What is the Michigan Life & Health Insurance Guaranty Association?
The Michigan Life & Health Insurance Guaranty Association was created by the Michigan legislature to protect Michigan residents who are policyholders of life or health policies issued by an insolvent insurance company, up to specified limits. All insurance companies (with limited exceptions) licensed to write life and health insurance or annuities in Michigan are required, as a condition of doing business in the state, to be members of the guaranty association. If a member company becomes insolvent, protection is provided through assessments of the guaranty association's other member insurance companies writing the same line or lines of insurance as the insolvent company. All 50 states, the District of Columbia, and Puerto Rico have life and health insurance guaranty associations.
Although licensed in Michigan, policies issued by the following entities are not covered by MLHIGA: a nonprofit health care corporation, a health maintenance organization, a fraternal benefit society, a nonprofit dental care corporation (e.g., Delta Dental), a mandatory state pooling plan, a mutual assessment company or similar plan in which the policyholder is subject to future assessments, an insurance exchange, or an organization limited to the issuance of charitable gift annuities.
How is policy coverage determined?
Coverage is determined by Michigan law and policy language at the time the guaranty association is activated to provide protection (when the member insurer is found to be insolvent and ordered liquidated by a court). In light of changes in the law and the dramatic variations in policy language, the association cannot make statements regarding coverage of a specific policy unless it is a policy with a company for which the association has been activated to provide protection.
Who is protected?
Generally, MLHIGA covers Michigan individual policyholders and their beneficiaries; typically, Michigan residents protected by certificates of insurance issued under policies of group life or group health insurance are also covered. Payees of structures settlement annuities are also covered if the payee is a Michigan resident. Owners of unallocated annuity contracts are covered when the contract is issued in connection with certain employee benefit plans and the plan sponsor’s principal place of business is Michigan; or if the owner of the contract is a Michigan resident and the contract is issued in connection with a government lottery. In some cases, coverage might be available to certain non-residents. Limits on benefits and coverage are established by Michigan law.
MLHIGA will not provide duplicate coverage to any individual that is also covered by the laws of another state or another state’s guaranty association.
If I move to another state after purchasing a policy, will I still have guaranty association coverage? If so, who will provide it?
If you are a Michigan resident that purchased a policy from a company that is a member of MLHIGA, you will have coverage. Guaranty association protection is generally provided by the association in the state where you reside at the date of the liquidation order regardless of where your policy was purchased. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the state where the failed company was domiciled.
What contracts are covered?
Generally, direct individual or direct group life and health insurance policies as well as individual annuity contracts issued by the MLHIGA member insurers are covered by the association. Unallocated annuity contracts and structured settlement annuities may also be covered. Such coverage is limited by the terms of the Michigan Life & Health Insurance Guaranty Association Act.
Types of property and casualty insurance--such as automobile, homeowners, professional liability, medical malpractice, workers' compensation, etc.--may be protected by the Michigan Property & Casualty Insurance Guaranty Association. That guaranty association can be reached at:
Property & Casualty Guaranty Association
17370 Laurel Park Dr, N, Ste. 350
Livonia, MI 48152
Are all policies fully protected?
The MLHIGA Act limits the amount MLHIGA is obligated to cover for each insolvent company as follows:
(1) MLHIGA cannot cover more than what the insurance company would owe under a policy or contract;
(2) for any one life, regardless of the number of policies or contracts held with the same company, MLHIGA will cover a maximum of:
(a) $300,000 in life insurance death benefits, but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance;
(b) $250,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values;
© for health insurance: (i) $300,000 in disability income insurance benefits or long-term care benefits; (ii) $500,000 in basic hospital, medical, and surgical insurance benefits; (iii) $100,000 in all other health insurance benefits.
(d) In no event is the association obligated to cover more than an aggregate of $300,000 in all benefits (other than basic hospital, medical, and surgical benefits) for any one life.
The limits mentioned above are applied per any “one life” per insolvent company.
As an example of this “one life” limitation, if you own three annuities with the same annuitant from the same insurance company, each worth $100,000 and that company is declared insolvent and ordered liquidated, only $250,000, in total, may be protected because that is the maximum amount protected under the MLHIGA Act for all annuities from a single insurer.
Note to benefit plan trustees or other holders of unallocated annuities (GICs, DACs, etc.) covered by the act: for unallocated annuities that fund governmental retirement plans only under sections 401(k), 403(b) or 457 of the Internal Revenue Code, the limit is $250,000 in present value of annuity benefits per participating individual; for covered unallocated annuities that fund other plans, benefits are not available on an individual basis and a special limit of $5,000,000 applies to the contract holder, regardless of the number of contracts held with the same company or number of persons covered by the plan. Coverage is dependent on plan sponsor having its principal place of business in Michigan. In all cases, of course, the contract limits also apply.
Exclusions from Coverage
Persons holding policies otherwise covered are not protected by MLHIGA if:
• they are eligible for protection under the laws of another state (this may occur when the insolvent insurer was incorporated in another state whose guaranty association protects insureds who live outside that state); or
• the insurer was not authorized to do business in Michigan.
The Association also does not provide coverage for:
• any policy or portion of a policy which is not guaranteed by the insurer or for which the individual has assumed the risk;
• any policy of reinsurance (unless an assumption certificate was issued);
• interest rate yields that exceed an average rate set by formula in the MLHIGA Act;
• obligations not arising from the express written terms of the policy or contract;
• insurer’s obligation to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets owned by benefit plan;
• interest determined by external reference that has not been credited to the policy or is subject to forfeiture;
• employers' plans that are self-funded (that is, not fully insured by an insurance company, even if an insurance company administers them);
• unallocated annuity contracts, unless they fund a government lottery or a benefit plan of an employer, association or union, except that unallocated annuities issued to employee benefit plans protected by the federal Pension Benefit Guaranty Corporation are not covered. An unallocated annuity contract is an annuity contract or group annuity certificate which is not issued to and owned by an individual, except to the extent of an annuity benefit guaranteed to an individual by an insurer under the contract or certificate. The term shall also include, but not be limited to, guaranteed investment contracts and deposit administration contracts;
• policies issued by the following entities, even though licensed in Michigan: a nonprofit health care corporation, a health maintenance organization, a fraternal benefit society, a nonprofit dental care corporation (e.g. Delta Dental), a mandatory state pooling plan, a mutual assessment company or similar plan in which the policyholder is subject to future assessments, an insurance exchange, or an organization limited to the issuance of charitable gift annuities;
• a portion of a policy or contract to the extent that the assessments required by section 7709 of the MLHIGA Act for the policy or contract are preempted by federal or state law;
• 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 Security Act, 42 USC 1395W-21 to 1395W-29 and 42 USC 1395W-101 to 1395W-152.
• MLHIGA will not provide duplicate coverage to any individual that is also covered by the laws of another state or another state’s guaranty association.
How does the “one life” limit apply?
The limits are applied per any “one life” per insolvent company. As an example of the “one life” limitation, if you own three annuities with the same annuitant from the same insurance company, each worth $100,000 and that company is declared insolvent and ordered liquidated, only $250,000, in total, may be protected because that is the maximum amount protected under the MLHIGA Act for all annuities from a single insurer.
What will happen to my insurance coverage if the guaranty association becomes liable for my policy?
Protection can be provided in one of several different ways. For example, a financially sound insurer may take over the troubled company's policies and assume the responsibility for continuing coverage and paying covered claims. The Michigan Life & Health Insurance Guaranty Association may provide coverage directly by continuing the insurer's policies or issuing replacement policies with the guaranty association; in some situations, the Michigan guaranty association may work with other state guaranty associations to develop an overall plan to provide protection for the failed insurer's policyholders. The amount of protection provided and when you receive it may depend on the particular arrangement worked out for handling the failed insurer's obligations.
For group health and cancelable individual health insurance, Michigan law allows the guaranty association to continue your coverage only for a limited time based on the renewal date of your policy.
When might the guaranty association provide benefits?
If your insurer is no longer able to fulfill its obligations, ongoing benefit payments to you may be reduced or suspended by the courts in order to sort out the affairs of the financially troubled insurer. As a result, you may have to wait months before the guaranty association is activated to provide benefit payments. Hardship provisions may be instituted by the receiver to continue benefit payments.
How will I know if my life or health insurance company has failed or is unable to fulfill its obligations to its policyholders?
You will receive a notification from the receiver and/or the MLHIGA if your member insurance company is found to be insolvent and ordered liquidated.
How can I find out if my company is licensed in Michigan?
Call the Department of Insurance and Financial Services at 877.999.6442 or visit DIFS’s Web site at www.michigan.gov/difs. The department maintains complete and current records of all insurance companies licensed to do business in the state.
Where can I get advice on purchasing life, health, or annuity products?
The guaranty association does not provide financial advice or comment on the financial condition of any company. You can obtain advice from captive insurance agents, independent insurance agents, and rating agencies. Generally, captive agents sell products from a single insurer. Independent insurance agents usually can sell the products of multiple insurers.
Rating agencies assign comparative ratings to insurers based on various criteria. Most rating agencies are paid by the insurer to do an assessment examination and to issue a rating. This is the case with the largest and most well-known agencies, such as Standard and Poor’s, A.M. Best, Moodys, and Fitch Ratings. Since the companies pay to have themselves rated, those ratings are generally available to the public without charge. One rating agency does not accept payment from the insurer being rated—TheStreet.com. You must pay to obtain its rating results.
You may also wish to contact the Michigan Department of Insurance and Financial Services at 877-999-6442 regarding information on a particular company.
Is MLHIGA a State agency?
No. The guaranty association is a private entity, with its membership made up of life and health insurers licensed in the state. The association was created pursuant to enactment of the Michigan Life and Health Insurance Guaranty Association Act to serve as a safety net for Michigan residents should their life or health insurer fail.
How can I determine the financial soundness of my insurance company?
Consumers can contact the Michigan Department of Insurance and Financial Services at 877-999-6442 to determine if an insurance company is licensed to write business in Michigan. Consumers can also, check the financial strength ratings of the company, which are issued by various ratings agencies (see “Where can I get advice on purchasing life, health, or annuity products?” above).
If my company is in the process of rehabilitation/conservation and I have an emergency and need to withdraw monies from my annuity, what is the process?
Surrenders and loans may be allowed on a case-by-case basis for genuine hardship situations upon written application to the Receiver. Hardship circumstances and procedures may differ from company to company. Examples of hardship cases may include (1) terminal illness or permanent disability; (2) substantial medical expenses not covered by medical insurance; (3) financial difficulties resulting in inability to pay for essential life support needs life food and shelter; (4) imminent removal from a hospital, nursing home, or other medical care facility due to inability to pay; (5) imminent bankruptcy; and (6) immediate need for college tuition payments for a dependent child.
Is long-term-care insurance covered by the guaranty association?
Yes, long-term-care insurance is covered by the guaranty association, but not to exceed $300,000 in benefits.
Are variable annuities covered by the guaranty association?
Generally speaking, the guaranteed portion of a variable annuity contract will be eligible for guaranty association coverage, subject to applicable limits and exclusions on coverage. However, specific questions regarding coverage will be determined by MLHIGA based on the terms of the contract, other relevant facts, and the guaranty association law in effect at the time of liquidation.
If my company is liquidated, do I have to file a claim with the association?
If your insurance company is liquidated, you will receive a notice from the court-appointed Receiver (typically the Insurance Commissioner of the company’s state of domicile), who will oversee the liquidation of the company and inform you of any new claims procedures. There may be no change in the claims submission process—guaranty associations, working with the Receiver, sometimes continue processing claims using the liquidated company’s existing claims staff if that will maximize the speed and efficiency with which claims are processed. In other cases, the association might process the claim or use an independent processing company, known as a third-party administrator, to process claims. In any event, you will be notified of the ongoing claims process. If you wish to continue coverage, you must continue to pay the premium required by your policy.
Should I continue to pay my premiums?
Yes. If you are paying premiums to your company, you must continue to do so—those premiums go to the guaranty association providing you continuing coverage. If you stop paying premiums, your insurance coverage may be terminated.
Is my company a member of MLHIGA?
Most life, health, and annuity insurers licensed to write business in the state are members of MLHIGA. To determine if a company is licensed to write life, health, or annuity business in Michigan, you may call the Department of Insurance and Financial Services at 877-999-6442 or visit their web site at http://www.michigan.gov/difs.
Although licensed in Michigan, policies issued by the following entities are not covered by MLHIGA: a nonprofit health care corporation, a health maintenance organization, a fraternal benefit society, a nonprofit dental care corporation (e.g. Delta Dental), a mandatory state pooling plan, a mutual assessment company or similar plan in which the policyholder is subject to future assessments, an insurance exchange, or an organization limited to the issuance of charitable gift annuities.
What happens if the benefits promised in my policy are greater than the coverage limits provided by MLHIGA?
Guaranty associations, in conjunction with the Receiver, may be able to negotiate a transfer of a company’s policies, up to the amount of the guaranty association benefit limits, to a financially sound insurer. If, instead of a transfer, MLHIGA administers claims against the policy and benefit limits are reached, any claim in excess of that limit may be submitted as a policyholder-level claim against the estate of the failed insurance company, and the contract holder may receive distributions as the company’s assets are liquidated by the Receiver.
What happens when my life or health insurance company goes out of business?
Generally, individuals will be protected by MLHIGA if they reside in Michigan and own a life, health or annuity contract issued by an insurer licensed in Michigan or if they are insured under a group, life or health insurance contract issued by an insurer licensed in Michigan. For owners of unallocated annuity contracts, coverage will be provided if the contract is issued in connection to certain employee benefit plans whose sponsor has its principal place of business in Michigan or if the owner is a resident of Michigan and the contract was issued in connection with a government lottery. For payees, or beneficiaries of deceased payees, of structured settlement annuities, coverage will be provided if the payee is a resident of Michigan. In limited cases, certain non-residents might also receive coverage.
You may find out if your insurance company is licensed in Michigan by contacting the Department of Insurance and Financial Services at P.O. Box 30220, Lansing, Michigan 48909-7720, telephone number 877-999-6442 or www.michigan.gov/difs. Although licensed in Michigan, policies issued by the following entities are not covered by MLHIGA: a nonprofit health care corporation, a health maintenance organization, a fraternal benefit society, a nonprofit dental care corporation (e.g. Delta Dental), a mandatory state pooling plan, a mutual assessment company or similar plan in which the policyholder is subject to future assessments, an insurance exchange, or an organization limited to the issuance of charitable gift annuities.