Salary loans as investments for insurers

Section 202 (j) of the Amended Insurance Code recognizes investments in salary loans as allowable and admitted assets for insurance companies and mutual benefit associations (MBAs). This is reflected in Circular Letter (CL) 2016-65 (Adoption of New Financial Reporting Framework), 2014-17 (List of Admitted Assets under the Amended Insurance Code) and 2015-42 (Salary Loans Extended to Department of Education Teachers). Four or five insurance companies have exposures in salary loans extended to public-school teachers.

Salary loans by public-school teachers

The most prominent of these salary loan programs are those extended to public school teachers. For insurers, this is specifically covered by CL No. 2015-42, which limits the aggregate amount of loans to not exceed 20 percent of the total assets of life companies and MBAs or 20 percent of the net worth of nonlife companies. Moreover, the salary loan program must be covered by a memorandum of agreement between the insurance company or MBA and the Department of Education. Correspondingly, the DepEd has issued several directives setting in place an accreditation program for insurers and MBAs. This accreditation program seeks to prevent excessive charging of rates and other unscrupulous practices.

As of 2018 estimates, 562,090 out of the 689,365 (or 81 percent) public- school teachers in the Philippines have secured loans from various lending institutions. The reported loan exposure of private lending institutions is P163 billion as of end of August 2017, while outstanding loans from the Government Service Insurance System amounted to around P122 billion. Total teachers’ loans have thus reached around P300 billion (or $5.8 billion). The default rate on GSIS salary loans is at a high 40 percent. The GSIS has, in fact, threatened to sue for the unpaid loans.

Salary deductions

Salary loans to public-school teachers has become a social issue. Specifically, it is the payment of these loans through salary deductions, leaving the teachers with meager income, that has become the issue. At some point, the Alliance of Concerned Teachers (ACT) has denounced what they termed as “arbitrary deductions” after deductions have left some teachers with a take-home pay of as low as P200.

Salary deductions have been authorized under Section 47 of the General Appropriations Act of 2017. The DepEd issued Department Order 12, s. of 2017, directing school divisions to implement the P4,000 net take-home pay. In a subsequent DO No. 38, s. 2017, however, the DepEd directed: “Notwithstanding the new threshold limit on NTHP, deductions already incorporated in the payroll, shall be continued, even if this effectively reduces the NTHP to lower than the P4,000 threshold.” The reason given for this is the nonimpairment of the obligations of contracts. Later, due to objections to DO No. 38, DO No. 55 s. 2017 was issued, guaranteeing that teachers will receive no less than P4,000 for their  NTHP even if payments for their loans will be deducted from their salaries. It also prioritized loans to the GSIS, Home Development Mutual Fund, Bureau of Internal Revenue, and the Philippine Health Insurance Corp. Before this prioritization, the DepEd adopted the “first in, first served” rule.

On April 11, 2018, DO No. 18, s. 2018, the current prevailing regulation, was issued. It provides the current monthly NTHP of P5,000, as provided in Section 48 of the General Provisions of the 2018 General Appropriations Act. It also recognized that MBAs and insurance companies may be accredited under the program subject to an order of preference. Furthermore, it imposed ceilings on interest and noninterest rates on loans, as well as a service fee in favor of the DepEd Provident Fund.

Insurance premia

It also recognized insurance programs by insurance companies and MBAs for accreditation. Accredited insurance companies and MBAs will be assigned an Automatic Payroll Deduction System code for its exclusive use for billing purposes.

Possible solutions

Some sectors have identified the root of the problem as “overborrowing” on the part of the teachers. According to a study by the Philippine Institute for Developmental Studies, public-school teachers borrow 50 percent more compared to other employees of the government. Some of the loans would include those borrowed from the GSIS and the Home Development Mutual Fund (or Pag-Ibig Fund). Indeed, some teachers have outstanding loans from seven lending institutions. Hence, a proposal has been made to promote financial literacy among our teachers.



Dennis B. Funa is the current insurance commissioner. Funa was appointed by President Duterte as the new insurance commissioner in December 2016. E-mail:




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