We all know that a life insurance policy provides financial protection to the policyholder’s family in the event of their untimely death. The policyholder pays premiums to the insurer, which is an insurance company. In return, the insurer promises to pay a predetermined coverage amount to the nominee in the event of the policyholder’s death during the policy term, so that’s how a typical life insurance policy works.
But imagine the policyholder passes away, leaving his family with boatloads of debt . Immediately, the creditors try and stake their claim on the proceeds of the life insurance policy. Creditors will approach the courts and take away most of the proceeds. The proceeds that the policyholder wanted to leave for his wife and children. Now they are left with very little or no money at all.
But there’s a way to prevent this unfortunate scenario. If a policyholder were to buy a term policy under the Married Women’s Property Act, then nobody can stake a claim on the proceeds of a life insurance policy except your wife and/or children. The proceeds of the policy will go to a trust and can only be claimed by trustees (who, in this case, will be the policyholder’s wife and/or children). The only downside of the MWP Act is that the policyholder cannot change nominees once he submits their application.
What is the Married Women’s Protection Act (MWP Act)?
The Married Women’s Property Act 1874 (MWP Act) is a women’s welfare act that was enacted to protect the properties owned by women from relatives, creditors, and even from their husbands.
Section 6 of the MWP Act was laid down to safeguard the benefits arising from insurance by a husband for his wife and/or children. This section states that when the husband purchases an insurance policy and makes his wife and children the beneficiaries, the death benefit or any other bonuses arising out of it are to be awarded solely to his wife and children. This sum assured of the life insurance policy ceases to be a part of the husband’s property, and the creditors of the deceased husband cannot claim any part of this sum for fulfilling the dues and debts of the husband.
Who should opt for Insurance under MWP Act?
The following people must consider buying insurance under Married Women’s Property Act:
·Any individual who has insecurity that the relatives or any other person, whether fraudulently or otherwise, may claim under the benefit from the insurance must insure himself under this Act. The husband can name his wife and children, or both under the policy, as his beneficiary.
·Individuals engaged in business and salaried jobs usually incur debts and have loans. Such individuals should buy a life insurance policy under the MWP Act to ward off creditors, lenders, or banks from clearing the debt or liabilities from the death benefit.
How to get a Life Insurance Policy covered under the MWP Act?
At the time of making the application to purchase the life insurance policy, a separate form has to be filled out by the proposer, in this case, the husband, for it to be covered under the MWP Act. The form will seek details of the beneficiaries, the share of the benefits that are to be accrued to them, and the trustees.
The detailed steps to purchase life insurance under the Married Women’s Property (MWP) Act are mentioned below:
1.Choose an insurance policy that meets your needs and requirements. You can select the type of policy, coverage amount, premium payment mode, and other features as per your preference.
2.Make sure that the insurance company offers the option of purchasing the policy under the MWP Act. Most insurance companies in India offer this option, but it is always better to confirm before making the purchase.
3.Fill in the proposal form for the insurance policy, and mention that you wish to purchase the policy under the MWP Act. You will also need to provide the beneficiary’s name, in this case, your wife and/or children, along with their contact details in the proposal form.
4.Provide the necessary documents, such as identity proof, address proof, and other relevant documents, as per the insurance company’s requirements.
5.Pay the premium for the insurance policy as per the chosen premium payment mode.
Once the proposer completes these steps, the life insurance policy will be issued under the MWP Act, and the policy proceeds will be paid to the trustees (the wife and/or children) in the event of the policyholder’s (husband’s) death. It is important to note that the MWP policy cannot be canceled or surrendered without the beneficiary’s consent, and any changes to the beneficiary’s name or contact details must be notified to the insurance company.
Why are people not making use of the MWP Act?
Because of a lack of awareness, not many people, even in the insurance industry, are aware of the provisions of the MWP Act. Another reason is that policy once covered under the MWP Act, the proposers lose control to change or make alterations to the plan.
Conclusion
From financial planning and personal risk-management perspective, every individual who has financial dependents and wants to provide financial security to them in case of an untimely death can consider buying life insurance. The coverage amount and policy term can be chosen based on the individual’s financial goals and requirements. Life insurance can also be useful for business owners or those who have significant debts or liabilities.
Adding to this, any married woman who wants to ensure that the policy proceeds from a life insurance policy are protected and will be used for the benefit of herself and her children can consider buying life insurance under the MWP Act. This may be particularly relevant if the husband has creditors or if there is a risk of insolvency or bankruptcy