One of the main objectives of the Life Insurance is to protect the basic needs of the family in case the earning member of the family is not there anymore to their monetary expenses and their financial goals. And, more so today, the prevailing scenario of “living with leverage” at personal and official or company level is also impacting this need to life insurance so that the protection and the proceeds actually reaches the main beneficiary or the WIFE.
Today, living with personal leverage such as home loans, car loans, personal loans, credit cards loans etc as well as businesses having exposure towards many types of business loans has become rather common. In case of an unfortunate demise of the main earning member or business owner, most of his assets (excluding few financial assets such as EPF, PPF, NPS) including even life insurance policies can be attached to recover this debt & income tax liability. Hence, it is very much important to protect the basic needs of the wife and family members and protect against such attachments.
The current buzzwords we hear are credit squeeze, liquidity crunch, defaults, insolvency, bankruptcy, – all this directs us to seriously think about how to protect the basic needs of our family. Investments made in PPF, and NPS to certain extent , escape this attachment. However, “Risk coverage” also needs to be protected since “Term Insurance” is key for a family in case of untimely demise. This is possible by buying an insurance policy under the Married Women’s Property Act, 1874 or MWPA.
MWP act focuses on empowerment of married women and to protect the properties of women from creditors, and relatives after marriage. MWP act is applicable to all women of all religions. Section 6 of the MWP act covers life insurance plans. Once a policy is taken under MWP act, it may not be attached by courts for repayment of debts of the policy holder. Only wife and children are entitled to take benefit of this act.
This act states that, “A policy of insurance effected by any married man on his own life, and expressed on the face of it to be for the benefit of his wife, or of his wife or children, or any of them, shall ensure and be deemed to be a trust for the benefit of his wife, or of his wife and children, or any of them according to the interests so expressed, and shall not, so long as any object of the trust remains, be subject to the control of the husband, or to his creditors, or form part of his estate.”
This means that any insurance policy taken by husband on his own life under MWP act for the benefit of his wife, his wife and his children, or any of them, shall form a trust in benefit of them. None of the husband’s creditors or even any other family members will have any right over the proceeds. As per MWPA, a trust gets automatically created with beneficiaries as trustees. There is no need to formulate a separate trust.
Any married man residing in India (except for J & K – this may change now with the recent events) can avail benefit under this act while buying a new policy without any additional charges. One CANNOT change or enroll his existing policies under this act. Only a NEW Policy can be assigned under MWP act. Once the beneficiaries of the plan are declared, they cannot be changed at any point of time during policy tenure even at divorce.
Policies under MWP act cannot be assigned to anyone for the purpose of taking loan. Even if the policy holder tries to surrender the policy or at policy maturity, the proceeds will go the beneficiaries only. If the policy holder’s intent is to protect his wife and children from creditors, then it definitely makes sense to enroll the insurance under this act. Due to unawareness amongst people, very few policies are being taken under MWP act. To protect the rights of women and children, it is important that life insurance should be taken under this act.
Despite the significant benefits associated with the policies bought under MWP Act, we need to ponder some of the limitations also.
Hence, we should be clear about the objective before buying new insurance plans. If the clear intention is to protect the needs of beloved family members, then we can go ahead and buy the policy under MWP Act. However, if we intend to buy the policy to get the maturity benefits towards certain goals (Endowment or ULIP Plans), we should think twice to opt under MWP Act.