2.1 Michigan Life Insurance Policy Requirements

The Free Look (Right to Examine) Period

Michigan's life insurance statutory provisions live in Chapter 40 of the Insurance Code (MCL 500.4000-500.4070), administered by the Department of Insurance and Financial Services (DIFS). Every individual life policy must contain a free look provision under MCL 500.4015 that gives the owner the right to examine and return the policy for a full premium refund.

The baseline period is 10 days from delivery. A common exam trap is the late-delivery extension: if the policy is delivered more than 5 days after the applicant signed the application, the free look stretches to 15 days. There is no special blanket "30-day senior free look" for ordinary life policies in Michigan, despite a widespread study-aid myth -- the senior-specific 30-day window applies to other states or to certain solicited replacement/annuity contexts, not Michigan's standard life right-to-examine.

Worked example: An applicant signs on June 1; the policy is hand-delivered June 9 (8 days later). Because delivery occurred more than 5 days after application, the owner has 15 days -- through June 24 -- to return it for a full refund.

Incontestability and Suicide Clauses

Under MCL 500.4040, every Michigan life policy must include a 2-year incontestability clause. After the policy has been in force during the insured's lifetime for 2 years from issue, the insurer cannot void it or deny a claim for material misrepresentation on the application.

• The clock runs from the issue date, not the application date.
• After 2 years, even an innocent or negligent misstatement is locked in.
• The narrow surviving exception is fraud as defined by law and non-payment of premium; routine application errors are no longer contestable.
• If the policy lapses and is reinstated, a fresh contestable period of up to 2 years applies to statements in the reinstatement application.

The suicide exclusion is likewise capped at 2 years. If the insured dies by suicide within 2 years of issue, the insurer's liability is limited to a return of premiums paid, not the face amount. After 2 years, suicide is fully covered like any other death.

Required Standard Provisions

MCL 500.4012-500.4034 enumerate the mandatory policy provisions. Memorize the thresholds -- the Michigan state exam tests these exact numbers.

Grace Period (MCL 500.4012)

Michigan requires a grace period of at least 1 month (study materials and policies commonly express this as 31 days) for every premium after the first. Coverage stays in force during the grace period; if the insured dies before the overdue premium is paid, the claim is paid minus the premium due.

Reinstatement

• The owner may apply to reinstate a lapsed policy within 3 years of the default.
• The insurer may require evidence of insurability and payment of back premiums plus interest.
• A new 2-year contestable and suicide period attaches to reinstatement-application statements.

Entire Contract & Misstatement of Age

Worked example: A man pays a premium that buys $100,000 at the age he listed (40), but his true age is 43. At death the insurer pays the reduced amount the same premium would have purchased at 43 -- it does not deny the claim.

Underwriting: Permitted vs. Prohibited Factors

Michigan's Unfair Trade Practices Act (MCL 500.2018-500.2027) bars unfair discrimination. Distinctions must rest on sound actuarial principles or actual experience.

• Permitted (actuarially justified): age, sex/gender, health history, tobacco use, occupation, and hazardous avocations.
• Prohibited: refusing or rating coverage on the basis of race, color, creed, national origin, or religion; using genetic information to deny or rate; and unfair discrimination among individuals of the same class and equal expectation of life.

Exam Tip: Michigan does allow gender-distinct life rates because mortality differs by sex -- contrast this with the prohibition on race or religion. Sorting permitted from prohibited factors is a recurring question.

Beneficiary, Assignment, and Settlement Rules

Michigan also requires policies to give the owner the right to name and change beneficiaries and to assign the policy. A revocable beneficiary can be changed at any time without consent; an irrevocable beneficiary must consent before any change, loan, or surrender. If no beneficiary survives the insured, proceeds pass to the owner or the owner's estate. Michigan recognizes per stirpes (by branch of family) and per capita (by head) designations -- a trap is assuming a deceased child's share lapses when a per stirpes designation passes it to that child's descendants.

The common disaster / simultaneous death rule applies the Uniform Simultaneous Death Act: if the insured and the sole beneficiary die together and the order of death cannot be determined, the proceeds are paid as if the insured survived the beneficiary, sending the money to the contingent beneficiary or estate rather than into the beneficiary's estate. Death benefits are generally exempt from creditors of the insured to the extent allowed by Michigan law when paid to a named beneficiary other than the estate.

Finally, the interest-on-claims rule (MCL 500.2006) requires insurers to pay claims promptly; benefits unpaid beyond the statutory period accrue interest payable to the beneficiary, discouraging unreasonable delay in honoring valid life claims.