State RegulationsMI specificDifficulty 2/5
A Traverse City producer collects premium checks from clients, deposits them into his personal checking account, and uses part of the money to pay his office rent until his next commission payment arrives. Under M.C.L. 500.1207, the producer has:
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
M.C.L. 500.1207 of the Michigan Insurance Code makes a producer who accepts premium money a fiduciary of the insurer and the insured. Premium funds belong to the transaction, not the producer, so depositing them into a personal account and spending them on office rent is a misuse of fiduciary funds — commingling and conversion — that the Insurance Director can punish with fines, restitution, suspension, or revocation.
Why the other options are wrong
- A) An intent to repay later does not cure the breach; the fiduciary duty is violated the moment the funds are used for personal or business expenses.
- B) The free-look period governs the applicant's right to return the policy for a refund; it has nothing to do with how a producer may handle collected premiums.
- C) Rebating under M.C.L. 500.2024 concerns returning value to the purchaser as an inducement, not a producer's misuse of collected premiums.
Memory hook
Premiums are trust money — never pay the rent out of the trust.