Michigan Disability Insurance Policies

Michigan’s Insurance Code rarely says “accident and health policy.” It says “disability insurance policy,” and it means far more than income replacement. Chapter 34 of the code decides what these policies must contain, in many cases word for word. A producer who knows chapter 34 can open a Michigan policy, find the deadlines that bind the insured and the insurer, and explain what the contract language does.

Older sections of chapter 34 speak of “the commissioner.” That term now means the Director of the Department of Insurance and Financial Services (MCL 500.102(a)).

What Chapter 34 Covers

A disability insurance policy “insures against loss resulting from sickness or from bodily injury or death by accident, or both,” and includes hospital, medical, surgical, and sick-care benefits for an individual, family, or group (MCL 500.3400(1)(b)). So the Michigan label covers major medical, disability income, and accident-only coverage alike.

Health Insurance Policies

Inside that large category sits a smaller one. A “health insurance policy” is an expense-incurred hospital, medical, or surgical policy, certificate, or contract. It does not include a policy that provides coverage only for excepted benefits as described in 42 USC 300gg-91 (MCL 500.608(b)). That federal list includes coverage only for accident or disability income insurance, limited dental or vision benefits and long-term care offered separately, and specified disease or fixed indemnity coverage offered as independent, noncoordinated benefits (42 USC 300gg-91(c)(1) to (3)).

Policy	Disability insurance policy?	Health insurance policy?
Expense-incurred major medical	Yes	Yes
Disability income	Yes	No
Accident only	Yes	No
Fixed hospital indemnity, offered independently	Yes	No

This split runs through the whole chapter. When a section says “a disability insurance policy, other than a health insurance policy,” it is written for income, accident, and indemnity policies. Read a section’s opening words first, because they tell you whether it applies to the policy in your hand.

What Falls Outside

Chapter 34 does not apply to a liability or worker’s disability compensation policy or to reinsurance (MCL 500.3400(2)(a), (b)). It also leaves out life and annuity contracts whose only disability features add benefits for accidental death, dismemberment, or loss of sight, or safeguard the contract on total and permanent disability (MCL 500.3400(2)(c)). That is why chapter 34 does not govern an accidental death rider or a waiver of premium feature on a life policy.

An insurer may omit the provisions in sections 3407, 3411, and 3420 from ticket policies sold only to passengers by common carriers (MCL 500.3400(3)). Group, blanket, and family expense contracts are subject to section 3475, but to the rest of the chapter “only as provided in this chapter” (MCL 500.3400(4)).

Basic Requirements for an Individual or Family Policy

Before a disability policy for an individual or family can be delivered in Michigan, it must express the entire money and other considerations, and the time the insurance takes effect and terminates. It must also purport to insure only 1 individual (MCL 500.3402).

The last rule has a family exception. On the application of an adult family member treated as the policyholder, a policy may insure two or more eligible family members. Coverage must be available to a dependent child at least until age 26 under a health insurance policy, or age 19 under a policy of disability insurance or a policy providing pediatric dental or vision benefits (MCL 500.3402(c)).

Michigan also controls the words. Each policy must contain the provisions of sections 3407 through 3424 “in the words in which the same appear” in the statute. An insurer may substitute different wording only if the Director approves it and it is not less favorable in any respect to the insured or beneficiary (MCL 500.3406(1)). A provision that does not fit a policy form is omitted or modified with the Director’s approval (MCL 500.3406(2)).

A policy that breaks these rules does not simply fail. It “shall be held valid but shall be construed as provided in this code,” and where a provision conflicts with chapter 34, the chapter governs the parties’ rights (MCL 500.3468(2)). So a client whose policy states a stricter deadline than the statute allows still has the statutory deadline.

No policy, application, rider, or endorsement may be delivered until the classification of risks and premium rates have been filed with the department (MCL 500.3474). The forms need approval too. Except as that section provides, an insurer may not deliver or issue for delivery in Michigan a basic policy form, a printed rider or endorsement form, a form of renewal certificate, or a group certificate unless a copy of the form is filed with the department and approved by the Director. A form is considered approved if the Director fails to act within 30 days after its submittal (MCL 500.2236(1)).

Required Provisions

Sections 3408 and 3411 through 3424 each say “other than a health insurance policy,” so they apply to income, accident, and similar policies. Sections 3407 and 3410 carry no such carve-out, and section 3409 excepts only group and blanket policies. These three reach individual health insurance policies too, because disability insurance includes health insurance unless chapter 34 specifically excludes it (MCL 500.606(1)), subject to the approved omissions in section 3406(2). Group policies are not built from this list. They carry their own provisions, described below (MCL 500.3400(4); MCL 500.3402a).

Entire Contract

The policy, its riders and endorsements, the application and identification card if the insurer specifies them, and attached papers are the entire contract. A change is valid only if an executive officer approves it and the approval is endorsed on or attached to the policy (MCL 500.3407).

Sidenote

Your authority stops here

MCL 500.3407 puts this in the policy: “An insurance producer does not have authority to change this policy or to waive any of its provisions.” A promise that a waiting period will be waived binds no one. It only misleads the client.

Time Limit on Certain Defenses

This provision protects a long-held policy from attack over the application. After the stated period from the date of issue, the insurer will not use a misstatement, except a fraudulent misstatement, to void the policy or deny a claim for a loss or disability beginning after that period. A later claim also will not be reduced or denied because a condition not excluded by name or specific description existed before coverage began (MCL 500.3408(1)).

The statutory wording says 3 years. So that insurers can use a uniform form in several states, the form may print “3 years,” but for a policy delivered or issued for delivery in Michigan, other than a health insurance policy, the time limits “must not exceed 2 years.” The printed term does not control, because the limit applies notwithstanding “any provision of the contract or law to the contrary” (MCL 500.3408(2)).

A policy the insured may keep in force until at least age 50, or for at least 5 years if issued after age 44, may instead use a clause captioned “INCONTESTABLE.” After the policy has been in force for the stated period during the insured’s lifetime, not counting any time the insured is disabled, it becomes incontestable as to the statements in the application (MCL 500.3408(1)(a)(ii)).

Sidenote

The number on the page

A form in Michigan may say 3 years. If a question asks for Michigan’s maximum, the answer is 2 years.

Right to Cancel

A notice on the front page of a disability policy lets the policyholder cancel within 10 days after receiving it and get a prompt refund of any premium paid; policies providing group or blanket insurance are excepted. A policy returned to the insurer or to the agent who sold it is void from the beginning (MCL 500.3409(1)). When a policy is sold through solicitation to a person eligible for Medicare, the period is 30 days (MCL 500.3409(2)).

After that, the policyholder may still cancel by written notice and receive the premium above the pro rata amount. A policyholder who cancels during the first 30 days is responsible for claims the insurer paid that were incurred before cancellation (MCL 500.3409(3)).

Grace Period

The grace period must be at least 7 days for weekly premium policies, 10 days for monthly premium policies, and 31 days for all other policies. It applies to each premium after the first, and the policy stays in force during it (MCL 500.3410). A policy with a cancellation provision may make the grace period subject to the insurer’s right to cancel. A policy in which the insurer reserves the right to refuse renewal must open the provision with an exception for written notice of nonrenewal given at least 5 days before the due date.

Federal rules add a longer period for one group. A qualified health plan gives an enrollee who receives advance payments of the premium tax credit and has paid 1 full month’s premium a 3-month grace period (MCL 500.2006(8)(h), citing 45 CFR 156.270(d)).

Reinstatement

If an insurer or authorized agent accepts a late renewal premium without requiring a reinstatement application, the policy is reinstated. If an application is required and a conditional receipt issued, the policy is reinstated on approval, or on the forty-fifth day after the receipt date unless the insurer has already sent written disapproval. The reinstated policy covers accidental injury sustained after reinstatement and sickness that begins more than 10 days after it (MCL 500.3411(1)).

The Claim Sequence

Five sections work as one timeline. Suppose Dana Okafor holds a disability income policy from Thistlewick Assurance and is hurt in a fall on March 1.

1. Notice. Dana owes written notice within 20 days after the loss begins, or as soon as reasonably possible. Notice to any authorized agent, with enough information to identify the insured, counts as notice to the insurer (MCL 500.3412(1)), so pass it along at once.
2. Forms. If the insurer does not furnish claim forms within 15 days after notice, Dana may instead submit written proof of the occurrence, character, and extent of the loss, within the time set for proof (MCL 500.3413).
3. Proof. Because her benefit is periodic, proof is due within 90 days after the end of the period for which the insurer is liable. For any other loss, it is due within 90 days after the loss. Late proof does not defeat the claim if timely proof was not reasonably possible and it is filed as soon as reasonably possible, and, absent legal incapacity, within 1 year after the due date (MCL 500.3414).
4. Payment. Periodic benefits are paid at least monthly. Other benefits are paid immediately on proof (MCL 500.3416).
5. Suit. Dana may not sue until 60 days after filing proof, or after 3 years from the date proof was required (MCL 500.3422).

Remaining Required Provisions

Death benefits go to the named beneficiary or, if none, the estate. Other benefits go to the insured. An insurer may add a clause paying up to $1,000 to a relative it finds equitably entitled when the payee is the estate, a minor, or a person not competent to give a release (MCL 500.3418).

The insurer may examine the insured at its own expense as often as reasonably required during a claim, and may perform an autopsy where the law permits (MCL 500.3420). Unless a designation is irrevocable, the insured may change the beneficiary without the beneficiary’s consent (MCL 500.3424(1)).

Optional Provisions

An insurer need not use the provisions in sections 3432 through 3452. But a policy that addresses those matters must use the statutory words or approved wording no less favorable to the insured (MCL 500.3430).

Optional provision	What it does	Citation
Change of occupation	A more hazardous job reduces benefits to what the premium would buy; a less hazardous job lowers the premium. Not for a health insurance policy	MCL 500.3432
Misstatement of age	Benefits become what the premium would have bought at the correct age	MCL 500.3434
Other insurance in this insurer	Excess coverage is void and premiums returned, or the insured elects one policy	MCL 500.3436
Insurance with other insurers	Without written notice of other valid coverage before the loss, the insurer pays a proportionate share	MCL 500.3438, 500.3440
Unpaid premium	Premium due may be deducted from a claim payment	MCL 500.3446
Conformity with state statutes	A conflicting provision is amended to the minimum requirements of the insured’s state	MCL 500.3450

Three others carry details worth learning.

Relation of earnings. If loss-of-time benefits under all valid coverage exceed the greater of current monthly earnings or average monthly earnings over the prior 2 years, the insurer pays a proportionate amount and returns excess premium. It cannot reduce total monthly benefits below the lesser of $200 or the sum of the monthly benefits. The clause fits only a policy the insured can keep in force until at least age 50 or, if issued after age 44, for at least 5 years (MCL 500.3444).

Cancellation. The insurer may cancel by written notice, effective not less than 5 days later, keeping the greater of the pro rata premium or $25. Earlier claims are unaffected (MCL 500.3448). A health insurance policy is different: the insurer must generally renew or continue it at the individual’s option (MCL 500.2213b(1)).

Illegal occupation or criminal activity. The insurer is not liable for a loss to which a felony, an illegal occupation, or willful criminal activity contributed (MCL 500.3452(1)). Willful criminal activity includes operating a vehicle while intoxicated, but not a civil infraction (MCL 500.3452(2)).

Group Disability Insurance

Group disability insurance is voluntary disability insurance covering 2 or more employees or members, with or without eligible dependents, under a master policy. The policy may go to a governmental unit, an employer, or an association formed in good faith for purposes other than obtaining insurance (MCL 500.607(1)). It may also go to a trust of a fund established by 2 or more employers (MCL 500.607(2)).

The form must be filed with and approved by the Director, with a limited exception (MCL 500.3401a(2)). Every group policy must state four things (MCL 500.3402a):

• The policy and applications are the entire contract.
• A statement by the employer, officer, or member, absent fraud, is a representation and not a warranty, and cannot be a defense to a claim unless it is in a written application.
• The insurer will issue an individual certificate stating the protection and to whom benefits are payable.
• New employees or members who are eligible and apply will be added.

Family Expense Insurance

Family expense insurance is written under one policy issued to the head of a family, who may be either spouse, and insures that person and one or more dependents, including a nondependent spouse. Only the head of the family can have loss-of-time benefits (MCL 500.3402c(1)).

The form must be filed with and approved by the Director. The policy must include the applicable provisions of sections 3406 to 3466, plus three of its own: an entire contract clause, a clause treating the family head’s statements as representations, and a clause adding eligible family members on application (MCL 500.3402c(3), (4)).

Blanket Disability Insurance

Blanket insurance covers special groups of individuals (MCL 500.3402d(1)). The policyholder is one of six kinds:

• A common carrier, covering all passengers
• An employer, covering all employees or a group defined by exceptional hazards of the job
• A school or other educational institution, covering students or teachers
• A volunteer fire department, first aid group, or other volunteer group, covering all members
• A creditor, covering debtors
• A sports team or camp, covering members or campers

The Director may allow it for substantially similar groups (MCL 500.3402d(2)). The form must be filed with and approved by the Director (MCL 500.3402e(2)). The policy must include the applicable provisions of sections 3406 to 3466 plus three of its own, which track the family expense list with the policyholder in place of the family head (MCL 500.3402f).

An insurer may not require an individual application, and the Director may require a certificate for each insured (MCL 500.3402g(1)). A blanket policy does not change the policyholder’s legal liability for an injury to someone it covers (MCL 500.3402h), so a camp that buys blanket coverage can still be sued for negligence.

Lesson summary

• Michigan’s “disability insurance policy” covers accident and sickness coverage of every kind. A “health insurance policy” is the expense-incurred subset and excludes policies covering only excepted benefits (MCL 500.3400(1)(b); MCL 500.608(b)).
• Sections 3408 and 3411 through 3424 apply to disability policies other than health insurance policies. Read each section’s opening words.
• Required provisions use the statute’s words or Director-approved wording no less favorable, and a noncomplying policy stays valid but is read as the code requires (MCL 500.3406; MCL 500.3468(2)).
• A producer cannot change a policy or waive its provisions (MCL 500.3407).
• A form may print 3 years for the time limit on certain defenses, but the Michigan limit on a policy other than a health insurance policy is 2 years (MCL 500.3408(2)).
• The right to cancel runs 10 days, or 30 days for a solicited Medicare-eligible buyer. Grace periods are at least 7, 10, or 31 days (MCL 500.3409; MCL 500.3410).
• The claim deadlines are 20 days for notice, 15 days for forms, 90 days for proof, and suit between 60 days and 3 years (MCL 500.3412 to 500.3422).
• Group policies carry four provisions of their own; family expense and blanket policies carry the applicable provisions of sections 3406 to 3466 plus three more (MCL 500.3402a; MCL 500.3402c; MCL 500.3402f).