On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Ilocos Bankers Life Insurance Corporation (Ilocos Life) designating Creencia Aban(Aban), her niece, as her beneficiary. Ilocos Life issued Policy No. 747, with a face value of P100,000.00, in Sotero’s favor on August 30, 1993, after the requisite medical examination and payment of the premium.
On April 10, 1996, Sotero died. Aban filed a claim for the insurance proceeds on July 9, 1996. Ilocos Life conducted an investigation into the claim and came out withthe following findings:
1. Soterodid not personally apply for insurance coverage, as she was illiterate.
2. Soterowas sickly since 1990.
3. Soterodid not have the financial capability to pay the premium on the policy.
4. Soterodid not sign the application for insurance.
5. Aban was the one who filed the insurance application and designated herself as the beneficiary.
For the above reasons and claiming fraud, Ilocos Life denied Aban’s claim on April 16, 1997, but refunded the premium paid on the policy. (6%)
(A) May Sotero validly designate her niece as beneficiary?
(B) May the incontestability period set in even in cases of fraud as alleged in this case?
(C) Is Aban entitled to claim the proceeds under the policy?
Suggested answer only. Not an official answer and not legal advice.
(A) Yes, Sotero may validly designate her niece; (B) yes, the incontestability clause applies even in cases of fraud; and (C) yes, Aban is entitled to the proceeds. Under the Insurance Code, an insured may designate any beneficiary not disqualified by law.
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Quick check
Can an insured validly designate her niece as the beneficiary of a life insurance policy taken out on her own life?
An insured taking out a policy on her own life may designate any beneficiary not disqualified by law.
Under Section 48 of Republic Act Number 10607, when does a life insurance policy become incontestable by the insurer?
A life insurance policy becomes incontestable after remaining in force during the insured's lifetime for two years.
Does the statutory incontestability clause under Section 48 bar the insurer from raising defenses of fraud or misrepresentation?
The two-year incontestability period bars the insurer from proving the policy void for fraud or misrepresentation.
What is the legal consequence when an insurer fails to contest a life insurance policy within the two-year statutory period?
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Which primary statute governs life insurance incontestability, beneficiary rules, and policy rescission in the Philippines?
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Learn more about these topics
1. Life Insurance Beneficiaries
Under Article 2012 of the Civil Code of the Philippines (Republic Act Number 386) and Section 11 of the Insurance Code (Republic Act Number 10607), any person may be designated as a beneficiary in a life insurance policy taken out by the insured upon their own life, provided the beneficiary is not disqualified under Article 739 of the Civil Code regarding donations. Nephews and nieces are not prohibited beneficiaries. Insurable interest of the beneficiary in the life of the insured is not required when the insured takes out insurance on their own life for the benefit of another.
2. Incontestability Clause Scope
Under Section 48 of the Insurance Code of the Philippines (Republic Act Number 10607), after a life insurance policy has been in force during the lifetime of the insured for a period of two years from its date of issue or last reinstatement, the insurer cannot prove that the policy is void or rescindable due to fraud, concealment, or misrepresentation. The two-year incontestability period is mandatory and absolute. It acts as a statute of limitations that bars the insurer from asserting fraudulent misrepresentation or irregularities in the policy application once the statutory period has lapsed.
3. Insurer Fraud Defenses
Under Philippine insurance jurisprudence established in Manila Bankers Life Insurance Corporation v. Aban, the statutory two-year incontestability clause applies even when the insurer alleges gross fraud, illiteracy of the insured, or unauthorized application filing. Once two years have elapsed during the insured's lifetime without the insurer rescinding the contract, the insurer is legally precluded from conducting post-claim investigations to repudiate liability. The insurer is presumed to have conducted due diligence before issuing the policy and receiving premiums throughout the statutory period.