Where Michigan Law Changes the National Life Rule

National descriptions of life insurance rules are written for the typical state, and Michigan departs from them in several places. Where the two differ, Michigan’s statute or rule governs a policy sold here. Each item below states the usual national description and then the Michigan rule.

Policy Provisions

Grace period. The usual description is 30 days, or 31 days. Michigan’s required provision is a grace period of 1 month for every premium after the first year. The insurer must also send written notice to the policyowner’s last known address at least 30 days before coverage terminates, except an insurer that collects a majority of its annual premium in person (MCL 500.4012(a), (b)). A month can be 28, 29, 30 or 31 days, so the period follows the calendar. A flexible premium universal life policy has its own rule: a grace period of at least 30 days after lapse (MCL 500.4037(g)).

Incontestability. The usual description is that after 2 years the insurer cannot contest the policy for any reason. Michigan’s clause makes the policy incontestable after it has been in force during the insured’s lifetime for 2 years from its date, with stated exceptions: nonpayment of premiums, violations relating to naval and military service in time of war, and, at the insurer’s option, provisions for total and permanent disability benefits and for additional insurance specifically against death by accident (MCL 500.4014).

Suicide. The usual description is that suicide in the first 2 policy years is not covered. Chapter 40 does not prescribe a suicide period for individual life policies. A suicide exclusion is a term of the contract, and where a policy has one the policy’s wording governs. For variable life, Michigan permits an exclusion for suicide within 2 years of the issue date, and within 2 years of any increase, to the extent of the increase only (R 500.852(a)).

Misstatement of age. The usual description covers age only. Michigan’s provision covers a misstatement of the age or sex of the insured, and the death benefit becomes what the most recent mortality charge or premium would have purchased at the correct age or sex (MCL 500.4018).

Free look. The usual description is 10 days, with 20 days for a replacement. Michigan requires an individual life policy to carry on its front page a notice of a cancellation right of not less than 10 days after the policyholder receives the policy (MCL 500.4015). The replacement rules in R 500.601 to R 500.606 add no longer period. A universal life policy delivered sooner than 5 days after its statement of policy information has a free look of 15 days (MCL 500.4038(5)). Variable life has its own free look: 45 days from signing the application or 10 days from receipt, whichever is later (R 500.850(a)(iv)).

Deferral of cash. The usual description lets an insurer defer a loan, withdrawal or surrender up to six months. Michigan requires an insurer to reserve the right to defer a policy loan, except one made to pay premiums, and the payment of a cash surrender value, for 6 months (MCL 500.4062(2), 500.4060(2)(h)). For a deferred annuity, deferring the cash surrender benefit for 6 months requires the insurer to make a written request to the Director showing necessity and equitability to all policyholders and to receive written approval (MCL 500.4072(3)(b)).

Variable life conversion. The usual description gives a 24-month conversion right to fixed insurance. Michigan requires scheduled premium variable life policies to carry an exchange right for the first 18 months, so long as premiums are duly paid, without evidence of insurability (R 500.850(f)).

Industrial Life Insurance

Industrial life insurance has its own chapter. Chapter 40 does not apply to it except eight listed sections: MCL 500.4004, 500.4040, 500.4048, 500.4052, 500.4054, 500.4060, 500.4062 and 500.4064 (MCL 500.4000(1), 500.4200(2)). The grace period and notice provision in MCL 500.4012 is not among them. Chapter 42 applies instead. A policy is industrial in either of two cases. Premiums are payable weekly. Or premiums are payable monthly or more often but less often than weekly, the face amount is $1,000 or less, and the words “industrial policy” are printed on it (MCL 500.4201). Its grace period is 4 weeks for any premium after the first, or 1 month where premiums are payable monthly (MCL 500.4206).

Group Life

Participation percentages. The usual description is that a group needs 100% participation if noncontributory and 75% if contributory. For an employer group, MCL 500.4404 requires not less than 2 employees and an amount of insurance based on a plan that precludes individual selection, and it states no participation percentage. The 75% figures appear in two other sections: a national guard unit offered to all eligible members must be insured at not less than 75% (MCL 500.4408), and for a union, teacher or postal clerk group where the premium is paid jointly and benefits are offered to all eligible members, not less than 75% may be insured (MCL 500.4412).

Group conversion. The usual description says a “qualifying event” triggers conversion and that term insurance might not be offered. Michigan’s group policy must provide a certificate stating that if employment terminates for any reason, the employee may apply within 31 days, without evidence of insurability, for an individual policy in any form customarily issued by the insurer, except term insurance, for an amount equal to the group coverage. The premium is based on the employee’s class of risk, the form and amount, and attained age (MCL 500.4438(1)(b)). The certificate itself is the notice, and a separate notice at termination is not required (MCL 500.4438(2)).

Lesson summary

• Michigan’s grace period is 1 month, with 30 days’ written notice before termination, and the incontestability clause has the exceptions MCL 500.4014 lists.
• Chapter 40 prescribes no suicide period, and age-misstatement adjustments cover age or sex.
• The individual life free look is not less than 10 days from receipt, and the replacement rules add no separate period.
• Variable life has a 45-day or 10-day free look and an 18-month exchange right for scheduled premium policies.
• Industrial life is outside Chapter 40 except eight listed sections. Chapter 42 governs it, with a grace period of 4 weeks, or 1 month for monthly premiums.
• MCL 500.4404 sets no participation percentage for employer groups, and group conversion follows termination of employment for any reason and excludes term insurance.