Pre need plans

Presented by:

Mike Edem

Raymond Hernando

Rolan Jeff Lancion

JemaiTulliao

Definition They are contracts, agreements, deeds or plans for the benefit of the plan holders which

provides for 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, as specified therein, in exchange for cash or installment amounts with or without interest coverage and includes life, pension, education, retirement and other plans, instruments, contracts or deed as may in the future be determined by the Commission.

A pre-need plan covers a specific need of the plan holder in the future. The plan holder will invest to cover such future need therefore the plan holder will save pre-need or before need.

Governing Law and State Policy

RA 9829 or otherwise known as Pre-Need Code of the Philippines

Sec 2- Objectives

(1) Regulate the establishment of pre-need companies and place their operation on sound, efficient and stable basis

(2) Derive the optimum advantage from them in the mobilization of savings(3) Prevent and mitigate as far as practicable for the protection of plan holders practices prejudicial

to public interest(4) Regulate, through and empowered agency, pre-need companies based on prudential principles

to promote soundness, stability and sustainable growth of the pre-need industries.

Brief HistoryIn December 2009, then President Gloria Macapagal-Arroyo signed into law Republic Act No. 9829, or the Pre-Need Code of the Philippines, which laid down the guidelines for operations of preneed companies and sanctions on violators.The law also designated the Insurance Commission (IC) as the industry’s main regulator, in lieu of the Securities and Exchange Commission (SEC).RA 9829 raised hopes about the recovery of the preneed industry, which had been plagued by the decline in sales of preneed firms due to loss of confidence in the wake of the College Assurance Plan’s collapse after the 1997 East Asian financial crisis

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Kinds of Pre Need Plans

A) Educational PlansEducational plans start releasing benefits when the child reaches the age of 17. It will be paid over four, five or seven years depending on the plan. The benefits of most plans increase by 10-25% every year to keep pace with inflation. Extra features may include cash for elementary and high school education, insurance coverage, a graduation gift and a cash reward for honor students.

B) Pension/Retirement plansIt is a tool to accumulate funds for your retirement it can actually be used to save for other goals such as buying a new house or car, vacation abroad, your child’s wedding or initial capital for a business.Additional features of pension plans may include life and accident insurance coverage, hospitalization benefit, transfer of ownership, a low-interest cash loan facility and dividend payments.

C) Life/Memorial plansFixed value life plans provide your family with a specific sum which they can use as they see fit. The plan benefit usually increases every year. Add-on benefits of life plans include transferability, assignment to any deceased person you chose, insurance coverage, hospitalization benefit, and return of premium.

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Pre-Need Plan vs Life Insurance Policy

Parties in a pre-need plan

Pre-need companyo It refers to any corporation registered with the Commission and authorized/licensed to

sell or offer to sell pre-need plans.

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o It also refers to schools, memorial chapels, banks, nonbank financial institutions and other entities which have also been authorized/licensed to sell or offer to sell pre-need plans insofar as their pre-need activities or business are concerned.

Plan holderso It refers to any natural or juridical person whom purchases pre-need plans from a pre-

need company for whom or for whose beneficiaries’ benefits are to be delivered as stipulated and guaranteed by the pre-need company.

Beneficiaryo It refers to the person designated by the plan holder as the recipient of the benefits in

the pre-need plans.

Pre-Need Contract According to Sec 17 of the Pre-Need Code: “All forms, including amendments thereto,

relating to the pre-need plans shall be approved by the Insurance Commission. No pre-need contracts or certificates shall be issued or delivered within the Philippines unless in the form previously approved by the Insurance Commission.”

There should be an approval coming from the Insurance Commissions regarding the existence of a pre-need plan entered into by parties.

Interpretation According to Sec 3 of the Pre-Need Code: “Any doubts in the interpretation and

implementation of any in this code shall be interpreted in favor of the rights and interest of the plan holders.

According to Sec 4 of the Pre-Need Code: “The terms not otherwise defined under this code shall be construed in their usual and commonly understood trade, business, commercial or investment meaning.”

Disclosure of InformationPre-Need Plans are no longer securities that are within the power of the Securities and Exchange Commission; the regime of full disclosure of information to investors is carried over to the Pre-Need Code.

Legal Basis: Sec 14, 18 and 19 of the Pre-Need Code

Sec 14. Registration of Pre-Need Contracts/Plans.Within a period of forty-five 45 days after the grant of a license to do business as a pre-need company and for every pre-need plan which the pre-need company intends to offer for sale to the public, the pre-need company shall file with the Commission a registration statement for the sale of pre-need plans pursuant to this Code.

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Sec 18. Pre-need Advertising Rules.Pre-need plans shall be advertised and sold in appropriate non-misleading manner in accordance with the rules to be prescribed by the Commission. It shall be unlawful for any pre-need company to advertise itself or its pre-need plans unless the Commission has approved such advertising material.Any person who sells or offers to sell any pre-need plan or contract or offers to sell any pre-need plan or contract by any means or instruments of communication in violation of this section shall be liable to the person purchasing such pre-need contract may sue to recover the consideration paid for such pre-need contract with interest thereon.Sec 19.Disclosures to Prospective Plan holders.No registered pre need plan shall be sold to prospective plan holders unless in the information brochure. Which has been filed with the Commission, has been provided to purchasers.

Explanation:A) No pre-need company can offer plans to the public unless the same is registered with the

Commission. Disclosure of information is the function of Registration Statements that are submitted to the Commission. Misleading statements in advertisement are likewise prohibited.

B) Within forty five (45) days after the grant of license to business as a pre-need company and for every pre-need plan which the company intends to offer for sale to the public, the pre-need company must file with the Commission the following:

a. Duly accomplished Registration Statementb. Board Resolution authorizing the registration of the applicant’s pre-need planc. Opinion of independent counsel on the legality of the issued. Supporting documents such as Articles and By-Laws, Trust Agreement, related contracts

and other documents specified by the Commission.e. Audited Financial Statement accompanied by an audit report of the certifying auditors

as of date not more than 90 days prior to the date of filing of the registration statement.f. Actuarial Feasibility Study

Consideration Pre-Need Companies are obligation to pay the benefits under the Plan so long as the

consideration agreed upon is paid by the plan holder in the form of cash or installment amounts.

Legal Basis: Sec 23- Default; Reinstatement Period- The pre-need company must provide in all contracts issued to plan holders a grace period of at least sixty (60) days within which to pay accrued installments , counted from the due date of the first unpaid installment. Nonpayment of a plan within the grace period shall render the plan a lapsed plan. Any payment by the plan holder after the grace period shall be reimbursed forthwith, unless the plan holder duly reinstates the plan. The plan holder shall be allowed

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a period of not less than two (2) years from the lapse of the grace period or a longer period as provided in the contract within which to reinstate his plan.

Termination of the Plan It can be at the instance of the plan holder or the pre-need company.

Plan holder Termination is a matter of right and with corresponding right to demand the termination value

of the plan. A pre-need plan shall contain a schedule of termination values to which the plan holder is

entitled to upon termination. The termination value of the pre-need plan shall be pre-determined by actuary of the pre-need

company upon application for registration of the pre-need plans with the Commission and shall be disclosed in the contract.

Pre-need company Termination is always subject to the consent of the planholder. Any offer by the pre-need company to terminate the pre-need plan for consideration exceeding

the termination value provided in the plan contract shall not require the prior approval of the Commission, provided that the following concur:

o The consideration shall be below the pre-need services for the specific plano The offer is accepted by the plan holdero The offer shall no prejudice the plan holder who do not avail of such offer.

Claims Settlement The plan holder is entitled to the benefits or proceeds of the plan within the following period:

o Scheduled benefit plan- The proceeds of the plan shall be paid immediately upon maturity of the contract unless such proceeds are made payable in installments or an annuity, in which they will be paid as they become due.-Refusal or failure to pay the claim within fifteen (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.

o Contingent benefit plan- The benefits shall be paid by the pre-need company thirty (30) days upon submission of all necessary documents.

Delay in the payment will entitle the plan holder to damages.

Unfair Claims Settlement

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Sec 25 provides that “no pre-need company shall refuse, without just cause, to pay or settle claims arising under coverage provided by its plans nor shall any such company engage in unfair claim settlement practices.

Any of the following acts by a pre-need company, if committed without just cause shall constitute unfair claims settlement practices and may result in the revocation of the company’s certificate or authority:

o Knowingly misrepresenting to claimants pertinent facts or plans provisions relating to coverage at issue.

o Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its plan.

o Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its plan.

o Failing to provide prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear.

o Compelling plan holders to institute suits or recover amounts due under its plan by offering, without justifiable reason, substantially less than the amounts ultimately recovered in suits brought about them.

Trust Fund It is a fund setup from the plan holder’s 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.

Legal Basis- Sec 30 Trust fund.-To ensure the delivery of the guaranteed benefits and services provided under a pre-need plan contract, a trust fund per pre-need plan shall be established.A portion of the installment payment collected shall be deposited by the pre-need company in trust fund, the amount of which will be as determined by the actuary based on the viability study of the pre-need plan approved by the Commission. Assets in the trust fund shall at all times remain for the sole benefit of the plan holders. At no time shall any part of the trust fund be used for or diverted to any purpose other than for the exclusive benefit of the plan holders.The benefits received by the plan holders shall be exempt from all taxes and trust fund shall not be held liable for attachment, garnishment, levy or seizure by or under any legal or equitable processes except to pay for the debt of the plan holders to pay for the debt of the plan holder to the benefit plan or that arising from criminal liability imposed on criminal action.

Regulation of Pre-Need CompaniesIt is for the protection of the plan holders in order get their benefits.

(a) Regulation on the management of the pre-need company(b) Rules on Licensing of Sales Counselors and General Agents(c) Rules for Accreditation of Actuaries(d) Reportorial Requirements of Pre-need companies

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(e) Examination of Pre-need companies by the commission at least once a year and whenever the need of public interest so demands.

(f) Imposition of Financial Accounting Standards by the Commission.(g) Rules on Conservatorship and proceeding upon insolvency(h) Imposition of Administrative and Criminal Penalties.

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