The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site -



Opinion No. 5610

December 19, 1979


Group Life Insurance

A financial institution may not act as a group life insurance policyholder where the institution is not the lender to the individuals covered unless specific authorization to form a discretionary group is given by the Commissioner of Insurance.

William F. McLaughlin


Department of Commerce

Law Building

4th Floor

Lansing, Michigan

You have requested my opinion on the following question:

May a mortgage banking company act as a group life insurance policyholder and collector of premiums in private money financed real estate transactions?

Materials submitted with the request disclose the following situation. The mortgage company intends to provide a service to land contract vendors and purchase money mortgagees. The company will provide such persons with collection, bookkeeping, and computer services. In addition, the mortgage company proposes to act as a group policyholder in order that the obligors under such transactions could purchase credit life/disability insurance in much the same way as a borrower from a bank, savings and loan association, or mortgage company could purchase such insurance. The cost of such insurance on a group policy should be substantially less than if purchased on an individual basis. The proceeds of such policies would be used to pay the balance of any debt owing in the event of the death or disability of the obligor.

The issuance of group life insurance is governed by Chapter 44 of the Michigan Insurance Code, 1956 PA 218, Sec. 4400 et seq, MCLA 500.4400 et seq; MSA 24.14400 et seq. 1956 PA 218, supra, Sec. 4400(2) provides that 'except as provided in this chapter it shall be unlawful to make a contract of life insurance covering a group in the state.' The types of group life insurance expressly permitted in the Insurance Code include employee groups of not less than ten (1956 PA 218, supra, Sec. 4404), national guard units (1956 PA 218, supra, Sec. 4408), labor unions (1956 PA 218, supra, Sec. 4412), borrowers from financial institutions or credit purchasers of tangible property where the term of the loan is less than ten years and the policy limit does not exceed $5,000 (1956 PA 218, supra, Sec. 4416), and employer associations (1956 PA 218, supra, Sec. 4420). In addition, 1956 PA 218, supra, Sec. 4418 permits the issuance of group life insurance in the following situation:

'. . . in connection with loans on dwellings or mobile homes when provided through a group where the lending financial institution directly or indirectly is the group policyholder and the term of the loan is in excess of 5 years. . . .' (emphasis added)

Inasmuch as in the situation you describe the financial institution is not the lender, but provides sundry services to lenders, Sec. 4418, supra, may not be interpreted to permit the institution to act as a group policyholder for the borrowers. It must be noted that any device used to circumvent prohibitions contained in the Insurance Code, such as a procedure whereby institutions make a loan and simultaneously sell the note and collateral to the seller of the property, is not permitted. See Washington Agency Inc v Commissioner of Insurance, 309 Mich 683; 16 NW2d 121 (1944).

Despite the lack of any specific authority permitting the issuance of a group policy in accordance with the facts you have presented, 1956 PA 218, supra, Sec. 4424 permits the Commissioner '. . . to authorize the insuring on a group insurance basis of groups other than those specifically defined in sections 4404 through 4420, where conditions or circumstances indicate that granting permission for discretionary group life insurance coverages is in the interest of public policy.' Such discretionary groups must consist of at least 250 persons and no policy may exceed $50,000. Other criteria for eligibility and the procedure to be employed for certification of a discretionary group are set forth in 1970-1971 AACS, Rule 500.611.

Frank J. Kelley

Attorney General