeds, meaning policy changes such as loans or assignment may require their consent.

Disqualification Under Article 739

A limitation barring persons who are prohibited by the Civil Code from receiving donations (such as those guilty of adultery or concubinage with the insured) from being designated as beneficiaries.

Disqualification by Willful Death

The forfeiture rule under which a beneficiary who is a principal, accomplice, or accessory in willfully causing the death of the insured loses all rights to the policy proceeds.

Inchoate Interest

An incomplete property interest founded on an existing legal interest (such as a future homeowner's interest under an existing sales agreement).

Expectancy

An anticipated future property interest that is insurable only if coupled with an existing legal or equitable interest from which it arises.

Double Insurance

A situation where the same insured is covered by two or more separate insurers for the same subject matter, the same interest, and against the same risk.

Contribution Formula (Double Insurance)

The method of ratably allocating liability among multiple insurers according to the formula: $\text{Insurer share} = \frac{\text{policy limit}}{\text{total limits}} \times \text{covered loss}$.

Overinsurance

A condition occurring when the aggregate insurance coverage limits exceed the actual insurable value of the subject matter, restricting total recovery to the actual loss.

Reinsurance

A contract by which an insurer procures a third person (the reinsurer) to insure it against loss or liability by reason of an original insurance policy that it had issued.

Cognition Theory

The legal rule governing the perfection of consensual contracts holding that acceptance of an insurance application takes effect only when communicated to the applicant.

Cover Note

A temporary document that provides binding insurance coverage while the main policy is being processed, under which a formal policy should typically issue within $60$ days.

Cash-and-Carry Rule

The general statutory mandate under Section 77 stating that no insurance policy is valid and binding until the premium has been fully paid, subject to narrow statutory exceptions.

Concealment

A neglect to communicate that which a party knows and ought to communicate, which permits the injured party to rescind the insurance contract whether the omission was intentional or unintentional.

Test of Materiality

The rule evaluating a fact not by hindsight or whether it caused the loss, but by whether its disclosure would have probably and reasonably influenced the insurer in assessing the risk or fixing the premium.

Representation

An oral or written factual statement made by the insured before or at the issuance of the policy to induce the insurer to enter the contract, whose material falsity makes the policy voidable.

Warranty

A formal statement or promise inserted in or incorporated into the policy concerning the risk, whose material breach entitles the injured party to rescind.

Express Warranty

A warranty explicitly written on the face of the policy itself or contained in a signed instrument specifically incorporated into the contract.

Implied Warranty

A warranty created by operation of law rather than written in the policy text, such as the warranty of seaworthiness in marine insurance.

Affirmative Warranty

A warranty relating strictly to facts, conditions, or circumstances that exist at or prior to the time the policy is issued.

Promissory Warranty

A warranty by which the insured undertakes that certain acts will be done or omitted, or that certain conditions will exist, during the term of the policy.

Incontestability Clause

A mandatory life insurance rule barring the insurer from rescinding or avoiding a policy on grounds of concealment or misrepresentation after it has been in force during the insured's lifetime for $2$ years from issue or reinstatement.

Grace Period

A statutory period of $30$ days or $1$ month granted for the payment of subsequent premiums in life policies, during which coverage remains fully in force.

Nonforfeiture Options

Statutory policy values (such as cash surrender value, extended term insurance, and paid-up benefits) available to a life policyholder after paying $3$ full annual premiums.

Policy Loan

A loan advanced by the insurer to the policyholder secured by the accrued cash surrender value of the life insurance policy.

Perils of the Sea

Fortuitous, extraordinary marine casualties arising from violent maritime actions such as unusual waves, storms, collisions, and stranding, which are covered by marine insurance.

Perils of the Ship

Losses arising from ordinary wear and tear, inherent defects, natural decay, or negligent vessel management, which are generally excluded from marine insurance.

Seaworthiness

An implied warranty in marine insurance that the vessel is reasonably fit in hull, equipment, crew, and loading to perform the intended voyage and encounter ordinary maritime hazards.

Deviation

An intentional departure from the agreed or usual course of a voyage, an unreasonable delay in pursuing it, or the commencement of an entirely different voyage.

Actual Total Loss

A marine insurance loss involving total physical destruction, irretrievable loss through sinking or capture, reduction to a valueless state, or complete deprivation of possession at the port of destination.

Constructive Total Loss

A marine loss where the property is not completely destroyed, but the cost of recovery and repair exceeds three-fourths ($75\%$) of its total insured value.

Abandonment

The unconditional and total relinquishment of all remaining interest in the insured property by the insured to the insurer, required to convert a constructive total loss into an actual total loss claim.

Friendly Fire

A fire that remains entirely confined within its intended receptacle or appliance, damage from which is not compensable as an insured fire loss.

Hostile Fire

A fire that escapes its ordinary and intended boundaries or ignites where it was never intended to burn, which is covered under a fire insurance policy.

Casualty Insurance

Insurance covering loss or liability arising from accident, personal injury, motor liability, employer's liability, burglary, theft, or plate glass damage.

Suretyship

An agreement whereby a surety solidarily binds itself with a principal obligor to guarantee the fulfillment of the principal's obligation to the obligee.

Microinsurance

An insurance product tailored for low-income sectors whose daily charges do not exceed $7.5\%$ of the Metro Manila nonagricultural daily minimum wage and whose maximum benefit is capped at $1{,}000$ times that wage.

Compulsory Motor Vehicle Liability Insurance

Mandatory financial protection required before any motor vehicle may operate on public highways, insuring passengers and third parties against death, bodily injury, or property damage.

No-Fault Indemnity Claim

A statutory remedy under motor vehicle insurance allowing an injured party to recover an indemnity of not less than $\text{₱}15{,}000$ from one vehicle without proving fault or negligence.

Subrogation

The legal substitution of the property insurer into the rights and causes of action of the insured against a liable third party up to the amount of indemnity paid.

Variable Contract

An insurance policy or annuity whose benefits and cash values fluctuate directly with the investment returns of assets maintained in a segregated or separate portfolio.