Philippine Insurance Law (Insurable Interest in Group Insurance)

Any person so related to another either by contract or commercial relation may lawfully procure insurance on the other’s life. Thus, an employer may insure the life of the employee and vice versa.

The primary aim of group insurance is to provide the employer with a means of procuring insurance protection for his employees and their families at the lowest possible cost, and in so doing, the employer creates goodwill with his employees, enables the employees to carry a larger amount of insurance, and helps to attract and hold a permanent class of employees.

A group insurance is essentially a single insurance contract that provides coverage for many individuals. It provides life or health insurance coverage for the employees of the employer. In order to validly claim benefits from the group insurance, employees must be actively at work and must have completed a specified period of continuous employment, otherwise, the insurable interest ceases. Generally, group insurance have non-forfeiture clauses, except for term insurance (provides protection for a limited period, i.e. 5, 10, 15 years). If an employee’s group insurance terminates because he leaves the employer, the employee has the privilege of converting the group insurance within one month following the termination of employment into any standard form of insurance, except for a term insurance.

Application of the Law

Case: On June 9, 2005, Mr. John Bartolome insured the life of his best friend Noel Lim under the group insurance of Mr. Bartolome’s travel agency called Lucky Charm Travel Agency, designating himself as the irrevocable beneficiary. Other than being his best friend, John Bartolome is not related to Noel Lim. On July 10, 2007, after the lapse of more than two years, Noel Lim dies. Is John Bartolome entitled to the proceeds of the policy, considering that all premiums have been paid and considering further that no misrepresentation or concealment material to the risk has been employed?

Legal Opinion: No, because the policy is void and unenforceable unless the person who procures it has an insurable interest in the life of the insured. An insurable interest must be present either in the person taking out the insurance or the beneficiary. Being best friends does not automatically create an insurable interest. There must be an actual expectation of pecuniary benefit to sustain an insurance (i.e. a corporation has an insurable interest in the life of a key man, such as an officer of the firm). In the instant case, John Bartolome has no insurable interest in the life of Noel Lim.

References:

The Law on Insurance by Hector de Leon, 1994 Edition.

Pineda et al. vs. Hon. Court of Appeals et al., G.R. No. 105562, September 27, 1993.

New Insurance Reviewer, by Cesario P. Tiopianco, 1986 Edition.