State RegulationsMI specificDifficulty 2/5
During the grace period on an individual life policy in Michigan, the overdue premium remains unpaid. What may the insurer do with respect to that overdue amount?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
M.C.L. 500.4012 provides that the grace period on an individual life policy may carry an interest charge on the overdue premium, so the insurer may collect the arrears with permitted interest when the premium is paid or when the overdue amount is deducted from a settlement. The interest charge compensates the insurer for the delayed payment without penalizing the policyowner with a lapse during the grace period.
Why the other options are wrong
- A) The grace period is 1 month, and lapse cannot be declared by a fixed 30-day count during that period.
- B) The statute does not authorize forcing a policy loan on the policyowner for the overdue premium.
- C) Forfeiture of paid-up value is not a grace-period remedy; coverage simply continues while the premium is unpaid.
Memory hook
Grace period = coverage continues, interest may accrue.