Insurance policy under MWP Act can save your wife from losing out on proceeds

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Life insurance, especially term plans, is considered one of the widely used methods for creating wealth for dependents. The amount can help your family pay home loans, meet education expenses, meeting day-to-day expenses, among other things. Buying a life insurance policy is just the first step. The second and most important step is to make sure the proceeds reach the real beneficiary. It is possible that your claim money may never reach the real beneficiary. So, what can you do to make sure that the proceeds of your insurance safeguard your wife/children?

The answer is to buy an insurance policy under Married Women’s Property (MWP) Act.

Under Section 6 of the MWP Act, a husband can assign an insurance policy to his wife and/or children after which it becomes their absolute property. The clause is extensively used while succession planning as it makes the proceeds from insurance policies completely encumbrance-free.

So, how does the MWP Act safegaurd your family?

For example, if you are a salaried person and have an outstanding loan, the creditor can attach the proceeds of your insurance. Similarly, if you are a proprietor, your creditor will have a claim on your insurance policy and can also be attached in case of insolvency.

The whole purpose of buying insurance gets defeated if proceeds get encumbered when your family needs it the most.

“Buying an insurance policy under MWP Act ensures that the wife becomes a beneficiary forever. The nominee cannot be changed. In the case of the survival of the husband, the maturity benefits will belong to the wife and not the husband. Moreover, this policy becomes an estate of the wife. It cannot be attached by the husband’s creditor’s court’s orders or even become part of the husband’s estate,” said Renu Maheshwari, Certified Financial Planner & SEBI Registered Investment Adviser.

How to bring your life insurance policy under the purview of the MWP Act? The best part is you don’t have to consult a lawyer or run around for paperwork. All that is required is for you to sign an additional document to assign the policy under the Act to your wife or children or both. Under this clause of the Act, a notional trust is created to hold the proceeds, which is then passed on to the beneficiaries.

Things to watch out for: You cannot add the MWP clause under your existing policies. You can opt for it only while buying new insurance policies and once signed up it cannot be reversed. Similarly, you cannot change the nominees once you have opted for the provision. “Awareness about this law is very low. Also, it takes away the control from the hands of the policyholder. The policy cannot be used to raise credit if needed,” said Maheshwari.

MWP is a very old clause under insurance policies but due to lack of awareness, it is generally not pushed by agents. Next time when you buy the life insurance policy do sign the document to make it encumbrance free.