Key Takeaways
- The Michigan Life and Health Insurance Guaranty Association protects policyholders when insurers become insolvent
- Coverage limits are $300,000 for life insurance death benefits and $100,000 for cash values
- Health insurance coverage is limited to $500,000 per individual
- Annuity coverage is limited to $250,000 in present value per contract
- Producers cannot use guaranty association coverage as a selling point
Michigan Life and Health Insurance Guaranty Association
The Michigan Life and Health Insurance Guaranty Association protects Michigan residents when life and health insurance companies become insolvent (unable to pay claims).
Purpose and Function
The Guaranty Association is a nonprofit entity that:
- Protects policyholders of insolvent insurers
- Continues coverage or pays claims up to limits
- Is funded by assessments on member insurers
- Operates under state law supervision
How It Works
When an insurer becomes insolvent:
- State takes over - DIFS Director places insurer in liquidation
- Association activates - Takes responsibility for covered policies
- Coverage continues - Up to statutory limits
- Claims paid - Benefits paid to policyholders
Coverage Limits
The Michigan Guaranty Association provides coverage up to specific limits:
Life Insurance
| Benefit Type | Maximum Coverage |
|---|---|
| Death Benefit | $300,000 per life |
| Cash Surrender Value | $100,000 per policy |
| Present Value (total) | $300,000 per life |
Annuities
| Benefit Type | Maximum Coverage |
|---|---|
| Present Value | $250,000 per contract |
| Aggregate | Limits may apply across policies |
Health Insurance
| Coverage Type | Maximum Coverage |
|---|---|
| Health Benefits | $500,000 per individual |
| Disability Income | $300,000 per individual |
| Long-Term Care | $300,000 per individual |
Exam Tip: Michigan's life insurance death benefit limit is $300,000, which differs from some states with higher limits.
What Is Covered
The Guaranty Association covers:
Covered Policies
- Individual life insurance
- Group life insurance (Michigan residents)
- Annuities
- Health insurance
- Disability income insurance
- Long-term care insurance
- Medicare Supplement insurance
Not Covered
- Policies from insurers not licensed in Michigan
- Policies from insurers not members of Association
- Self-funded employer plans
- Government programs
- Surplus lines policies
- Amounts above coverage limits
- Investment portions of variable products (beyond guarantees)
Funding
The Guaranty Association is funded by assessments:
- Member insurers pay assessments
- Assessments based on premium volume by line
- May be passed through to policyholders
- Recouped through rate adjustments over time
Producer Restrictions
Advertising Prohibition
Producers cannot:
- Use Guaranty Association coverage as a selling point
- Advertise Association protection
- Imply policies are "guaranteed" by the association
- Compare Association to FDIC insurance
- Suggest greater protection than actually exists
Required Disclosures
- Cannot misrepresent guaranty association coverage
- Must provide accurate information if client asks
- Cannot suggest coverage exceeds actual limits
- Must be honest about insurer financial strength
Exam Tip: Remember that producers CANNOT use guaranty association coverage as a selling point. This is a frequently tested rule.
Claim Process
When an insurer becomes insolvent:
- Policyholder notified by liquidator
- Coverage assessed - Association reviews policies
- Benefits continued or transferred to healthy insurer
- Claims processed within coverage limits
- Amounts over limits - May receive from liquidation estate
What is the maximum death benefit coverage provided by the Michigan Guaranty Association for a life insurance policy?
Can a Michigan insurance producer use Guaranty Association coverage as a selling point?
What is the maximum annuity coverage provided by the Michigan Guaranty Association?
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