What is a cover note?
The cover note is merely a written memorandum of the most important terms of the preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issuance of a formal policy, provided that it is later determined that the applicant was insurable at the time it was given.
By its nature, it is subject to all conditions in the policy expected even though that policy may never issue. In life insurance, where an agreement is made between an applicant and the insurers’ agent, no liability shall attach until the insurer approves the risk. Thus, in life insurance, a binding slip or binding receipt DOES NOT insure itself.
Can you explain a preliminary executory contract of insurance?
By a preliminary executory contract of insurance, the insurer makes a contract to insure the subject matter at some subsequent time which may be definite or indefinite. Under such an executory contract, the right acquired by the insured is merely to demand the delivery of the policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to deliver the said policy.
What are the rules governing cover notes?
1) Insurance companies doing business in the Philippines may issue cover notes to bind insurance temporarily pending the issuance of the policy
2) A cover not shall e deemed to be a contract of insurance within the meaning of Sec. 1(1) of IC.
3) NO cover note shall be issued or renewed unless in the form previously approved by the Insurance Commission.
4) A cover not shall be valid and binding for a period NOT exceeding 60 days from the date of its issuance, whether or not the premium therefore has been paid or not, BUT such cover note may be canceled by either party upon at least 7 days notice to the other party.
5) If a cover not is not so canceled, a policy of insurance shall, within 60 days after the issuance of the cover not be issued in lieu thereof. Such policy shall include within its terms the identical insurance bound under the cover note and the premiums therefore.
6) A cover note may be extended or renewed beyond the aforementioned period of 60 days with the written approval of the Insurance Commissioner, provided that such written approval may be dispensed with upon the certification of the Pres, VP or General Mgr of the Insurance company concerned, that the risks involved, the values of such risks, and the premiums therefore have not as yet been determined or established and that such extension or renewal is NOT contrary to and is not for the purpose of violating any provision of the Insurance Code.
7) The insurance companies may impose on cover notes a deposit premium equivalent to at least 25% of the estimated premium of the intended insurance coverage but in no case less than P500.