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Bulletin No. 87-07

Credit Insurance Rate and Form Filings

Issued and entered July 23, 1987 by Herman W. Coleman, Commissioner of Insurance

BACKGROUND

Pursuant to Act 218 of the Public Acts of 1956 and Act 173 of the Public Acts of 1958, effective September 1, 1987, the Commissioner of Insurance has filed with the Secretary of State Administrative Rules 550.201- 550.221 affecting credit insurance rates, forms and standards. The following informational bulletin has been written to simplify compliance with these new rules.

FORMS WITH INSTRUCTIONS

All forms and rates filed with the Commissioner to meet the conditions of Rule 550.109 for credit life and disability insurance must meet the standards in the new Administrative Rules on or before September 1, 1987 as mandated by Sub-rule 550.016(1). Attached to this bulletin is the new Credit Insurance Filing Form INS-805 (7/87). The form must be included for all filings of credit life and/or disability forms and rates and for all accounts regardless of the policy anniversary date. The purpose of the form is to insure the information included is sufficient and in a format that will allow the Bureau to expedite the approval process. Failure to complete the form as accurately and completely as possible will result in rejection of the filing.

The form is self-explanatory and is of a format similar to prior filing forms. Please complete all sections of the form, designating "NA" to those section which do not apply to a specific filing. Each company will be responsible for reproducing copies of the form for their own use.

Single premiums collected prior to September 1, 1987 will be considered earned at the previous rate through the duration of the loan period. As provided by Sub-rule 550.216(3), rates based on the monthly outstanding balance must comply with the new limits effective September 1, 1987 for insurance on all loans regardless of either the date the indebtedness was incurred or the date the insurance was purchased.

Instructions for Filing Rates and Forms

Please list all group and individual credit life and disability policies that you intend to have and keep approved for use in Michigan after September 1, 1987, using the format of Form INS-805 (7/87). The Insurance Bureau requests that you authorize withdrawal of all forms regulated under the Credit Insurance Act other than those specifically named in this submission. Withdrawal of these forms may be indicated in the cover letter of your submission.

Rate sheets should be filed showing the adjustments for prima facie rates defined at Rule 550.211, that will take effect over the next three years. For instance, the prima facie single premium basis 12 month decreasing term life insurance rates and effective dates are:

$ .52 per $100 per year for 9-1-87 through 8-31-88
$ .50 per $100 per year for 9-1-88 through 8-31-89
$ .48 per $100 per year for 9-1-89 and thereafter

In accordance with Sub-rules 550.212(1)(b) and 550.212(3) all disability rates charged on an outstanding balance basis must be filed as limited in the Rule 550.218 (Appendix B) and Rule 550.220 (Appendix D) respectively. Since rates are provided in monthly increments in these appendices, monthly outstanding balance disability rates may no longer be duration banded in 12-month periods as was the previous practice.

The annual notice for continuance of open-ended coverage must be submitted for approval as required by Sub-rule 550.102(3).

Instructions Regarding Rate Determination

Below are prima facie single premium and monthly outstanding balance rates for credit life insurance when sold on a single life or joint life basis and in a decreasing or level term basis effective for the dates 9-1-87, 9-1-88 and 9-1-89 as required by Rule 550.211.

Table contains single premium and month;y outstanding balance rates for credit life insurace

Single Premium Basis (per $100 per year)   9-1-87 9-1-88 9-1-89 Single Life Decreasing Term 0.5200 0.5000 0.4800 Joint Life Decreasing Term 0.8100 0.7800 0.7500 Single Life Level Term 0.9600 0.9200 0.8900 Joint Life Level Term 1.5000 1.4400 1.3800 Monthly Outstanding Balance Basis (per $1000 per month) Single Life Level Term 0.8000 0.7692 0.7385 Joint Life Level Term 1.2500 1.2019 1.1538 Partial Year Single Premium Basis

When determining single premium single life rates for partial years (SPn) you may use the following formula and round the result to the nearest 2 decimal places:

Formula to determine single peremium single life rates for partial years

  SPn = [SP12*(n/12)] where: SP12 = single premium rate at 12 months   n = number of months

When determining a single premium joint life rate (SPJn) for partial years, the joint conversion factor of 1.5625 (which may be rounded to 1.56) from Sub-rule 550.211(1)(e) must be used in the formula on the next page and the result may be rounded to the nearest 2 decimal places.

Joint Conversion factor formula

  SPJn = [1.5625*SP12*(n/12)]
where: SP12 and n are as defined above.

Other Considerations:

1. Underwriting or determining eligibility based on the applicant's work situation is restricted to the language presented in Sub-rule 550.111(3)(c) when coverage is sold at prima facie rates.

2. Pursuant to Sub-rule 55.211(3), all life and disability policies and certificates which are to be used in situations where evidence of insurability is required must contain language stating that any underwriting decision based on evidence of insurability shall be made within 60 days of the application for insurance.

3. As provided by Sub-rule 550.212(2)(a) the maximum pre-existing condition exclusion allowable on or after September 1, 1987 is a condition for which the insured debtor received medical advice, diagnosis or treatment within 6 months preceding the effective date of the debtor's coverage and which caused a loss within 6 months following the effective date of the coverage. Therefore for example, all forms containing the 24 month exclusion must be revised. While policies may be amended to comply with this rule, certificates cannot be amended and must be reprinted and refiled with the Commissioner for approval.

4. Pursuant to Sub-rule 550.202(3) eligibility requirements for open-ended coverage can only be applied from the original application for insurance and cannot be applied with each new advance.

5. It is the interpretation of the Commissioner under the authority granted by MCLA 500.2236(3) that the pre-existing conditions exclusion for disability coverage issued on an open-ended account can only apply from an original application for insurance. Thus, the pre-existing conditions exclusion cannot be applied to a new loan advance unless the disclosure requirements set forth in the Final Order of the Commissioner in the matter of NN Investors Life Insurance Company, Case No. 78-1193-M are met.

The form contained in this bulletin supersedes and replaces the LH75-102 form provided in the Insurance Bureau Bulletin of May 1, 1975, and that bulletin is hereby withdrawn. This bulletin does not, however, supersede the operation of any other Insurance Bureau bulletins currently in effect.

Appendices