Buying a term plan for wife and children under the Married Women’s Property Act (MWPA), 1874 is important for a person as the claim amount will go directly to the beneficiaries and no creditor can stake claim to the proceeds on his demise.
“Buying term plan under MWP is important as the proceeds of the policy will only go to the beneficiaries and no one else. This will ensure that after the death of an individual, the proceeds of the policy will only go to wife or children or both (as per the option and % selected at the time of issuance of policy),” says Jitin Parekh, Company Secretary and Chief Legal & Compliance Officer, Aegon Life Insurance.
“It is a good feature to create an independent estate for the wife and/or children, free of claims from creditors and legal attachment. It is most recommended for businessmen and professionals,” adds Karthik Raman, Chief Marketing Officer and Head of products at Ageas Federal Life Insurance.
Here are a few things you should know to buy a plan under the MWP Act:
What should a person do to buy a term plan under MWP Act?
The term plan under the MWP Act can be purchased by a man (married/divorced/widower) for the benefit of his wife or his children or of his wife and children or any of them. It can also be purchased by a married woman for providing financial security to her child/children.
“The option to avail the term plan under the MWP Act should be selected at the time of buying the policy. This option cannot be exercised after the purchase of the policy,” says Parekh.
Raman adds that the insurer may require him to fill and sign an additional document to this effect, to meet the requirements under MWPA.
Is it different from other term plans?
According to Raman, feature-wise, it is not different from any other non-MWPA plan. “The main advantage of buying a term plan under MWPA is that the sum assured under the plan cannot be subject to court attachment or creditors’ claims. In other words, it creates a separate estate in the name of the life insured’s wife and/or his children,” he says.
Parekh further says that the policy under MWP Act is different to the extent that the beneficiaries are defined at the time of issuance. Also, the money under the policy cannot be appropriated towards any liability of the life insured after the death. The proceeds of the policy must go to the beneficiaries.
“In summary, the Act protects the right of a woman over the proceeds of the policy money against any other heir, creditors and relatives,” says Parekh.
Is this option available under all term plans?
According to the experts, this option is usually available under all the term plans. But it is possible that the option may not be available for loan covers, as the creditor or bank would want unrestricted access to the policy money as security.
Is there any additional cost for buying a term plan under MWP Act?
There is no additional cost for the MWPA feature.
What are some popular term plans available under MWP Act
Raman says that one can avail of most plans, term as well as savings plans, under MWPA but as mentioned earlier, there could be some restrictions on credit-linked plans (i.e. loan covers).
What are the key points one should know while buying a policy under MWP Act?
- Communicate to your insurer that you wish to choose a term plan under the MWP Act. You will have no option to change/amend the policy after it is issued.
- The proceeds can only be given to the beneficiaries under the policy and hence, one should not plan to repay debt with the policy money.
- This is the best option to protect the financial needs of the family post the death of the life assured as the money cannot be appropriated to any other use.
- Beneficiaries cannot be changed subsequently
“It is important to keep in mind that though the policyholder would avail the plan under MWPA, due to legal restrictions, he would not be able to control the policy in the future as it would be earmarked as a part of the estate of his wife and/or children. The customer would also have to fill in additional documentation appointing trustees who would manage the policy as well as name his wife and/or children as beneficiaries,” says Raman.