By means of Decree-Law No. 20-F/2020, of 12 May 2020 (“Decree-Law”), the Council of Ministers approved an exceptional and temporary legal framework relating to the payment of insurance premiums and the effects of temporary risk reduction on insurance contracts, arising from the significant reduction in or suspension of activity, in the context of the COVID-19 pandemic.
Under this Decree-Law and while it remains in force, the rules applying to the payment of the initial premium of an insurance contract have been loosened, benefiting policy holders. As such, the parties may freely agree on:
- The payment of the initial premium at a date later than the beginning of the risk coverage;
- The removal of automatic resolution or non-extension in the event of failure to pay the initial premium;
- The temporary suspension of the payment of the initial premium; and/or
- The temporary reduction of the amount of the initial premium due to the temporary reduction in risk.
In the absence of an agreement as described above, and in a situation of failure to pay the initial mandatory insurance premium, the contract is automatically extended for a period of 60 days, as from the date the premium or the partial payment of the premium is due.
The Decree-Law also provides for a special framework applicable to insurance contracts in force (except for insurance of high risk) in the event of significant reduction or suspension of activity. This means that all policy holders engaged in activities which are suspended or whose establishments or facilities are still closed as a result of measures imposed due to the COVID-19 disease, or those whose activities have been substantially reduced due to the direct or indirect impact of such measures, may request that said impacts be reflected in the premiums of insurance covering activity risks, as well as the fractionation of payment of premiums related to the current annuity, without any additional costs. Under this Decree-Law, a substantial reduction in activity is deemed to occur when the policy holder is in a situation of corporate crisis, including when there is an abrupt and sharp drop of at least 40% of income.
This Decree-Law came into force on 13 May 2020 and will remain in force until 30 September 2020.
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