Proceeds from so-called variable universal life-insurance (VUL) contracts are considered beyond the reach of creditors seeking some form of restitution for their investments, according to the Insurance Commission (IC).
The regulator reiterated this point on Wednesday, saying in a statement such are exempt from execution and garnishment. This surfaced in the wake of request from the National Labor Relations Commission (NLRC) seeking clarification on the matter.
According to the NLRC, the insurance company that issued the subject policies claimed the policies should be exempt from execution under Rule 39, Section 13(k) of the 1997 Rules of Court in relation to Rule XI, Section 9 of the 2011 NLRC Rules of Procedure.
The IC said under Section 238 (b) of Republic Act 10607, or the Amended Insurance Code, a variable contract is any policy on either group or individual basis, issued by an insurance company providing for benefits so as to reflect the investment results of any segregated portfolio of investment.
“Since a variable life insurance is a life-insurance contract within the meaning of law, it is therefore within the coverage of exemption under the Rules of Court. Thus, it is our opinion that all proceeds of variable life contracts, including its investment proceeds, are protected from creditors’ claim since the same are monies, benefits, privileges or annuities accruing or in any manner growing out of any life insurance,” said Insurance Commissioner Dennis B. Funa in a statement.
The IC further said that the principle exempting the proceeds of any life insurance from execution under the Rules of Court does not omit variable life insurance as properties exempt from execution, but, instead, expressly covers any life insurance.
“Despite the existence of the insurance component and investment component, a variable life insurance should be taken as a single life-insurance contract and not a bundling of two independent contracts since both components are indivisible from one another,”
Funa added.
Similar to a traditional life-insurance contract, all prospective policyholders of a variable life-insurance contract have to strictly comply with the established underwriting requirements, such as disclosure of physical condition, age, profession and health history, among others. These underwriting requirements are sought to make sure that each prospective policyholder has insurable interest since the same is an essential element of a variable life insurance contract.
“A variable life-insurance contract positively conforms with the definition of a life insurance contract, that is, an insurance on human lives and insurance appertaining thereto or connected therewith made payable on the death of the insured, or on his surviving a
specified period, or otherwise contingently on the continuance or cessation of his life,” he said.
The IC issues legal opinion upon formal requests relating to the interpretation and application of laws, rules and regulations being enforced and implemented by the IC under Circular Letter 2017-13.
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