Why do you buy life insurance policies and faithfully pay premium every year? Simple: To protect your family. Did you know that Indian law allows creditors to claim your insurance money against your dues on personal, professional and business loans?Let us see how we can prevent that and protect your life insurance amount using Marriage Women’s Property Act or MWP Act 1874.
You may already know that PPF death claim benefits are free from debt liabilities.
Similarly you take life insurance but may miss to build defenses from your creditors.
You want to ensure that your family (wife, children and dependent parents) is safe from financial hardships after your untimely death. So use the Marriage Women’s Property Act in your favor.
Married Women’s Property Act (MWP) for life insurance
In your daily life, you also take on various forms of debt from business and personal loans to home loans and credit card dues. You expect to pay back in time, but the unfortunate happens, and you leave behind a sizeable debt for your family to handle.
If your debts are high, your family may end up with zero monetary benefit, defeating the very purpose of life insurance policies.
There is a way to avoid this, protect your family, and enable them to receive payouts. Married Women’s Property Act 1874 (MWP Act) comes to your rescue.
This act was basically created to protect married women’s property from husband, relatives, and creditors.
Their assets are protected against tax or court attachments for debts incurred by family members. Life insurance plans are covered under Section 6 of the act.
This mini-guide will show you how men and women can use provisions of MWP Act to take a beyond-creditors-reach policy, major features and benefits.
Life Insurance Policy holders under MWP Act
Any married, divorced or widowed man who is a citizen of India, excluding residents of Jammu & Kashmir, can endorse a policy under this act.
The policy will be in the name of proposer alone and not in the name of wife, children, beneficiary, or legal heir. Opt for any type of life insurance plan under this act but I prefer term insurance plans only .
Married women can take a MWP policy and name her children as beneficiaries, but the benefit doesn’t extend to her husband.
Who are the beneficiaries for life insurance under MWP Act?
Only your wife.
Only your child/children, including biological and adopted children.
Wife and all your children or wife and any child.
While other Indian men can endorse any life insurance scheme including named policies – where you mention names of wife and children, Muslim men have to opt for a named policy.
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Details on policy benefits under MWP Act
You aren’t obliged to mention family members by name, but you have to specify the percentage of share they will receive on your death. You can also divide the proceeds equally among them.
Each policy is automatically considered as a trust fund. When you take a policy under Married Women’s Property Act 1874, you have to appoint trustees to handle future funds and payouts.
You can add your bank, lawyer, any third person or any family member, including beneficiaries, as trustees. You can change your trustees any time through policy tenure.
Choose your beneficiaries carefully when you take the policy as you can’t add or remove them once the policy is in place.
You can’t surrender the policy, transfer it or use as security against loans.
The proceeds go to the trust on your death and out of the reach of creditors, including banks and private lenders. Legal heirs, other than wife and/or children mentioned in the policy, have no claim over this money. Check Wikipedia article here.
Exception to this no-attachment provision
While creditors can’t claim any policy proceeds protected by Married Women’s Property Act, there is a clause by which they can attach this asset.
If they prove in court that husband or policy proposer has defaulted on his loans with criminal intent, they can settle their dues against final returns on policy.
Getting life policy under MWP Act
The procedure to endorse a policy is fairly simple. When you take a life insurance policy, you have to fill a separate form to get it covered by Married Women’s Property Act. Fill in details on beneficiaries, their share of proceeds, and trustees.
Who should use this MWP Act?
Businessmen, especially sole owners, should opt for this kind of insurance policy as loans form a high component of their liabilities.
If you incur losses, your creditors can attach everything from business and personal assets, investments, bank deposits, jewelry, savings, and other life insurance policies.
This life insurance alone provides financial security to your wife and children in such a scenario.
Self-employed professionals are ideal candidates for this scheme. Many of them take loans in course of work.
In case you die before clearing your debts, these will be recovered from attaching or auctioning other your assets, including insurance policies, but your MWP policy will remain untouched.
Salaried employees and families that have a sizeable debt in their names should opt for a policy under this Act. This provides them with a measure of financial security after death of husband or father.
This act protects the property of all Indian women, irrespective of their religion. Buy a policy in your name to protect the interests of your children. Ask your wife to buy a policy under this act to secure your children’s future.
Check more details here.
Benefits of taking a life insurance under MWP Act
Final Payout cannot be attached under any tax or court order.
Tax deduction for annual premiums (less than 10% of sum assured) up to Rs 1,50,000 is allowed under Sec 80 (C) of Income Tax Act.
No tax deductions on final payout to beneficiaries.
Why aren’t more people opting for a life insurance policy under this Act?
If you have never heard of this policy endorsement option before, there are a few reasons why:
- Many insurance agents are unaware of Section 6 of the act or its benefits.
- With the abolishing of gift tax and estate tax, many customers have lost interest.
- Policy holder doesn’t receive proceeds after the end of tenure. His/her beneficiaries have claim over the returns.So they think why I must care or bother.
- The proposer or policy holder can’t make any changes. They can neither add nor remove beneficiaries. They can’t surrender policy, transfer it, or take a loan against it.So they continue existing policy.
- As most men prefer to have complete control over their investments, they avoid this option.
Do you think this life insurance policy will protect your family? If you are a sole proprietor, self employed professional, divorced or widowed individual with children, woman with children, or family with high debts, consider a life insurance policy with Married Women’s Property Act – MWP.
If you found this guide useful, share it with family and friends. Any doubts let us know in comments?