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,
I have a query in a scenario wherein LI mentions wife and 2 kids as beneficiaries. Now, beneficiary wishes to access funds but one of the kids is minor.
What are legal provisions and process around this?
Is partial withdrawal allowed?
Dear Munish..What do you mean by partial withdrawal in this case?
Dear Sreekanth,
I have a query regarding MWP:
Assume that one has taken a term policy of 1 Cr with wife as the ONLY benificiary (ie 100%).
What will happen
a) If the wife dies before the husband ; Who is the benificiary ? Husband ? Wife's relatives ? Children ?
b) if the husband/wife dies together (say, in an accident), who is the be benificiary ?
c) are there any hurdles if you create a policy under this ?
am in the process of finalizing a term policy and these questions came to my mind
kindly let me know.
Regards
Kris
Dear Kris,
If you have children, you may add them as beneficiaries in addition to your spouse's name.
Legal heirs can get the claim amount.
thank you sreekanth!
my concern is, for a new policy, i can include my child details.. but for exisiting policy, (which is nominiated as only wife ) and under MWP , what are the safegurads one should take, so that there is no confusions in the event that the benificiary passes away first.
Dear Krish,
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.
sir,
is there any extra tax benefits of policy taken under mwp act
i mean beyond 1,50,000 limits under 80c
Dear piyush ..No.
Dear Sir
Mr. A has taken MWPA POLICY and had his wife and children as the beneficiary. After few years he separated from his wife and the children custody are also fully with the wife. At the time of divorce he has settled the family property with her and the children. Thereafter after a passage of 15 years the mwpa policy has fallen due. Now the question is can he request LIC to make the payment to him directly as the beneficiaries are no longer related to him as wife / children.
Dear Natarajan,
Very good question.
As fare as I am aware of, if the wife is the beneficiary named in the policy document, the policy would continue as a trust in favour of the divorced wife and would not belong to the Assured in spite of divorce.
Sir
I have an term insurance plan for Rs 2 crores from LIC. which was taken 2 years back and my wife is the nominee in the same. My question to you is i had not taken this policy under MWMP act now if i have to change the same is it possible.
My second question to you is whether LIC's term policy issues a policy under MWMP Act. Please clarify regarding the same
Dear deepali..Kindly note that assigning of any existing life insurance policy under MWP act is not possible.
2 - You can assign LIC term policy under MWP act.
Dear Steeksnth Ji If beneficiary (wife) diverce her husband what is the status of beneficiary? Will she continue the beneficiary of the policy ?
Dear DHAMODHARAN..Yes, she would be the beneficiary.
Thank you ji
Is there is any example (case laws)?
Dear Sreekanth,
This is a definetly helpful article. I have a question about MWP Act section (5). Can u discuss it elaborately with an example? Can unmarried women also take insurance policy under MWP act.?
Regards
Swati
Dear swati..No they are not eligible to assign the policy under MWP act.
Thanks Sreekanth for the reply... So if married woman take any policy under MWP act so will it be called her sole property or asset and the husband wont have any rights on that property? Is she can make beneficiary to herself only in that case?
1. If a married woman takes any policy under MWP act:
Her husband won't have any rights on that property.
2. Can she make beneficiary to herself only in that case?
No.
A "Proposer" has to be the "Insured", but "Beneficiary" will be her child(ren).
Hi Sreekanth
Thanks for the informative article. I had one doubt though, supposing the applicant has another child at a later date, and wants to include this child as an additional beneficiary, how will this work out because you mentioned that beneficiaries cannot be changed under this Act.
Or would it make sense then to purchase another policy under the Act, and include the newborn as a beneficiary in this new policy?
Dear Shad,
Yes, beneficiary (new one) can not be included in an existing policy. One can include in the new insurance policy.
I would like my husband to take a take a policy on me and my 2children..
He's not settled yet but has some assets..what would u suggest..
Thanking u srikanth.
1. You may ask him to buy a "Term" Policy on himself. under MWP Act.
i.e. Proposer = Insured = the husband.
2. Plus, ask him to name you (the wife), and the two children as "Beneficiaries".
Dear Hadassah,
Let me know if you are an earning member of your family?
Do you want your husband to take a life insurance policy on your name (you as the insured)?
Is your husband adequately insured?
Kindly read : Best Term insurance plans.
Very informative article, I was not aware of this provision.
I have a query, is there any extra premium to be paid to opt of MWP?
Can we share the death benefits among wife, kids, and parents (% wise)?
Thanks
Pradeep
Under MWPA, Death benefits can ONLY be shared among wife and kids (% wise), and not the parents.
Dear Sandeep..Thank you for sharing your inputs. Kindly keep visiting :)
Dear pradeep,
No extra premium is applicable. The benefits of the policy proceeds can be mentioned as specific percentages to each beneficiary or as equal amounts.
I have a question, may be stupid question.
If a person opted for MWP and suppose on his sudden demise, can't his creditors approach his wife (directly or in the court or in any manner) to get paid out of the proceeds of the Term Insurance policy.
thanks
Pradeep
You are 100% correct !!
Dear Pradeep,
No, then there is no point in assigning the policy under MWP act.