Michigan Group Life Insurance
Group life insurance in Michigan works by permission. MCL 500.4400(2) makes it unlawful to write a contract of life insurance covering a group except as Chapter 44 provides. So the first question for any group is which section lets it be insured. This page walks through the eligible groups, the provisions every group policy must carry, and the conversion right.
Eligible Groups
Employer Groups
A policy may cover not less than 2 employees, with or without medical examination, and is issued to the employer or to the trustees of a fund the employer established (MCL 500.4404(1)). The premium may be paid by the employer, the employees or both. These limits keep the arrangement a true group:
- The policy insures all employees, or all of any class determined by conditions of employment. A class of “full-time staff” fits. A class of “the owner’s friends” does not.
- Amounts follow a plan that precludes individual selection, such as a multiple of salary.
- The insurance is for the benefit of persons other than the employer.
- Section 4404 does not require an employee to purchase group life insurance.
A policy may define “employees” to include employees of subsidiaries; employees, proprietors and partners of affiliated businesses under common control; retired and former employees and directors of a corporate employer; and, for a public body, elected or appointed officials (MCL 500.4404(2)). Group life may also be written as part of a combined group life and disability policy (MCL 500.4404(1)). A trust or the trustees of a fund set up by 2 or more employers may also hold a policy covering their employees (MCL 500.4405).
Unions, Teachers, Postal Clerks and the National Guard
A policy may cover members of a labor union, or of a state association of teachers or postal clerks, with the union or association treated as the employer. It pays the premium alone or jointly with members (MCL 500.4412). Where premium is shared and benefits are offered to all eligible members, the section sets a floor: not less than 75% of those members may be insured. Members who buy additional amounts may do so at a smaller percentage if they pass a satisfactory medical examination.
Members of national guard units may be covered under a policy issued to the commanding general, who is treated as the employer. Members pay the premium, and when benefits are offered to all eligible members of a unit, not less than 75% of the unit must be insured (MCL 500.4408).
Associations
Michigan has two association routes under MCL 500.4420. The first covers executives of employer members of a nonprofit incorporated industrial association that has been active for not less than 10 years (MCL 500.4420(1)).
The second covers other associations, or a trust or the trustees of a fund for members of one or more associations. The association must meet all of these tests (MCL 500.4420(2)):
- It has not fewer than 100 members at the outset.
- It was organized and is maintained for a purpose other than obtaining insurance.
- It has been in active existence for not less than 2 years.
- Its bylaws provide for meetings at least annually, for voting rights and representation on the governing board, and, unless it is a credit union, for collecting dues and soliciting contributions.
The policy may insure members, employees of the association, or employees of members, for the benefit of persons other than the employee’s employer. If covered persons contribute nothing specifically for their insurance, the policy must insure all eligible persons except those who reject coverage in writing. The insurer may exclude or limit coverage for a person whose evidence of insurability is unsatisfactory (MCL 500.4420(3)).
Other Groups and Out-of-State Policies
A group outside sections 4404 to 4420 needs a finding by the Director. No such policy may be issued in Michigan unless the Director finds that it is not contrary to the best interest of the public, that it would result in economies of acquisition and administration, and that its benefits are reasonable in relation to the premiums charged (MCL 500.4424(a)). A group policy issued in another state may not be issued here unless the Director determines that requirements substantially similar to section 4424(a) have been met (MCL 500.4446).
Credit and Mortgage Groups
Under MCL 500.4416, a group policy may cover people who borrow from 1 financial institution, including subsidiary or affiliated companies, or who buy merchandise or other tangible property from 1 vendor on installments, with repayment over not more than 10 years. Coverage is limited to the debt, and the creditor may be the applicant and beneficiary. Also:
- If all or part of the premium comes from an identifiable charge to the borrower, the borrower may reject the insurance.
- The total charged for interest and insurance premium cannot exceed the maximum interest that could lawfully be charged.
- The financial institution, including subsidiaries or affiliated companies, may not act as agent for the group life transaction.
- The borrower gets written notification of the insurance when written.
- When the beneficiary is paid, the debtor or the estate is released from the debt to that extent.
Section 4416 policies are excused from the certificate and conversion provision in section 4438.
MCL 500.4418(1) covers loans on dwellings and mobile homes where the lending or servicing institution is directly or indirectly the policyholder. The insurance must be decreasing term, limited at first to the amount of the loan. Dividends go solely to the party paying the premium. Within 31 days after the mortgage is repaid, the insured may convert to a permanent form, and the choices must include whole life. The insurer may limit the converted policy to a minimum of $1,000.00, a maximum of 80% of the insurance then in force, or both. With $80,000 of insurance in force, that maximum is $64,000. When the loan is repaid, prepaid premiums above $5.00 go back to the insured.
An insurer may pay a lender a financial benefit on this insurance. If the insurance is offered when the loan originates, the insurer must first take reasonable steps to ensure that (MCL 500.4418(2)):
- The lender tells the borrower in writing, when it first raises the insurance, that buying it is not a condition of the loan, and that the borrower need not decide until loan approval has been communicated.
- The lender discloses in writing that it or an affiliate has a financial interest, no later than when the borrower is asked to decide.
- The loan and the insurance are completed through separate documents.
Chapter 12’s lender-sales section does not apply to life insurance offered by a lender under section 4418 (MCL 500.1243(35)).
Prepaid Funeral Contracts
Group life tied to a prepaid funeral contract is allowed only if issued to an association covering its members or to a trustee of a group, as an associated life policy or annuity that conforms with MCL 500.2080 (MCL 500.4419).
Dependents
Insurance under a policy issued under sections 4400, 4404, 4408, 4412, 4420 or 4424 may be extended to the eligible dependents of each insured employee or member who so elects (MCL 500.4426(1)). An eligible dependent includes the legal spouse and a child, and a child includes a biological, legally adopted, step or foster child who is dependent on the employee or member. Amounts must follow a plan that precludes individual selection. The employer or policyholder, the employee or member, or both may pay the premium (MCL 500.4426(2) to (4)).
Required Provisions
A group life form must be filed with and approved by the Director before it is issued or delivered, apart from the exceptions in MCL 500.2236(8)(d), which include forms the Director exempts by order (MCL 500.4430(1)). Every policy must contain in substance the provisions of sections 4432 through 4442, and a group universal life policy must also comply with Chapter 40 (MCL 500.4430(2)). Several resemble the individual provisions, but the wording differs.
| Provision | Group rule | Compared with an individual policy |
|---|---|---|
| Incontestability | After 2 years from the date of issue, except non-payment of premiums and violation of conditions on military or naval service in time of war (MCL 500.4432) | Individual: 2 years in force during the insured’s lifetime (MCL 500.4014) |
| Entire contract | The policy and the applications of the employer and, if applicable, of insured employees (MCL 500.4434) | Individual: the policy and the attached application (MCL 500.4014) |
| Representations | Statements are representations absent fraud, and can be a defense to a claim only if in a written application. An enrollment form is not such an application (MCL 500.4434) | Individual: only a statement in the attached written application can avoid the policy (MCL 500.4016) |
| Misstatement | Equitable adjustment of the premium or the amount of insurance for a misstated age (MCL 500.4436) | Individual: covers age or sex, and adjusts the amount payable (MCL 500.4018) |
Absent fraud, if an employee writes a health statement on an enrollment form, the insurer cannot use that statement to defend against the claim.
New employees are added to coverage periodically if they satisfy the conditions and belong to the insured group or class (MCL 500.4442). Each employee gets an individual certificate, delivered through the employer, describing the coverage and to whom it is payable (MCL 500.4438(1)).
Conversion
The certificate must state that if employment terminates for any reason, the employee may obtain an individual policy (MCL 500.4438(1)(b)):
- Without further evidence of insurability.
- On application to the company within 31 days after termination.
- At the premium for the employee’s class of risk, the form and amount, and the then attained age.
- In any 1 of the forms the company customarily issues, except term insurance.
- In an amount equal to the coverage under the group policy at termination.
The certificate itself is the notice. No separate notice is required at termination (MCL 500.4438(2)). So explain this right when you help enroll a group.
Assignment, Policyholder and Rates
An insured person may assign, other than to the employer, any part of the incidents of ownership under the policy, subject to the policy’s terms or an arrangement among the insured, employer and company. That includes naming beneficiaries, paying contributions and the conversion right. The company is protected for any payment it makes before it receives notice of the assignment (MCL 500.4439).
The employer is the policyholder for all purposes of the chapter and, if entitled to vote at the insurer’s meetings, has 1 vote (MCL 500.4450). A policy may also provide for a rate readjustment based on experience at the end of the first or any later year, retroactive for that policy year only (MCL 500.4454).
Lesson summary
- Group life is unlawful unless Chapter 44 allows the group, so identify the section first.
- An employer group needs at least 2 employees, all employees or a class, no individual selection, and no benefit to the employer.
- The 75% participation figure applies to national guard units and to jointly paid union, teacher and postal clerk groups, not to employer groups.
- A general association needs at least 100 members, 2 years of existence and a purpose other than obtaining insurance; any other group needs the Director’s findings.
- Credit borrowers may reject insurance they pay for through an identifiable charge, and a mortgage group policy converts within 31 days after repayment.
- Group incontestability runs 2 years from the date of issue, and an enrollment form is not an application.
- An employee who leaves for any reason has 31 days to convert to a non-term individual policy with no evidence of insurability, and the certificate is the only required notice.