We buy Life insurance cover to protect ourselves and our family members in case of any unfortunate event. We are also aware that an individual needs to buy adequate Term Plan if his family members are dependent on him / her.
Let’s consider a scenario – Mr. Agarwal is a businessman and borrows some capital to expand his business. He has taken a Term Insurance Policy with his spouse as beneficiary (nominee). After his sudden demise, his creditors approached the court and asserted their right to get paid out of the proceeds of the Term Insurance policy.
In this example, though Mr. Agarwal has taken a term insurance policy, his family has not benefited from it. The claim proceeds (death benefits) are given to his creditors.
In today’s world, ‘buying on credit’ has become a common thing. Whether employed or self-employed, most of us buy on credit (home loan, personal loan, consumer loan etc.,). In this kind of scenario, how to make sure that only your dependents receive the insurance policy claim proceeds.
Are you aware of the Married Women’s Property Act 1874 (MWP Act)?
MWP Act was created to protect the properties owned by women from relatives, creditors and even from their own husbands. The Act has been created to protect women’s rights, even after marriage. MWP act is applicable for all married women of all religions. ‘Section 6‘ of the MWP Act covers Life Insurance plans.
If you take an insurance policy under MWP Act, your life insurance policy is treated as a TRUST and you can be assured that the policy money will be given to your nominee(s) only. The claim proceeds are free from creditors, court and tax attachments.
In this post, let us discuss and analyze the benefits to family members when a life insurance policy is taken under the MWP Act.
Life Insurance & MWP Act
Who can take an insurance policy under MWPA?
Any married man can take a life insurance policy under MWP Act. This includes divorced persons and widowers. The policy can be taken only on one’s own name (the life assured has to be the proposer himself). Any type of plan (money-back / Term plan / Endowment etc.,) can be endorsed to be covered under MWP Act.
Even a married woman can buy MWP policy on her name with her children as beneficiaries, the husband will not get anything from the policy. It will be considered as a separate asset as if she is unmarried.
How to get an Insurance Policy covered under the MWP Act?
Getting a policy assigned under MWP Act is easy and inexpensive. At the time of making the application (buying a policy), a separate MWPA form has to be filled by the proposer for it to be covered under MWP Act. You need to provide details of the beneficiaries, the share of the benefits that are to be accrued to them and the trustees. Providing the trustee(s) names is not mandatory. Do note that the existing life insurance policies cannot be assigned under MWP Act.
Below is the sample MWP Act form / Template (of Max Life). Click on the image to download the MWP form.
Who can be the beneficiaries?
The beneficiaries can be:
1. The wife alone
2. The child/ children alone (both natural and adopted)
3. Wife and Children together or any of them
Can I Change the beneficiaries & Trustees names?
Each policy under MWP Act is considered as a separate trust automatically (there is no need to create a trust). At the time of the proposal, you have to mention the names of the beneficiaries. You may also mention the names of trustees (not mandatory though).
But, if the beneficiary is a minor then the appointment of the Trustee is compulsory. Trustee cannot be a minor / HUF (Hindu Undivided Family). Also, you (the proposer) can neither be the beneficiary nor the Trustee. The Beneficiary and the Trustee can be the same person (e.g. Your wife can be both the beneficiary and the Trustee).
The trustees can be the wife and/or one or more of his adult children, or a third person. You (the policy holder) have the option to change the trustees at any point in time. However, the beneficiaries of the plan once declared cannot be changed.
In case of a death claim, the insurance policy proceeds are given to the trust and cannot be claimed by the creditors.
Can I assign or take a Loan on policies which are under MWP Act?
No, you cannot assign the policy to another person (or) take a loan on the policies which are covered under MWPA. (However, if loan request comes from you, signed by the beneficiary & Trustee then it can be processed)
Can I surrender the policies which are under MWPA?
Surrender request should come from policyholder and signed by the Trustee (if appointed) and beneficiary. The beneficiary should be major at the time of request. Surrender proceeds will be paid to the Trustee/Beneficiary. The policy maturity benefits will also go to the Trust.
Due to lack of awareness, very few policies are being taken under MWP Act. Life insurance is a tool to protect the dependent family members. If this purpose is to be achieved in its fullness, then having the life insurance plan covered under MWP Act is the easiest and the best way. So, the next time when you are buying a life insurance policy, suggest you to assign it under MWP Act. But, do not misuse the MWP Act with an intention to defraud your creditors.
Continue reading :
- What is Streedhan? – Meaning & Constituents | How can Women protect it?
- 5 ways of making Creditor Proof investments
- Traditional Life Insurance Plan – A terrible Investment option?
- Maintenance & Welfare of Parents and Senior Citizens (MWPS) Act | Details & Guidelines
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hello sreekanth my query is, I have nominated my wife on my term insurance plan policy of max life but the thing is she is using her dad’s name and surname on her Addhar card, PAN card, and driving licence, we have a marriage certificate so if any claim arises in future will she get the benefits smoothly or we have to change her middle name and surname?on addahr, PAN?
Dear Subhash,
Does the marriage certificate show same name format??
Sir
I am unmarried. I have taken one policy yesterday. Can I assign my policy under MWPA after marriage.
Dear Pawan,
Have you received your Policy certificate?
If you have just submitted your Proposal form to the Insurer/Agent, you may recall it and reapply under MWP.
” Do note that the existing life insurance policies cannot be assigned under MWP Act.”
Dear Sir, what is the settlement process for life insurance with MWPA addendum? Insurance companies or agents says that the sum assured will go to govermant and the beneficiaries have to claim from government and hence insurance companies wont settle directly
Dear Parvatha,
Govt has nothing to do with the claim settlement process.
The claim amount goes to the Trust created by the Policyholder and beneficiaries will get the claim amount from it.
“Each policy under MWP Act is considered as a separate trust automatically (there is no need to create a trust). At the time of the proposal, you have to mention the names of the beneficiaries. You may also mention the names of trustees (not mandatory though).
But, if the beneficiary is a minor then the appointment of the Trustee is compulsory. Trustee cannot be a minor / HUF (Hindu Undivided Family). Also, you (the proposer) can neither be the beneficiary nor the Trustee. The Beneficiary and the Trustee can be the same person (e.g. Your wife can be both the beneficiary and the Trustee).
The trustees can be the wife and/or one or more of his adult children, or a third person. You (the policy holder) have the option to change the trustees at any point in time. However, the beneficiaries of the plan once declared cannot be changed.
In case of a death claim, the insurance policy proceeds are given to the trust and cannot be claimed by the creditors.”
If Spouse is Guarantor, and Husband takes Life Insurance Policy under MWP for his wife, can creditors attach ? As wife is Guarantor to the Loan
Dear Kaushik,
I dont think creditor(s) can attach the assets/life insurance in the said scenario.
What if the beneficiary dies? The money will go to the proposer or it will be distributed according to the legal will of that beneficiary?
What does the MWP Act say about it?
Dear Suyash,
If the beneficiary passes away, legal heirs would get the claim amount (if any).
You may also include this in your WILL by mentioning the scenario.
Related article : Nominee Vs Legal Heir : Who will inherit (or) own your Assets? | Importance of WILL
What is the procedure to change the trustee of a policy which is purchased under MWP Act?
Dear Chiranjit,
The policy holder can change the Trustee under MWP act but can not change the beneficiaries.
But, beneficiary can not be changed.
You can contact your Insurer and request for change of Trustee. Your insurer will add new Addendum accordingly.
“The Proposer can appoint a person as a trustee or failing him another person as a trustee.
Alternatively, he may appoint two or more persons, or the survivors or survivor of them to be
trustees. The proposer may also appoint a corporate trustee e.g. a Bank transacting trustee
business. The consent of the appointed trustee or trustees to act should be obtained on the
Addendum. The beneficiary can also be appointed as the trustee.
Trustee should be major and his/her signature is to be obtained in the addendum.”
Hi Sreekanth,
Please let me know if premium payment mode can be changed in policies taken under MWPA section 5 where the married lady wants to change he premium payment mode from annual to quarterly on the second Policy anniversary?
Dear Kirti ..I believe that it should be possible.
You may kindly contact your Insurer.
my understanding is that for for a policy to be under mwpa, the beneficiaries have to be the wife or children etc.
In case I am taking a term insurance policy with critical terminal illness/ disability benefits, then in that scenario then the money will be paid out to me = I am the beneficiary.
Will such a policy be allowed under mwpa?
Dear Austerm ..The death benefit in term plan is paid to the nominee.
Dear Shreekanth,
Request you to give a legal backing for if and how:
a) a working woman taking a policy can assign it under the MWPA to her children.
b)whether a woman taking a policy with her husband as the nominee under the MWPA .
Dear Raunaq,
A married woman can buy MWP policy on her name with her children as beneficiaries.
Kindly note that the beneficiaries can be:
1. The wife alone
2. The child/ children alone (both natural and adopted)
3. Wife and Children together or any of them.
I dont think in this case The beneficiary can be Wife alone. It has to be option 2 and 3. Am I correct ?