State RegulationsMI specificDifficulty 2/5
An applicant for an individual health policy in Dearborn currently holds another health policy and indicates the new purchase may replace it. Under Michigan's outline of coverage rules, what must the outline of coverage prepared for this sale do?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under Michigan Administrative Code rules R 500.656–.658/.661, the outline of coverage discloses whether the policy being applied for is intended to replace any existing accident and health coverage. This alert lets the applicant see the replacement consequences, such as new waiting periods or lost credit for time served under the old policy, before completing the transaction. Concealing the replacement character of a sale is the essence of twisting, condemned by M.C.L. 500.2005(f) of the Michigan Insurance Code.
Why the other options are wrong
- A) Replacement status is a required disclosure, so omitting it defeats the outline's warning function.
- B) The outline is a neutral disclosure document; it never directs an applicant to cancel existing coverage.
- C) The outline summarizes the policy being sold; it is not a comparative premium survey of the market.
Memory hook
The outline flags a replacement.