Michigan Life & Health Insurance Guaranty Association

Contact Information

Michigan Life & Health Insurance Guaranty Association
1640 Haslett Road, Suite 160
Haslett, MI 48840-8683
(p) 517.339.1755 (f) 517.339.5500
Association Web site: http://www.milifega.org
State Insurance Department: http://www.michigan.gov/cis

Law Summaries Report

[ Current as of January 01, 2020 ] ]

Coverages

Covered Contracts

§500.7704(2). Provides coverage for direct non group life, health, annuity and supplemental policies or contracts, for certificates under direct group policies, for legal expense insurance policies, and for unallocated annuity contracts issued by member insurers, except as limited by the act.

Non-Covered Contracts

§500.7704(5). (a) A portion of a policy or contract not guaranteed by the insurer or under which the risk is borne by the policy or contract owner, including, but not limited to, the nonguaranteed portion of a variable or separate account product. (b) A policy or contract of reinsurance, unless assumption certificates have been issued pursuant to the reinsurance policy or contract. (c) A portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value exceeds the following: (i) Averaged over the period of 4 years prior to the date on which the member insurer becomes an impaired insurer or an insolvent insurer, whichever occurs first, the rate of interest determined by subtracting 2 percentage points from Moody's corporate bond yield average averaged for that same 4-year period or for a lesser period if the policy or contract was issued less than 4 years before the member insurer becomes an impaired insurer or an insolvent insurer, whichever occurs first. (ii) On and after the date on which the member insurer becomes an impaired insurer or an insolvent insurer, whichever occurs first, the rate of interest determined by subtracting 3 percentage points from Moody's corporate bond yield average as most recently available. (d) A portion of a plan or contract issued to a plan or program of an employer, association, or other person to provide life, health, or annuity benefits to its employees, members, or others to the extent that the plan or program is self-funded or uninsured, including, but not limited to, benefits payable by an employer, association, or other person under any of the following: (i) A multiple employer welfare arrangement as defined in section 7001. (ii) A minimum premium group insurance plan. (iii) A stop-loss or excess-loss group insurance plan. This subparagraph does not apply to the insured portion of a stop-loss or excess-loss group insurance plan written pursuant to section 407a or 5208 or written by a member property casualty insurer if the premiums were identified as disability insurance premiums in its annual statement. (iv) An administrative services only contract. (e) A portion of a policy or contract to the extent that it provides dividends or experience rating credits, voting rights, or payment of any fees or allowances be paid to a person, including the policy or contract owner, in connection with the service to or administration of the policy or contract. (f) A policy or contract issued in this state by an insurer at a time when it did not have a certificate of authority to issue the policy or contract in this state. (g) An unallocated annuity contract issued to or in connection with a benefit plan protected under the federal pension benefit guaranty corporation regardless of whether the federal pension benefit guaranty corporation has become liable to make any payments with respect to the benefit plan. (h) A portion of an unallocated annuity contract that is not issued to or in connection with a specific employee, union, or association of natural persons benefit plan or a government lottery. (i) An obligation that does not arise under the express written terms of the policy or contract issued by the insurer to the contract owner or policy owner, including, but not limited to, any of the following: (i) A claim based on marketing materials. (ii) A claim based on side letters, riders, or other documents that were issued by the insurer without meeting applicable policy form filing or approval requirements. (iii) A claim based on misrepresentations of or regarding policy benefits. (iv) An award of exemplary or punitive damages or statutory interest and claims related to bad faith in the payment of claims, and attorney fees and costs. (v) A claim for penalties or consequential or incidental damages. (j) A contractual agreement that establishes the member insurer's obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer. (k) A portion of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy or contract owner's rights are subject to forfeiture, as of the date the member insurer becomes an impaired insurer or an insolvent insurer, whichever occurs first. If a policy's or contract's interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture under this subdivision, the interest or change in value determined by using the procedures defined in the policy or contract shall be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and is not subject to forfeiture. (l) A portion of a policy or contract to the extent that the assessments required by section 7709 for the policy or contract are preempted by federal or state law. (m) A policy or contract providing any hospital, medical, prescription drug, or other health care benefits under part C or part D of title XVIII of the social security act, 42 USC 1395w–21 to 1395w–29 and 42 USC 1395w–101 to 1395w–152, or under regulations issued under part C or part D of title XVIII of the social secu-rity act, 42 USC 1395w–21 to 1395w–29 and 42 USC 1395w–101 to 1395w–152. Amended 9.2.2010.

Non-Resident Coverage

§500.7704(1)(b)(ii), (iii). Yes. (b) Covers persons who are owners of, or certificate holders under, a policy or contract covered by the act, other than an unallocated annuity contract or structured settlement contract, covers the person who is the contract holder, and which owner, certificate holder, or contract holder is a resident, or a nonresident, under all of the following conditions: (A) The insurer that issued the policy or contract is domiciled in Michigan. (B)The state in which the person resides has an association similar to the association created by this chapter. (C) The person is not eligible for coverage by an association in any other state because the insurer was not licensed in that state at the time specified in the state's guaranty association law. Also covers nonresidents under subparagraph (iii), if either of the following conditions are met: (A) The person would have been considered a resident at the time the coverage was obtained by the person. (B) The person is not eligible for coverage by another guaranty association. (Amended effective 1/10/2007)

Benefit Limits

§500.7704(6)(b) With respect to 1 life, regardless of the number of policies or contracts: (i) $300,000.00 in life insurance death benefits, but not more than $100,000.00 in net cash surrender and net cash withdrawal values for life insurance. (ii) Except as otherwise provided in subparagraphs (iv) and (v), $100,000.00 in health insurance benefits, including any net cash surrender and net cash withdrawal values. (iii) $250,000.00 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values * * *. (iv) $300,000.00 in disability income insurance benefits or long-term care benefits. (v) $500,000.00 in basic hospital, medical, and surgical insurance benefits. (c) With respect to each individual participating in a governmental retirement benefit plan established under section 401(k), 403(b), or 457 of the internal revenue code of 1986, 26 USC 401, 403, and 457, covered by an unallocated annuity contract or the beneficiaries of each such individual, if deceased, in the aggregate, $250,000.00 in present value annuity benefits, including net cash surrender and net cash withdrawal values. (d) With respect to each payee of a structured settlement annuity, or the beneficiary or beneficiaries of a deceased payee, $250,000.00 in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any. (e) For either 1 contract owner provided coverage under subsection (1)(c)(ii) or 1 plan sponsor whose plans own directly or in trust 1 or more unallocated annuity contracts not included in subdivision (C), $5,000,000.00 in benefits, irrespective of the number of contracts with respect to the contract owner or plan sponsor. However, if 1 or more unallocated annuity contracts are covered contracts under this chapter and are owned by a trust or other entity for the benefit of 2 or more plan sponsors, coverage shall be afforded by the association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in this state, but in no event is the association obligated to cover more than $5,000,000.00 in benefits for all those unallocated contracts. (7) In no event is the association obligated to cover more than the following: (a) An aggregate of $300,000.00 in benefits for any 1 life under subsection (6)(b)(i), (ii), (iii), and (iv), (c), and (d). (b) An aggregate of $500,000.00 in benefits for any 1 life under subsection (6)(b)(v). (c) For 1 owner of multiple nongroup policies of life insurance, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, $5,000,000.00 in benefits, regardless of the number of policies and contracts held by the owner. Amended effective 9.2.2010.

Triggers

Discretionary Triggers

§500.7708(2). If a member insurer is an impaired insurer. *NOTE: this provision is updated as of 1/10/2007.

Mandatory Triggers

§500.7708(3)-(4). When a member insurer is impaired, not paying claims timely, and (1) if domestic, has been placed under an order of rehabilitation by a court of competent jurisdiction; or (2) if foreign, has been prohibited from soliciting or accepting new business in this state, the insurer's certificate of authority has been suspended or revoked in this state and a petition for rehabilitation has been filed in a court of competent jurisdiction in the insurer's domestic state. §500.7708(5). If a member insurer is insolvent.

Foreign Triggers

See Mandatory Triggers.

"Impaired Insurer"

§500.7705(i). A member insurer considered by the commissioner after May 1, 1982, to be potentially unable to fulfill the insurer's contractual obligations or that is placed under an order of rehabilitation or conservation by a court of competent jurisdiction. Impaired does not mean insolvent.

"Insolvent Insurer"

§500.7705(j). A member insurer that after May 1, 1982, becomes insolvent and is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency.

"Member Insurer"

§500.7705(k). A person authorized to transact a kind of insurance or annuity business in this state for which coverage is provided under section 7704 and includes an insurer whose certificate of authority in this state may have been suspended, revoked, not renewed, or voluntarily withdrawn. Member insurer does not include the following: (i) A fraternal benefit society. (ii) A cooperative plan insurer authorized under chapter 64. (iii) A health maintenance organization authorized or licensed under chapter 35. (iv) A mandatory state pooling plan.(v) A mutual assessment or any entity that operates on an assessment basis. (vi) A nonprofit dental care corporation operating under 1963 PA 125, MCL 550.351 to 550.373. (vii) A nonprofit health care corporation operating under the nonprofit health care corporation reform act, 1980 PA 350, MCL 550.1101 to 550.1704. (viii) An insurance exchange. (ix) An organization that has a certificate or license limited to the issuance of charitable gift annuities. (x) Any entity similar to the entities described in this subdivision. *NOTE: This provision is updated as of 1/10/2007.

Account Structure

§500.7706(1). Two accounts: For purposes of administration and assessment the association shall maintain the following 2 accounts: (a) The health insurance account. (b) The life insurance and annuity account which includes the following subaccounts: (i) A life insurance subaccount. (ii) An annuity subaccount, which shall include unallocated annuity contracts owned by a governmental retirement plan, or its trustee, established under section 401, 403(b), or 457 of the internal revenue code of 1986, 26 USC 401, 403, and 457, but shall not include other unallocated annuities. (iii) An unallocated annuity subaccount, which shall not include unallocated annuity contracts owned by a governmental retirement benefit plan, or its trustee, established under section 401, 403(b), or 457 of the internal revenue code of 1986, 26 USC 401, 403, and 457. *NOTE: this provision is updated as of 1/10/2007.

Assessments

Assessment Limits

§500.7709(8). Two percent (2%) of the member insurer's average annual premiums received in the state on the policies covered by each account or subaccount during the three calendar years prior to the impairment/insolvency. *NOTE: this provision is updated as of 1/10/2007.

Assessment Classes

§500.7709(2). Two classes of assessments: Class A for administrative and legal costs, other general expenses; and Class B to carry out the powers and duties of the association with regard to an impaired insurer or insolvent insurer.

Interest Rate Adjustments

§500.7704(5)(c). Guaranty Association excludes from coverage: A portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value exceeds the following: (i) Averaged over the period of 4 years prior to the date on which the member insurer becomes an impaired insurer or an insolvent insurer, whichever occurs first, the rate of interest determined by subtracting 2 percentage points from Moody's corporate bond yield average averaged for that same 4-year period or for a lesser period if the policy or contract was issued less than 4 years before the member insurer becomes an impaired insurer or an insolvent insurer, whichever occurs first. (ii) On and after the date on which the member insurer becomes an impaired insurer or an insolvent insurer, whichever occurs first, the rate of interest determined by subtracting 3 percentage points from Moody's corporate bond yield average as most recently available.

Tax Offsets

§208.22. Yes. Amount a member insurer may offset varies according to formula in the Single Business Tax - Insurance Companies (Public Act No. 262).

Definition of Premium

§ 500.7705 (p) “Premiums” means amounts or considerations, by whatever name called, received on covered policies or contracts less returned premiums, considerations, and deposits and less dividends and experience credits. The term “premiums” does not include an amount or consideration received for a policy or contract, or a portion of a policy or contract for which coverage is not provided under section 7704. However, accessible premiums shall not be reduced on account of sections 7704(5)(c) relating to interest limitations and 7704(6)(b), (c), and (e) relating to limitations with respect to any 1 individual, any 1 participant, and any 1 contract holder. Premiums shall not include premiums in excess of the following: (i) $5,000,000.00 on an unallocated annuity contract not issued under a governmental retirement plan established under section 401(k), 403(b), or 457 of the internal revenue code of 1986, 26 USC 401, 403, and 457. (ii) For multiple nongroup policies of life insurance owned by 1 owner, whether the policyowner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, $5,000,000.00 with respect to these policies or contracts, regardless of the number of policies or contracts held by the owner.

Advertising Prohibition

No provision.

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National Organization of Life & Health Insurance Guaranty Associations
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Phone Number: 703.481.5206