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.
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.
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.
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.
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)
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.
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(Image courtesy of taesmileland at FreeDigitalPhotos.net)
This post was last modified on July 10, 2023 8:49 pm
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Hi Sree,
Thank you for the quality info provided. I have a doubt, can you please clarify them
1. I have taken a online term insurance. I am about to fill the MWPA form. In the form, what should be done in N0.4 in the form for Trustees, in case i dont want to have trustees.
2. I am planning to have my wife as Nominee. So in a tough situation, if my wife passes away before me, who would be the beneficiary after my death. Can anyone get the amount after my death, or it would go unbenifited to my family.
Thanks in advance.
Thanks,
Sudarsan.
what if only wife is declared as the beneficiary and she passes away before the policyholder?
Dear VB,
If the beneficiary (wife) passes away, legal heirs would get the claim amount (if any).
You may also include this in your WILL by mentioning the scenario.
Dear Sudarsan,
Mentioning the names of trustees is not mandatory. You may declare your kids as beneficiaries too (if you have kids).
Thanks a lot Sree :)
Thanks for providing useful information.
Sir my two question please suggest answer 1) MWPA covered Children plan?
2)MWPA covered ULIP plan??
Dear kishan,
1 - Yes
2 - Yes
Thanks a lot for the info. I need to know if we can have more than one plan under MWP Act. Like can there be one plan for wife (so that she can sustain herself) and second plan for children (so as to ensure that funds are available for their studies and marriage etc.).
Thanks
Dear Archana,
Yes, you can assign one or more policies under MWP Act.
Dear
Thanks for information
I want ask you that if Mr aggarwal & Mrs Aggarwal both are running company .
Q1. Can Mr aggarwal's partnership buy a policy under MWP act (Nominee : Mrs Aggarwal)
Q2. If he can buy policy from his firm under MWP act then if any recovery comes on partnership , is it attachable property or not (bcz his wife is also partner)...
Pls reply as soon as possible ..
Thanks
Sachin kumar
9899056512
Dear Sachin,
I do not think it is allowed.
Hi Sreekanth,
Very nice article thanks for sharing the details, i was not aware of this. Can you please let me know how to find if this clause has been added for the existing policies.
Thanks
Prasad
Dear Prasad,
You can not assign the existing policies under MWPA.
Only 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..
Dear Sreekanth,
This is a very good information ..... I would like to know is this available with online term policy ......
and another doubt is can we include our parents name in the above said MWP application form if we want to distribute in some ratio to life partner and parents....
Thanks & regards
Nageswar
Dear Nageswar,
This is available with Term insurance policies too. Parents cannot be added under MWP Act.
This article is very informative. thank you for it. Definitely, comparing insurance quotes online will be helpful in giving better insurance policies.
A very nice artcile. I am not aware of this till now. Good Information.
I am interested in financial sector and seeking to become Certified Financial Planner. Could you please share your thoughts on how to start with?
Dear Narasimha Reddy,
Kindly visit fpsbindia.org website, all the required info is available there.
Revert to me if you need any assistance :)
Hi Sree, thanks for the info.
So, does it mean that if someone has insurance of 1 crore, and he is in debt of 70 lacs, the creditors will take whole 1 crore and not even 30 lacs was given to the nominee !!
Dear Prashant,
I just gave an hypothetical example. (w.r.t your example - Rs 30 lakhs would ideally be given to the nominee)