Protecting your Protection Cover

Were you aware that the Indian Law allows creditors to claim your life insurance money, after your death, against your dues on personal, professional and business loans?

This means that the money, which should have rightfully gone to your loved ones, will instead be accessed by third parties. How can you prevent this?

This can be done using the Married Women’s Property Act of 1874.

What does the Act do?

The Married Women’s Property Act, 1874 (MWP Act) was formed with the intention to safeguard a married woman’s property from creditors and other family members. As per the Act, this includes all property vested in them or acquired by them.

Section 6 of the Act covers the aspect of life insurance, wherein, if the husband buys a life cover under this Act, he can ensure that any kind of court attachments don’t get hold of this money and the wife and/or children get the funds after his demise. The policies are considered as an automatic trust and there is no need to create a Trust under the Trust Act. The proposer can appoint a trustee (who is not a beneficiary) to make sure the life cover financially secures his family on his death. And though the husband has to service the premiums, he loses all control over the policy since it becomes a trust property. In fact, on death of the policy holder, or maturity of the policy or even on surrender of the policy, the benefits go to the wife and/or children (beneficiaries). Any married man, divorcee or widower, who is also a resident of this country, can buy a life cover under this Act. A married woman can buy the policy under this Act, keeping her children as her nominees.

Why should you buy a life cover under this Act?

Self-employed individuals, especially business owners, who are prone to acquiring risk through loan, credit or business loss, should opt for the policy under this Act. In proprietorship and partnership concerns in case of a loss, the owner/s of the firms have unlimited liability. This means in case of winding up of the business or in case of a loss, the creditors (those who have provided loans in the form of money or material) have the right to sell all the assets of the owners and their families like land & buildings, jewels, cars, artistic collections, savings in life insurance etc. to recover their money. In such a case, because the policy is under the Act, even if something happens to the policyholder, the creditors will not get access to these funds and the future of the wife and/or children can be safeguarded.

What should you do to buy a life cover under this Act?

Getting a policy assigned under MWP Act is easy and inexpensive. In order to take the policy under the Act, the proposer must fill up an MWP addendum along with the life insurance proposal form.

Appointing beneficiaries: You could choose your wife alone as a beneficiary or your children (biological as well as adopted) or both children and wife together.

Appointing trustees: Each policy will be considered as a separate trust. You (the proposer) will need to appoint a person as a trustee. In fact, you can appoint two or more people as trustees. You can also appoint a beneficiary as a trustee. Ensure that you get the consent of the appointed trustee to perform the duties of a trustee on the addendum or a document added to clarify, change, or support the information in the original document. In short, the trustee should be a major and he/she has to sign the addendum to be a trustee. You can also change the trustee at any point in time.

Also, insurance policies once in-force, cannot be brought under the coverage of MWP Act in life insurance.

Moreover in case of a death claim, the policy proceeds are received by the trust and cannot be claimed by the debtors nor will it form part of the estate of the proposer. Hence, the welfare of the wife and/or children are protected with utmost care.

Please contact your nearest HDFC Bank Branch to know more about the Life Insurance product options available under MWP Act.