Michigan Life Practice: Worked Cases

These six cases put Michigan’s rules for individual policies, group life and advertising to work. In each one, find the governing provision first, then test its exact conditions against the facts. The people and companies are invented.

Case 1: Stopping Premiums

Theo Marchetti has paid five full years on a whole life policy. His next annual premium falls due and he does nothing. His wife asks you what happens now, and what would have happened if he had died the week after the due date.

1. Start with the grace period. Every policy gives 1 month for premiums after the first year, and the insurance continues during that month (MCL 500.4012(a)). A death in that month is a covered claim, and if the policy so stipulates, the insurer deducts the overdue premium from the settlement.
2. Move to the 60 day window. Until 60 days after the due date, Theo may request the paid-up benefit stipulated in the policy or, since he has paid at least 3 full years, surrender for cash (MCL 500.4060(2)(a), (b)).
3. Consider silence. If he elects nothing, the benefit named in the policy takes effect (MCL 500.4060(2)(c)). Because that benefit took effect after the third anniversary, he can later surrender for cash within 30 days after any policy anniversary (MCL 500.4060(2)(d)). Whenever he demands cash, the insurer may defer payment for 6 months (MCL 500.4060(2)(h)).
4. Finish with reinstatement. If the policy’s value bought other insurance, that insurance is in force and the policy was not surrendered and canceled, he may reinstate within 3 years from the default on satisfactory evidence of insurability and payment of arrears with interest (MCL 500.4028). Taking the cash closes that route.

Case 2: Two Misstatements

Dana Whitfield’s application understated her age by two years and left out a heart condition. A copy is attached to the policy. She dies three years after the policy date, and the insurer finds both problems at claim time.

1. Treat each statement on its own.
2. On the heart condition, ask whether the policy is still contestable. It was in force during her lifetime for 2 years, and none of the exceptions in MCL 500.4014 fits, so the insurer cannot contest it on this ground.
3. On age, read MCL 500.4018. It does not avoid the policy, and its text sets no time limit. It sets the amount payable: what the most recent premium would have purchased at the correct age.
4. The result is that the insurer pays the claim in the adjusted amount.

Case 3: Changing Her Mind

Priya Raman receives an individual annuity on the first of the month. On the eighth she hands the contract and a signed cancellation letter to her agent.

1. The free look lasts not less than 10 days from receipt, and she is within it (MCL 500.4073(1)).
2. Returning the contract to the agent through whom she bought it counts. The contract is void from the beginning.
3. The refund depends on the product. A fixed contract refunds all premium, including any fee. A variable annuity refunds premiums not allocated to separate accounts plus the value of those accounts on the date the contract is received, which may differ from what she paid (MCL 500.4073(2)).

Case 4: A Universal Life Illustration

An agent takes a universal life application from Marcus Oyelaran. The insurer currently pays 4.5%, and the agent wants to add a 6% column “to be optimistic.” The agent also plans to send the statement of policy information later.

1. The statement shows values at a rate no higher than the current rate actually being paid and at the guaranteed rate. Higher rates shall not be illustrated, so the 6% column comes out (MCL 500.4038(3)).
2. A statement not given at application is due within 15 working days after it and at least 5 days before the policy is delivered (MCL 500.4038(4)).
3. The insurer delivers the policy 2 days after the statement. That misses the 5 day mark, so Marcus’s free look extends to 15 days (MCL 500.4038(5)).

Case 5: The Layoff

Elena Sorokina is laid off from Tamarack Tool Works, where she has $50,000 of group life. She asks whether she can keep the coverage, whether she needs an exam, and why nobody told her about this.

1. Section 4438 applies, because it covers termination of employment “for any reason.”
2. She has 31 days after termination to apply, with no evidence of insurability (MCL 500.4438(1)(b)).
3. The new policy equals her $50,000 of group coverage, in any form the company customarily issues except term. The premium reflects her class of risk, the form and amount, and her attained age, so expect it to differ from what she paid in the group.
4. On notice, her individual certificate was the notice, and no separate notice at termination is required (MCL 500.4438(2)).

Case 6: The Postcard

Agent Lena Brandt mails prospects a postcard for Sable Point Life: “Non-Medical Savings Plan. State Approved. Limited Offer!” Issue depends on health questions, the Director has endorsed nothing, and the offer is not limited.

1. Classify it. Sales material issued by an agent to induce a purchase is an advertisement (R 500.1371(a)).
2. “Non-Medical” needs a nearby, equally prominent statement that issuance depends on health questions (R 500.1377(3)).
3. “Savings Plan” suggests something other than a policy, and the card neither names life insurance nor describes the policy type (R 500.1375(2); R 500.1377(4), (5)).
4. “State Approved” implies a governmental endorsement that does not exist (R 500.1381(3)).
5. “Limited Offer” is untrue (R 500.1377(12)(a)).
6. The card must also clearly identify the insurer (R 500.1379(1)). She names it, but the whole impression still misleads, so she should withdraw the card and rewrite it (R 500.1375(1)).

Lesson summary

• Start every case by finding the provision, then test each condition against the facts.
• A death in the grace period is a covered claim, less any overdue premium the policy stipulates.
• Default options run 60 days from the due date, and reinstatement within 3 years depends on the policy not having been surrendered.
• After 2 years in force during the insured’s lifetime, a health misstatement no longer defeats the claim, while a misstated age still changes the amount.
• Returning a contract to the agent within the free look counts, and a variable annuity refund follows separate account value.
• Universal life illustrations stop at the current rate, and a policy delivered too soon extends the free look to 15 days.
• Group conversion takes an application within 31 days, needs no evidence of insurability and excludes term.
• Each phrase of an ad gets its own test, and an agent’s sales aids are advertisements.