Pre-Need Company Registration in the Philippines: License, Capital, and Trust Fund Rules

A pre-need company cannot operate in the Philippines without a license from the Insurance Commission. Under the Pre-need Code of the Philippines (Republic Act No. 9829), the Commission has primary and exclusive supervision over all pre-need companies, and no person may engage in the pre-need business unless licensed by it. Registration is a two-step process: the corporation must first be organized with the favorable recommendation of the Commission, then licensed to sell pre-need plans. The company must also meet minimum paid-up capital and establish a trust fund for each plan category before it can sell to the public.

What counts as a pre-need company

Section 4 of the Pre-need Code defines a pre-need company as any corporation registered with the Insurance Commission and authorized or licensed to sell or offer to sell pre-need plans. The term also covers schools, memorial chapels, banks, nonbank financial institutions, and other entities that have been authorized or licensed to sell pre-need plans, but only insofar as their pre-need activities are concerned.

Pre-need plans are contracts or agreements that provide for future services, payment of monetary considerations, or delivery of other benefits at the time of actual need or an agreed maturity date. These include life, pension, education, and interment plans, in exchange for cash or installment amounts, with or without interest or insurance coverage.

Step 1: Incorporation with the Commission's recommendation

Before a pre-need company can be registered, the Securities and Exchange Commission (SEC) will not accept or approve its articles of incorporation and bylaws without the favorable recommendation of the Insurance Commission. This is required under Section 7 of the Code.

The same rule applies to later corporate changes. Under Section 8, amendments to the articles of incorporation and bylaws — including merger, consolidation, and dissolution — cannot be approved by the SEC without the Commission's favorable recommendation.

A foreign corporation may be allowed to engage in the pre-need business in the Philippines, provided it complies with the pertinent laws, rules, and regulations.

Step 2: Paid-up capital requirements

A pre-need company incorporated after the effectivity of the Code must have a minimum paid-up capital of One hundred million pesos (P100,000,000.00) under Section 9.

Existing pre-need companies must comply with these minimum unimpaired paid-up capital levels:

• P100,000,000.00 for companies selling at least three types of plans;
• P75,000,000.00 for companies selling two types of plans; and
• P50,000,000.00 for companies selling a single type of plan.

Existing pre-need companies with traditional education plans must have a minimum unimpaired paid-up capital of P100,000,000.00. The Commission may also adopt risk-based principles on capital adequacy and prescribe a higher minimum unimpaired paid-up capital.

Step 3: Licensing to operate as a pre-need company

Section 10 requires a license from the Commission before any person may operate as a pre-need company or engage in the pre-need business. The license expires one year from registration and may be renewed upon compliance with the Commission's requirements. Renewal is deemed approved if the Commission does not act on the application within thirty (30) days from filing.

The Commission also screens management. Under Section 11, it prescribes, passes upon, and reviews the qualifications and disqualifications of directors and officers, including actuaries, and may disqualify those found unfit. Persons convicted of crimes involving pre-need plans, securities, or financial products, or of offenses involving moral turpitude, fraud, embezzlement, theft, or estafa, are among those who may not serve as officers, employees, directors, consultants, or sales counselors.

Pre-need companies must also have at least two independent directors or twenty percent (20%) of the board, whichever is higher, under Section 12.

Step 4: Registering the pre-need plans themselves

A license to operate is not the same as approval to sell a particular plan. Within forty-five (45) days after the grant of a license, and for every pre-need plan it intends to offer to the public, the company must file a registration statement with the Commission under Section 14.

Section 15 lists the required documents, which include a duly accomplished registration statement, a board resolution authorizing registration, an opinion of independent counsel on the legality of the issue, audited financial statements, a viability study certified under oath by a Commission-accredited actuary, a copy of the proposed pre-need plan, and a sample of sales materials. These documents must contain the appropriate risk factors.

Under Section 17, all forms relating to pre-need plans, including amendments, must be approved by the Commission, and no pre-need contract or certificate may be issued or delivered in the Philippines unless in a previously approved form.

The trust fund requirement

Section 30 requires a trust fund per pre-need plan category to ensure delivery of the guaranteed benefits and services. A portion of each installment payment is deposited into the trust fund, in an amount determined by the actuary based on the viability study approved by the Commission.

Trust fund assets must at all times remain for the sole benefit of planholders. They cannot be used for any other purpose, cannot satisfy the claims of other creditors, and in case of insolvency of the pre-need company, general creditors are not entitled to the trust fund.

Section 31 sets minimum deposits. For plans paid in full, the company must deposit at least forty-five percent (45%) for life plans and fifty-one percent (51%) for education and pension plans of the full payment, or a higher amount determined by the actuary. For installment payments, minimum deposit contributions follow a schedule based on each 20% collection of the contract price. Deposits must be made within twenty (20) days from the end of each reference month.

Under Section 32, a trust fund must be established separately for each type of pre-need plan with the trust department of a trust company, bank, or investment house doing business in the Philippines, and no trust fund may be established with an affiliate trust entity.

Frequently asked questions

Who regulates pre-need companies in the Philippines? The Insurance Commission has primary and exclusive supervision and regulation over all pre-need companies under Section 5 of the Pre-need Code.

How much paid-up capital does a pre-need company need? A newly incorporated pre-need company needs at least P100,000,000.00 in paid-up capital. Existing companies need P100,000,000.00, P75,000,000.00, or P50,000,000.00 depending on how many types of plans they sell.

How long is a pre-need company license valid? The license expires one year from the time of registration and may be renewed upon compliance with the Commission's requirements.

Practical takeaways

• A pre-need company needs the Insurance Commission's favorable recommendation before the SEC will approve its articles of incorporation and bylaws.
• A license to operate expires after one year and must be renewed; renewal is deemed approved if the Commission does not act within thirty days from filing.
• Each pre-need plan must be registered separately within forty-five days after the license is granted.
• Minimum paid-up capital ranges from P50,000,000.00 to P100,000,000.00 depending on the number and type of plans sold.
• A trust fund must be set up for each plan category, held with an independent trustee, and funded within twenty days from the end of each reference month.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 9829 - AN ACT ESTABLISHING THE PRE-NEED CODE OF THE PHILlPPlNES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.