2.1 Michigan Homeowners Insurance Requirements

Michigan Homeowners Policy Forms

Michigan does not mandate a state-specific homeowners contract; insurers file Insurance Services Office (ISO) forms with the Department of Insurance and Financial Services (DIFS). Knowing what each form covers, and the peril basis (open vs. named), is heavily tested.

Open perils (also called "all-risk") covers any cause of loss except those specifically excluded, shifting the burden of proof to the insurer. Named perils covers only the perils listed in the form (fire, windstorm, hail, etc.), and the insured must prove the loss came from a listed peril.

Standard Coverage Limits

Under an HO-3, internal limits are set as percentages of Coverage A (dwelling):

• Coverage B (other structures): 10% of Coverage A
• Coverage C (personal property): 50% of Coverage A (often increased to 70%)
• Coverage D (loss of use / additional living expense): 30% of Coverage A
• Coverage E (personal liability): default $100,000 per occurrence
• Coverage F (medical payments to others): default $1,000 per person

Worked example: A home insured for $300,000 of Coverage A automatically carries $30,000 other structures, $150,000 contents, and $90,000 loss of use. A producer who tells a client "contents are unlimited" is wrong, and that is a common exam trap.

Special Limits and Endorsements

Even on an open-perils HO-3, certain categories of personal property carry special internal sub-limits because they are easily stolen or hard to value. Typical default sub-limits include $200 for money and coins, $1,500 for securities and manuscripts, $1,500 for watercraft, $1,500 for theft of jewelry/watches/furs, and $2,500 for theft of business property on the premises. To restore full value the insured uses a scheduled personal property endorsement (a personal articles floater), which lists each item, often requires an appraisal, and provides open-perils, no-deductible coverage for the scheduled items.

This is a heavily tested distinction: the floater fills the gap left by the sub-limits.

The 80% Coinsurance Rule

HO forms require the dwelling to be insured to at least 80% of replacement cost to collect replacement cost on a partial loss. If a $400,000 (replacement cost) home is insured for only $280,000 (70%), the recovery on a $40,000 partial loss is reduced by the coinsurance penalty: ($280,000 / $320,000) x $40,000 = $35,000, minus the deductible. Insure below 80% and the insured shares the loss.

Michigan Basic Property Insurance Association (MBPIA)

The MBPIA is Michigan's FAIR plan (Fair Access to Insurance Requirements), organized under Act 262 of the Public Acts of 1968. It is the residual market of last resort, writing basic property coverage for applicants who cannot obtain it voluntarily, often because of property condition, location, or loss history. It is funded by assessments on member insurers (every property insurer doing business in Michigan must participate).

How the MBPIA Works

1. The applicant cannot obtain coverage in the voluntary market.
2. A licensed agent submits the application to the MBPIA.
3. The MBPIA issues coverage, then orders a property inspection to confirm the risk meets basic standards.
4. If the property fails inspection, the applicant receives written notice of the deficiencies and what must be corrected.

MBPIA Coverage Notes

• Covers owner-occupied dwellings, rentals, condos, and renters' contents.
• Property must meet building codes and cannot be used for farm, business, or illegal activity.
• Coverage is basic (fire, extended coverage, vandalism) and is more limited and often more expensive than voluntary-market policies.
• The MBPIA cannot decline solely on the basis of neighborhood characteristics, environmental hazards, or area economic conditions, which is the anti-redlining purpose of the FAIR plan.

Exam Tip: The MBPIA is a last resort, not a discount option. Treat it as the answer whenever a scenario describes a property that voluntary carriers refuse.

Cancellation and Non-Renewal

The Michigan Insurance Code (MCL 500.2118 to 500.2122) tightly limits how a homeowners policy may be ended:

An insurer cannot refuse to renew solely because the insured filed a single claim or based on a prohibited factor. Prohibited rating/underwriting factors include race, color, religion, national origin, and residence/redlining. Producers should advise clients of their right to request an explanation and to contact DIFS to dispute an improper cancellation.

Flood Is Always Excluded

Every HO form excludes flood (surface water, waves, tidal water, overflow). Coverage requires a separate NFIP policy or private flood policy. Mortgaged properties in a Special Flood Hazard Area (SFHA) must carry flood insurance as a condition of the federally backed loan. NFIP dwelling limits cap at $250,000 for the building and $100,000 for contents, with a standard 30-day waiting period before a new policy takes effect. The producer must disclose this exclusion, a failure to do so is a frequent errors-and-omissions claim.

Other Always-Excluded Perils

Beyond flood, every HO form excludes certain catastrophic or maintenance perils that a Michigan producer must be ready to explain:

• Earth movement (earthquake, sinkhole, mudflow), buy back with an earthquake endorsement.
• Water backup from sewers or sump pump overflow, added by a water backup and sump overflow endorsement.
• Ordinance or law costs to rebuild to current code, restored with an ordinance or law endorsement (relevant for Michigan's older housing stock).
• Neglect, wear and tear, and intentional acts by the insured, these are uninsurable maintenance or moral-hazard exposures.

Understanding which exclusions can be "bought back" by endorsement and which cannot (intentional loss, wear and tear) is a recurring exam theme.