What Michigan Law Requires Insurers to Include in Private Disability Policies

In Michigan, Chapter 34 of the Insurance Code (MCL 500.3400-500.3480) outlines essential requirements for individual disability policies, including what must be stated and how policies are treated if they fall short. When a claim is denied, the statute should be referenced, as the insurer's policy language may be more restrictive than allowed by law.

Individual Policies, Not Employer Plans

Chapter 34 applies to individual disability policies purchased independently, not to employer-sponsored plans, which are typically governed by the Employee Retirement Income Security Act (ERISA). ERISA preempts state laws that relate to such plans, but its savings clause allows state insurance regulations to apply. However, participants in employer plans can only pursue remedies under ERISA, as established by Pilot Life Insurance Co v Dedeaux, 481 US 41 (1987). Claims from employer plans follow specific internal appeals and federal review processes, unlike individual policies governed by Michigan law.

The Chapter’s Scope

Chapter 34, titled "Disability Insurance Policies," has a broad definition, covering any policy insuring against loss from sickness, bodily injury, or death, including health insurance. Code sections MCL 500.3403-3406tt focus on health insurance, which is outside the scope of this article.

Since the 2016 amendments (2016 PA 276), there is a distinction between "health insurance policies" and other disability policies. Many key provisions apply specifically to non-health insurance disability policies. The chapter does not cover workers' compensation, liability policies, or disability riders attached to life, endowment, or annuity contracts (MCL 500.3400(2)).

Required Provisions

Entire Contract. The policy, its riders, and endorsements constitute the entire contract. Changes require approval from an executive officer and must be endorsed. An agent cannot alter the policy or waive provisions (MCL 500.3407).

Time Limit on Defenses and Incontestability. Section 3408 mandates that individual disability policies (excluding health insurance) include a clause limiting the insurer's ability to void the policy or deny claims based on misstatements after three years, unless fraudulent. For policies renewable until age 50, the policy becomes incontestable after three years of coverage (MCL 500.3408(1)(a)). The time limit for defenses is capped at two years in Michigan, regardless of what the policy states (MCL 500.3408(2)).

Section 3408(1)(b) prohibits denying claims for pre-existing conditions after three years unless specifically excluded from coverage.

Grace Period. Policies must provide a grace period for premium payments: 7 days for weekly, 10 days for monthly, and 31 days for others (MCL 500.3410).

Reinstatement. If a premium is accepted after the due date without requiring a reinstatement application, the policy is reinstated. If an application is needed, it reinstates upon approval or after 45 days if not disapproved (MCL 500.3411).

Notice of Claim. Written notice of a claim must be given within 20 days of a loss. For ongoing benefits, notice may be required every six months, but delays do not forfeit accrued benefits (MCL 500.3412).

Claim Forms. Insurers must provide proof of loss forms within 15 days of notice. If they fail to do so, claimants can submit their proof within the time allowed by the policy (MCL 500.3413).

Proof of Loss. Proof of loss is due within 90 days after the liability period ends or after the loss. Late proof does not invalidate claims if it was not reasonably possible to provide it on time (MCL 500.3414).

Time of Payment. Non-periodic benefits are payable upon receipt of proof of loss, and periodic benefits must be paid monthly (MCL 500.3416).

Payment of Claims. Death benefits go to the designated beneficiary or, if none, to the estate. Other amounts are payable to the insured (MCL 500.3418).

Physical Examinations and Autopsy. The insurer may examine the insured at reasonable times during a claim and require an autopsy where permitted by law (MCL 500.3420).

Legal Actions. Claims cannot be litigated until 60 days after proof of loss is submitted and must be filed within three years of the proof deadline (MCL 500.3422).

Change of Beneficiary. Unless irrevocably designated, the insured can change the beneficiary without consent (MCL 500.3424).

Optional Provisions

Sections 3432-3452 outline optional provisions that may be included by the insurer, each potentially unfavorable to the policyholder.

Change of Occupation. Benefits may be reduced if the insured takes a more hazardous job, while a less hazardous job may qualify for a premium reduction (MCL 500.3432).

Misstatement of Age. Benefits are adjusted based on the correct age (MCL 500.3434).

Other Insurance and Coordination. Sections 3436-3440 allow for proration of benefits if duplicate coverage exists (MCL 500.3436-3440).

Relation of Earnings to Insurance. If total benefits exceed the insured's earnings, the insurer may prorate, but not below $200 per month (MCL 500.3444).

Illegal Occupation or Criminal Activity. Losses related to illegal activity or felonies may be excluded (MCL 500.3452).

Cancellation.If included, the insurer may cancel the policy with five days' notice, retaining a pro rata premium (MCL 500.3448). Additionally, a notice on the front page must inform policyholders of their right to cancel within ten days (MCL 500.3409).

Other Provisions

Representations, Not Warranties. Statements by the policyholder are representations unless fraudulent, and no statement can be a defense unless in a written application (MCL 500.3402a(b)).

Third Party Ownership. Individuals with an insurable interest can own the policy and receive benefits (MCL 500.3462).

Conformity with State Statutes.Insurers may include clauses that automatically amend provisions to comply with state law (MCL 500.3450).