Working families juggle numerous professional responsibilities while also ensuring the financial futures of their dependents and loved ones. Every breadwinner wants to provide for their family, ensuring that their dependents can fulfill their dreams even if something unfortunate were to happen to them. Unfortunately, it’s all too common for families to be left financially vulnerable when a breadwinner passes away unexpectedly.
Historically, even if women possessed property or funds in their names, there were no legal provisions to protect them from other relatives, creditors seeking repayment of their husbands’ debts, or in-laws. To address this issue, the Married Women Property (MWP) Act was implemented in 1874.
Understanding the MWP Act and Its Relationship with Insurance
Section 6 of the MWP Act specifically addresses life insurance. It stipulates that a life insurance policy taken out by a married man for the benefit of his wife and/or children will be treated as a trust, thus safeguarding it from creditors.
It’s important to note that not all life insurance policies automatically come with MWP Act protection. When purchasing the policy, husbands must declare their intention to include MWP Act protection to the insurance company. This declaration must include details such as the beneficiary’s name, birth date, relationship with the policyholder, and the share percentage if there are multiple beneficiaries.
Why a Nominee Is Not Enough
In the life insurance sector, nominees are typically regarded as custodians of the policy proceeds, not the final beneficiaries. Creditors may still claim the proceeds upon the policyholder’s death. In 2015, a new Final Beneficiary clause was introduced, allowing policyholders to designate their spouses, children, or parents as the final nominees, protecting the proceeds from creditors. However, the policyholder can change the final beneficiary during the policy’s tenure, posing a risk. Under duress or influence, a husband could potentially change the beneficiary, disadvantaging his wife. The MWP Act provides protection in such scenarios, as it ensures that once the wife and/or children are named as beneficiaries, this cannot be altered.
Benefits of Buying Life Insurance Under the MWP Act
Purchasing life insurance under the MWP Act offers several advantages for working families:
- Enhanced Security for Your Wife: Your wife will receive the full benefit from the life insurance plan, enabling her to support herself independently.
- Support for Your Children: Proceeds can also benefit your children, with funds allocated to meet their educational and career goals.
- Flexible Allocation: You can choose to allocate a higher portion to your spouse and a smaller portion to your children, depending on their needs, especially if they are young.
- No Need for a Separate Trust: The insurance proceeds will solely belong to your wife and children, eliminating the need for a separate trust.
- Protection from Creditors and Relatives: Other relatives or creditors cannot claim the proceeds, as they are safeguarded under the MWP Act.
- Maturity Benefits Protection: If the policy has a cash or surrender value with maturity benefits, the proceeds will go to the beneficiaries, even if the policyholder survives the tenure.
Concluding Notes
The MWP Act adds an extra layer of security and protection for working families opting for life insurance to safeguard their loved ones financially. By preparing in advance, you can ensure that your family is protected in even the most unexpected situations.
