MANY Filipinos aspire to a good future for their families.
This includes the assurance of college education for their children (educational plan), financial stability during retirement (pension plan), and a decent memorial service for a loved one who dies (memorial plan).
A homegrown financial instrument, known as the pre-need plan, provides another way for Filipinos to achieve these types of long-term financial security.
The pre-need industry has been around since the 1970s. However, only minimal supervision and very few regulations governed the industry back then, which contributed to the setbacks and challenges that shook the pre-need sector in the late 1990s and early 2000s.
Thus, in 2009, Republic Act 9829, or the Pre-Need Code of the Philippines, was promulgated to better regulate the pre-need sector, through the Insurance Commission (IC).
The Code provides that a pre-need company may be a local or foreign corporation duly authorized or licensed by the IC to sell or offer pre-need plans.
Pre-need plans refer to contracts, agreements, deeds or plans that will benefit the plan-holders through the performance of future service/s, payment of monetary considerations or delivery of other benefits at the time of actual need or agreed maturity date.
The plans entail an exchange for cash or installment amounts with or without interest or insurance coverage and includes life, pension, education, interment and other plans, instruments contracts or deed as may in the future be determined by the IC.
As opposed to an insurance policy, the payments made to a pre-need plan are not tied to the level of risk that the plan holder is willing to take.
But similar to a mutual fund or security instrument, pre-need plan payments are pooled together and placed by a pre-need company in interest-yielding investments, such as a trust fund.
The amount put in the trust fund is determined by the actuary based on the viability study of the pre-need plan approved by the IC.
Assets in the trust fund shall at all times remain for the sole benefit of the plan-holders.
A trust fund is a fund set up from the plan holders’ payments to pay for the cost of benefits and services, termination values payable to plan-holders and other costs necessary to ensure the delivery of benefits or services to plan-holders as provided for in the contracts.
Note that the type of risk that the plan-holder is willing to take is not accounted for in selecting the type of investment where the collected funds from the plan-holder go into.
Thus, a pre-need plan is a class of its own, separate from an insurance policy or a mutual fund.
Because a pre-need plan is a contract, it is transferable, which means that a plan-holder need not be the one who actually bought the plan from a pre-need company.
However, as a safeguard, the code requires the pre-need contract forms to be initially approved by the IC, along with other forms and any changes made therein.
The timing of payment of benefits depends on the type of plan, whether it is a scheduled or contingent benefits plan.
If it is a scheduled benefit plan, the proceeds shall be paid immediately upon maturity of the contract, unless payable in installments or as an annuity.
Refusal or failure to pay the claim within 15 days from maturity or due date will entitle the beneficiary to collect interest on the proceeds of the plan for the duration of the delay at the rate twice the legal interest unless such failure or refusal to pay is based on the ground that the claim is fraudulent.
If the pre-need plan is a contingent benefit plan, the benefits shall be paid by the pre-need company 30 days upon submission of all necessary documents.
As financial tools, pre-need plans are also governed by rules in case the plan-holder defaults on payment of his or her plan and/or chooses to reinstate his or her plan.
As required by the Code, all pre-need contracts issued to plan-holders have a grace period of at least 60 days within which to pay accrued installments, counted from the due date of the first unpaid installment.
Non-payment of a plan within the grace period shall render it a lapsed plan and any payment by the plan-holder after the grace period may be reimbursed, unless the plan-holder duly reinstates the plan.
In case the plan-holder wishes to reinstate the plan, he or she shall be allowed to do so within a period of not less than two years from the lapse of the grace period or a longer period as provided in the contract.
The issuing pre-need company may not cancel the plan during the period when reinstatement may be done.
Within 30 days from the expiration of the grace period and within 30 days from the expiration of the reinstatement period, which is two two years from the lapse of the grace period, the pre-need company shall give written notice to the plan-holder that his/her plan will be canceled if not reinstated within two years.
Otherwise, the pre-need company cannot treat the plans as canceled.
On the other hand, the plan-holder may terminate his or her plan at any time by giving a written notice to the issuer.
Lastly, there may be situations when the plan-holder wishes to withdraw and get his or her investment back.
In this case, the plan-holder may file a case in court to recover his or her investment 30 days upon submission of all necessary documents.
Randy B. Escolango, PhD is the deputy commissioner for legal services of the Insurance Commission. He may be contacted at email@example.com.