The uncertainty of life in this day and age has been a cause of concern for every individual, especially those with family and dependents. In the face of these uncertainties, it is essential that a person secures the financial future of their family. While the loss of life can never be repaired or eased, having financial security will ensure that the dependents are not left to fend for themselves after the demise of their loved ones. Having term insurance or life insurance is therefore not only a good investment option but has become a necessity today to ensure that all the financial obligations of the survivors are taken care of. However, there have been many cases when the claim under the term insurance taken is not given to the intended persons or is exhausted in repaying the existing financial obligations before reaching the rightful survivors to ensure their financial security.
In such cases, the Government of India has a legal provision that the claim proceeds of the term insurance or the life insurance reach only the immediate family. This is under the MWP Act. Given below is a brief discussion of the MWP Act and why it is important for any individual to buy term insurance under this Act.
What is the MWP act?
In India, women have traditionally faced social, political, and legal challenges in owning and managing their own assets. This has left them vulnerable in property disputes and without financial security for themselves or their children. To address this issue, the Married Women’s Property Act of 1874 was enacted to provide married women with a separate and sole right to their property. This legal safeguard ensures their financial safety and cannot be claimed by anyone else, including their husbands or family members.
The MWP Act or the Married Women Property Act, 1874 is a legal provision provided to all married women in the country that protects their right to receive the claim benefits under the term insurance or life insurance plans. Life insurance plans can be taken under Section 6 of this Act. This will ensure that the claim proceeds are free of any financial obligations that are still to be settled (like loans) as well as cannot be claimed by any other person other than the person nominated and eligible to get the claim of the term insurance.
A policy under the MWP Act can be taken in the same manner as any other insurance. The only difference is that the policyholder needs to select the option for the same at the time of buying the policy. Once a policy is already taken, it cannot be included under the purview of the MWP Act. This policy can be taken only in the name of the proposer, i.e., the married man who can also be a divorced person or widower.
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What does the MWP Act state about term insurance?
Section 6 of the Married Women’s Property Act (MWP) was added in 1923 through an amendment to the original Act of 1874. Under Section 6 of the Married Women’s Property Act, 1874, a married man in India has the option to purchase term insurance in his name, which will benefit his wife and/or children in the event of his death. The beneficiaries listed in the policy will receive the sum assured amount without any interference from creditors who may have claims on the policyholder’s outstanding debts.
This is not the usual case with term insurance, where creditors may claim the death benefit to cover owed amounts, leaving the policyholder’s family with no financial assistance. Thus, buying insurance under the MWP Act ensures that the death payout is exclusively available to the listed beneficiaries.
Here are some of the key features of term insurance under MWP Act:
- The policy can only be bought to insure the policyholder’s wife and children, and the beneficiaries must be decided at the time of buying the policy.
- The insurance policy is valid for people of all religions, and Muslim men must take out named policies for their children and wife.
- Policyholders can divide the policy proceeds among beneficiaries in equal amounts or specific percentages, which must be decided at the time of buying the policy.
- The policy acts as a trust, and no separate trust is needed for the beneficiaries. A trustee can be assigned to oversee the proceeds, but it is not compulsory. Only the trustees can claim the benefits at the time of the claim, and the policy cannot be claimed by creditors, relatives or included in the policyholder’s will.
Who can get the benefits of an insurance policy under the MWP Act?
The beneficiaries of the life insurance or the term insurance under the MWP Act are clearly defined. These beneficiaries can only be either of the following,
- Only the spouse of the insured person
- The spouse and the children of the insured person
- Only the children of the insured person (this includes both the natural as well as adopted children of the insured person)
- The policy benefits cannot be claimed by creditors to pay off outstanding debts, as policies under MWP Act are exclusively available to the policyholder’s wife and children.
- If the policyholder is part of a Hindu Undivided Family (HUF) or a joint family, the policy ensures that the wife and children are protected in case of family property disputes.
- Insurance policies under MWP Act have a single title, so they cannot be claimed by any relative or guardian acting on behalf of the beneficiaries. The nominated beneficiaries decided at the time of buying the policy are the only recipients of insurance benefits.
To safeguard the interest of the beneficiaries, the policyholders can appoint trustees that can ensure that the policy is executed effectively. It is not mandatory to appoint a trustee as in the case of beneficiaries as they have to be enlisted at the time of taking the policy. The eligible trustees for this case can be any individual, bank, beneficiary themselves, or any financial institution.
What are the pros and cons of buying term insurance under the MWP Act?
The MWP Act has been available to the citizens of the country for decades but it is not as popular. In order to understand it in a better manner, let us also consider the pros and cons of buying term insurance under the MWP Act.
Pros of the MWP Act
Some of the benefits of getting term insurance under the MWP Act are mentioned hereunder.
- Claim proceeds of the term insurance taken under the MWP Act are free from any financial obligations. This implies that they cannot be attached for repaying the dues of the insured person post their demise.
- The beneficiaries under the MWP Act are clearly defined. Hence, these proceeds cannot be contested by any other person other than the nominee or the beneficiary (even the parents of the policyholder).
- The provisions of the MWP Act also apply to a divorcee or a widower.
Points to keep in mind while buying insurance under MWP Act
After learning the key benefits of buying term insurance under the MWP Act, let us now move on to the disadvantages of shortcomings of the same.
- A person can take term insurance under the MWP Act only at the time of buying the said insurance.
- A policy already taken cannot be converted or included to be under the MWP Act.
- A policy under the MWP Act can be taken only by a married person and not otherwise.
Who should buy insurance under MWP Act?
Any married man can buy a life insurance policy under MWP Act including divorced individuals and widowers. Even a married woman can buy term insurance under MWP Act in her name and opt for her children as beneficiaries.
Small business owners and entrepreneurs who’ve taken loans to run their businesses can especially benefit from insurance products under MWP Act. This can ensure that their wives/children get all the benefit of insurance without the fear of loan sharks taking over the insurance benefits.
Let’s look at an example scenario to better understand how MWP works and how it can benefit these individuals and their families:
Raj is an Indian man who has worked hard to build his own business. He has taken out loans to invest in the business, and he’s worried that if anything were to happen to him, his family might be left with financial difficulties.
To secure his family’s financial future, Raj decides to purchase a term insurance policy under the MWP Act and names his wife and children as beneficiaries. Unfortunately, Raj passes away in an accident, and his creditors approach his family to settle his outstanding debts.
However, the MWP Act ensures that the term insurance policy’s payout can only be used for the benefit of Raj’s wife and children. The creditors cannot claim the policy’s payout to settle any of Raj’s outstanding debts, guaranteeing that Raj’s family will be financially secure and have a safety net in the event of any future financial difficulties.
Taking term insurance under the MWP Act can ensure that there is additional protection for the immediate family of the policyholder to secure their financial future. The proceeds from the term insurance are the sole property of the nominee or the beneficiary even if they are in the nature of maturity proceeds. They cannot be considered to be part of the estate of the policyholder even in the latter case. Despite these benefits, buying term insurance under the MWP Act is not as popular and the lack of awareness is the root cause for the same. It is important that potential customers or policyholders should be aware of the MWP Act to protect their families from conniving relatives, creditors, and other persons wrongfully claiming the benefits of term insurance.
It is easy to obtain an insurance policy under the MWP Act. To be covered under the MWP Act, the individual must complete a separate MWPA form when applying for the policy. This form requires information about the beneficiaries, their respective shares of the benefits, and the trustees, although naming the trustee(s) is not compulsory. It is important to note that existing life insurance policies cannot be assigned under the MWP Act.
The beneficiaries of term insurance under the MWP Act cannot be any person other than those mentioned as per the Act.
No. For the life insurance or term insurance to be under the purview of the MWP Act, it has to be done at the time of buying the insurance.
No. The beneficiaries of the insurance taken under the MWP Act cannot be altered or changed at a later date or at any point.
Lack of awareness of the Act and its provisions is the key reason for the term insurance under the MWP Act not being as popular.
No. The policyholder is not allowed to take any loans against the term insurance taken under the MWP Act.