Ensure Your Dependents Get Policy Benefits, not Creditors

Preeti Kulkarni & Vidyalaxmi advise bringing insurance policies under the purview of Married Women's Property Act to ensure that only dependents receive the proceeds in case of death of the policy holder

  Buy a life insurance cover and secure the future of your family". You might have listened to this axiom countless times from insurance sales persons, financial advisors, talking heads on TV, among others. Sure, it is a great sales pitch that always works. It gets your attention to this essential cover which will protect your family in case of your sudden demise, an unpleasant thought you wouldn't entertain otherwise. 

However, what these experts don't tell you is that buying a life insurance cover alone won't necessarily assure the well-being of your dependents. For example, if you are a proprietor and have accumulated debts, your creditors will have the first claim on your policy proceeds. Or your insurance policy (with savings element like endowment plan, unit linked plan and so on) will be attached if you file for insolvency. 

There is a way out, though. 

"We always ask our clients to bring their policy under the purview of the Married Women's Property (MWP) Act. This ensures that on the death of the life assured, the dependents receive the proceeds, not the creditors," says Ashish Kehair, head, private wealth management at ICICI Securities. "It is a very important sales pitch for us. We always advise businessmen to go for this option. Even salaried individuals can exercise this option," adds G Nageswara Rao, managing director, IDBI Federal Life Insurance. "It's extremely beneficial for proprietors from the small and medium enterprises (SME) sector since their personal property will get attached if there is a winding up order," says P Nandagopal, MD and CEO, IndiaFirst Life Insurance. 

However, despite being a fairly simple and inexpensive procedure, not many policyholders opt for it, primarily because of lack of awareness. Remember, every policyholder can adopt this route to protect his family and does not have to shell out a single penny for the purpose. "Any married man can take a life insurance policy under the MWP Act. This includes divorced persons and widowers, who can use the provision for their children. The policy can be taken only on one's own name, i.e., the life assured has to be the proposer himself. Any type of plan can be endorsed to be covered under the MWP Act," says Sandeep C Nerlekar, CEO of Warmond Trustees and Executors. 

All you have to do to get the policy covered under the MWP Act is simply inform your life insurance company about your intention, and fill up a simple application form. Some companies include this option in the main proposal form itself and the policyholder is required to merely tick the right box to indicate his acceptance. "It is not significantly different from buying a regular policy. In addition to the regular proposal form, which contains the policyholders' details, the policyholder has to fill a separate form which will include the details of the beneficiaries and the share of benefits for each of them. Along with the form, the policyholder has to submit a letter stating that the policy has to be issued under MWPA. Then the original policy bond/document will capture the fact that it has been issued under MWPA," informs Suresh Agarwal, executive director, Kotak Life. 

If you have a joint family, MWPA could be a great solution for your opaque financial setup. "In a joint family, there can be several ambiguities and obligations. The structures may not be clear, which increases the scope of family disputes on money and property. An MWP policy will give a clear title to the beneficiary and an exercising right for the policyholder as well," says Agarwal. However, you need to exercise caution if you plan to cover your insurance policies with savings element under the Act. Unlike term policies, Ulips and endowment plans are expected to generate returns on your investment at maturity. "If you choose to get policies with savings component issued under the MWP Act, you cannot hope to individually benefit from the 'investment' made, as you would be surrendering all your rights on the policy in favour of your wife and children," says Gaurav Rajput, director, marketing, Aviva Life Insurance. 

Only your wife and children will be entitled to the sum assured in the event of your demise. Similarly, the maturity proceeds too will go to your wife and children if you outlive the policy term. 

"Once a policy is purchased under the MWP Act, the same ceases to be part of your estate and cannot be attached by courts for repayment of your personal debts. You need to take into account these factors before getting the policy issued under the MWP Act," he adds. 

Protect Your Family's Financial Interests 

Merely buying a life insurance policy will not necessarily take care of your dependents in the event of your death 

You need to put in place certain safeguards to ensure that the sum assured is indeed passed on to your dependent family, specifically wife and children 

Getting the policy issued under the Married Women's Property Act is perhaps the simplest and least expensive way of protecting your family's financial interests in your absence 

WHAT YOU NEED TO DO 

Inform your life insurer at the time of buying the policy and fill up the required application form, along with the proposal form 

Bringing the policy under the purview of the MWP Act is highly recommended for proprietors and businessmen from the SME sector as their personal property is liable to be attached to pay off their debts 

If you are planning to buy policies with savings component under this Act, remember that you will not be individually entitled to the maturity proceeds as you will be surrendering all your rights in favour of your wife and children