Barely known – Life insurance policy under MWP Act

Rajesh is starting an online venture with his friend. He has used a substantial part of his savings and has also taken huge loans to fund the venture. Rajesh is married with two school going children. His wife is a homemaker. Rajesh realizes that should he be unable to pay his creditors his assets (house, car, fixed deposits, mutual fund investment, life insurance proceeds etc) will be attached by his creditors to recover their dues.

Rajesh wants to ensure that his wife and children’s future is not impacted in case of such an unfortunate eventuality. He plans for this contingency by taking a term life insurance policy on his life under the MWP act. But isn’t a life insurance policy a part of his asset and why would his creditors spare the policy? The answer to this lies in it being a MWP act policy.

Read on to know more about the MWP act and the benefits associated with it.

What is MWP act?

Married Women's Property Act 1874 (MWP Act) was created to protect the properties owned by women from relatives, creditors and even from their own husbands. The Section 6 of the MWP Act covers life insurance plans. Any married man (including widowers and divorcees) can take a policy under the MWP act.

What is the process for taking a MWP policy?

The husband needs to apply for a policy on his own life. Along with the application for life insurance, he is required to submit the MWP addendum (provided by the life insurance company).

In the MWP addendum, he needs to mention who the beneficiaries are and name the trustees.

Each policy is considered as a separate trust. Accordingly, the policy will be issued as a MWP act policy provided that the addendum is complete in all respects as desired by the company. ‘MWP act policy”is mentioned on the face of the policy contract by most insurers.

Who are the beneficiaries?

The wife only or

The child/children (natural/adopted) only or

The wife and children together

What benefits accrue to the beneficiaries?

All payable benefits under the policy such as Maturity, Surrender and Death proceeds.

Can the beneficiaries be changed?

No. This is an important feature which protects the interests of the beneficiaries as even if there is a separation or divorce at a later stage the husband will not be able to change the beneficiaries.

What is the husband’s role?

The husband is the life insured. He is responsible for making the premium premiums but benefits are not payable to him. Also, assignment of policy (transfer of ownership) or policy loans are not allowed by most companies for MWP policies to safeguard interests of beneficiaries.

Can a policy be brought under MWP Act after policy issuance?

No, you need to opt for this at the time of policy issuance.

Who should opt for policies under MWP act?

Any married man, divorced man or a widower can apply for a policy under the MWP Act. It is especially useful to safeguard the interests of the wife and children of self-employed persons or entrepreneurs who take huge loans to conduct their business. Also, people living in joint families can make use of this provision to ensure that the proceeds are paid to the wife and children and other close relatives (parents, siblings) do not claim it. The life insured can rest assured that in case of his untimely death, the life insurance proceeds will be paid to his wife and children only and creditors and other parties cannot claim it.

Conclusion:

Though taking a policy under the provisions of the MWP act is simple and inexpensive, it is not widely used probably because of lack of awareness about this among the salesforce. With more youth preferring to be self-employed and the government of India promoting entrepreneurship, it is the right time for life insurance companies to highlight the benefits of the MWP act while soliciting new business.