State RegulationsMI specificDifficulty 2/5
An insured in Flint missed a premium payment shortly before becoming disabled. His individual disability policy contains the unpaid premium provision, and the claim itself is fully covered. What happens when the claim is paid?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
The unpaid premium optional provision under M.C.L. 500.3446 provides the resolution for exactly this situation: a covered claim is still paid, but the insurer deducts any premium then due and unpaid from the proceeds. The insured receives the net benefit, the insurer collects the arrears without a separate collection effort, and the overdue premium does not become a lapse or a defense to the claim so long as the policy was otherwise in force when the loss occurred.
Why the other options are wrong
- A) Demanding separate payment is unnecessary; the provision exists so the premium can simply be netted from the claim.
- B) The unpaid premium provision prevents the missed payment from voiding a covered claim; the insurer deducts rather than declaring lapse.
- D) Returning premiums and denying the claim is a rescission outcome reserved for other circumstances, not an unpaid premium under M.C.L. 500.3446.
Memory hook
Missed a payment but got hurt? The claim pays minus the arrears.