If you think that purchasing a life insurance policy in favour of your loved ones will safeguard them after your demise, you may have to think again. If you are a businessman with outstanding debts and face a winding up order, your life insurance policy will also be a part of your estate and will be used to pay off creditors. This is also true for any other debt taken by you which needs to be repaid after your time. Purchasing a policy under the Married Women’s Property Act will ensure that your wife and/or children will receive the proceeds of your policy.
What is the Married Women’s Property Act?
The MWP Act protects properties of women from others and even their husbands. Sec 6 of this Act deals with life insurance policy, wherein the man can take a life insurance policy in favour of his wife and/or children under the Act. This can effectively ensure that the proceeds are in favour of the intended beneficiaries only.
How does buying a policy and getting its benefits work under this Act?
The beneficiaries once named cannot be changed at any time by the proposer. However, the trustees can be changed.
Can the trustee and beneficiary be the same?
Yes, the beneficiary can also be named as the trustee in the policy.
What are the benefits of this policy?
As mentioned earlier, buying a policy under the MWP Act can safeguard your wife and/or children from relatives and creditors. So this can greatly benefit your family if you are a businessman, especially in the SME sector, as your personal property stands at a greater risk of being used to repay your business debts if there is a liquidation order. A policy under MWP Act is exclusively for the benefit of your wife/children and no one else can use the proceeds for any purpose. It can also help if you are a part of a joint family, as there are higher chances for family disputes in this case. Nevertheless, this option is favourable even for salaried people, as it comes without a cost and is easy to carry out.
Although there are no specific drawbacks, not many people make use of this Act, as there is low awareness. Also, the proposer is not allowed to take a loan against the policy or assign the policy to another person. Any changes in the policy are also not possible without the consent of the beneficiaries. In case the proposer outlives the maturity period, the maturity proceeds would still go in favour of the beneficiary. Further, in case of policies with an investment component, this will also be in favour of your wife and/or children and you cannot individually benefit from the returns from the policy. This may not go down well with many men.
While the above is an original article written by us, we are inspired by a related article on Economic Times and Times of India