Married Women's Property Act - Implications on Life Insurance Policies

The Married Women's Property (MWP) Act was enacted with a view to protect the properties of women against the creditors.

Under MWP Act all the properties that belong to the women gets insulated and protected from all the other court attachments or any income tax department attachments that the husband has run up. Let's take an example of a business family; the family could be a trader or a manufacturer or any other business. In due course of business there are some credit limits or there are bank loans, which have been taken by the business. The bank secures these credit limits against the assets of the business and also takes a personal guarantee of the owner of the business which could be the husband or the family.

In case of the untimely death of the husband the bank starts recovering their loans and in the process they liquidate the assets of the business and also they attach the properties that belong to the guarantor, which in this case is the husband.

In order to protect the family; the wife and the children, the life insurance policies that the husband takes; he should make sure that these policies at the time of taking the policies should be taken under the MWP Act because life insurance policies are also entitled to be attached, which means that the claims that paid out on the death of the husband, goes to the bank and not to the surviving members.

The process of taking the policy under MWP is very simple. At the time of making an application one has to fill in MWP addendum. This form is also provided by life insurance companies. In the form one has to fill in the details of his wife and children, whoever he wishes to make beneficiaries in the policy. In case of death, the policy proceeds do not go to anybody else other than the beneficiary as named by you in the policy. There is no attachment because the policy does not belong to the husband.

We talk about life insurance as means of financial protection. What is the sense if the money does not go to the family and gets attached for some other reasons? Let me make a point here, all kind of life insurance policies whether online term policies or any other form of life insurance policies are entitled to be issued under MWP Act and one should definitely make a point that he issues a policy under MWP Act to protect his family.

*How To Protect Insurance Claims From Creditors*

From time immemorial, our society has put the onus of being the primary bread winner for the family on men. Even with the rising women workforce where women are building a career for themselves, men are still considered to be the financial anchor for a lot of families for various reasons. Hence comes the importance of life insurance policies wherein it acts as a Plan B for the family’s financial future.

That is what motivates a lot of men to often invest in life insurance policies so that in case of their premature death the policy benefit would provide financial support to their family. But is this financial support guaranteed? What if there are creditors waiting to get their accounts settled? Can the husband ensure that the policy benefits would be used by his wife and/or children only?

Though it is a bitter pill to swallow, the truth is that the proceeds of a life insurance policy can be claimed by creditors who are owed money. In fact, the proceeds can be claimed by any individual who can prove a legal right of ownership of the money. If that happens, the wife and/or kids would not get the benefit and the whole purpose for which the husband had bought the policy would be wasted. How can you prevent it?

There is a Married Women’s Property clause under life insurance policies which, if selected, would ensure that the proceeds from a life insurance policy would go to the wife and/or child ONLY and cannot be attached for any other purpose.

Let’s understand what the clause is all about.

*The Married Women’s Property (MWP) Act, 1874*

The Married Women’s Property Act was passed in the year 1874 with a view to safeguard the rights of married women and children. Section 6 of the Act states that if a married man buys a life insurance policy on his life and wants the policy’s benefits to be utilised by his wife and/or children, the policy would be considered a trust. The policy cannot be controlled by the man himself, his creditors, court attachments or anyone. The policy shall be deemed to benefit only his wife and/or children.

As per the rulings of the Act, if your client chooses the MWP clause in the life insurance policy that he opts for, the policy benefits would be earmarked for his wife and/or children.

*Must-know facts about MWP in life insurance policies:*

Here are some things which you should know about MWP in the context of life insurance policies.

The beneficiary of the policy can be any of the following.

Only the wife

Only the children

The wife and children jointly. (In this case, the husband can specify the percentage of benefit which should be paid to each beneficiary. He can also specify the benefit to be paid jointly to all or to the survivors).

Nomination is not required in a policy which has a MWP clause. In case of death, the policy benefit is paid to the trustee who acts as a custodian of the money for the beneficiaries (if the trustee and beneficiary are different).

Divorced or widowed men can also opt for this clause. In such cases, the beneficiary would be the children.

In case of Hindu men, adopted children can also be made beneficiaries.

In case of Muslims, the beneficiaries are called ‘Persona Designata’. The beneficiaries are required to be named when the policy is being bought. Moreover, the beneficiaries should exist at the time the policy is being bought. If there are two or more beneficiaries, the share of each beneficiary should be expressly stated.

The policy should be bought by a married man on his own life.

Every policy is treated as a separate trust and it should have a trustee. The wife of the individual or his child, who should be more than 18 years old, should be appointed as a trustee.

Multiple trustees can also be appointed.

The consent of the trustee to act as such is required. This consent should be attached to the life insurance policy document.

If no trustee is appointed, a competent Government Authority would appoint Official Trustees.

The trustee, once appointed, can be changed any time during the term of the policy.

The life insurance policy under which the MWP clause has been opted cannot be surrendered before the completion of the tenure. The husband cannot even assign the policy to someone else’s name.

The MWP clause can be chosen ONLY at the time of buying the policy and not later.

*Most Important Benefit of MWP policies*

By choosing MWP clause in a life insurance policy, a married man can ensure the policy proceeds to reach his wife and/or children for their financial needs. The policy, therefore, becomes a financial cushion for the man’s family. Moreover, no additional charge is levied when the MWP clause is chosen. It is a simple addition to the policy’s terms and conditions which ensures that a man’s family is taken care of even in his absence.

Most importantly MWP is an important clause that can be attached to a life insurance policy if your client has a big loan, so that in case the client dies before the loan is repaid, the proceeds are not attached to the creditors.

So, if your clients have existing life insurance policies check whether they have selected the MWP clause or not. If not, advise them to buy a separate policy and select the clause. Over and above working hard to make sure that their family has the financial means to survive, choosing the MWP clause ensures the financial security of the family even after the death of the husband. So, understand the MWP clause and educate your clients about its benefits so that they get a better financial future.

*FAQs*

Q: Is the woman's stridhan only protected what she inherits from her father's family or is her own salary and investments and earnings are also protected and second, if her husband were to default on his home loan then the wife's salary cannot be attached when the house is foreclosed or a default is declared?

A: The answer to your first question, we are talking about a loan taken on the business, which the husband runs and he has given his personal guarantee towards those loans. So, all the attachments that we refer to are restricted only to the business and the assets of the husband. So, in the first part of your question, the income that the wife is generating, if she has not given her personal guarantee and the stridhan that she inherited from her parents do not get attached in this case.

The second part of your question is, if wife is not a co-borrower in the loan, if she has not given her personal guarantees then her property, her assets, her incomes cannot be attached, just by the virtue of her being the wife of the person who has taken the loan.

Q: Is the converse true, if a wife were to defaults, the husband's property is safe?

A: Not really. The property goes; let's take the example of a housing loan. The house is going to be attached by the bank and they can ask the wife to vacate and vise versa. The idea behind MWP Act is that the entitlement of life insurance proceeds is for the protection of the family and in this case the bank attaches it. So, under MWP Act, they cannot do that.

Q: What are the disadvantages of this policy because it doesn't see too much acceptance or the sales etc are not too good according to what I have read in reports? Are there any disadvantages?

A: The reason why this is not popular because people are not aware that this kind of a facility is available.

Q: Can I get an addendum to an existing life insurance policy?

A: No. The MWP addendum can be attached only at the time of taking the policy. However, to answer the question, if one still wants to protect his family against this then he can do an absolute assignment of the policy even today; after taking the policy even if he is five-ten years down the policy, he can make an absolute assignment of the policy in favour of his wife. So, it does not anymore belong to him, it is not his property and so it cannot be attached.

To know more about Married Women's Property Act, kindly contact Jayant Harde on 9373284136 or +91 7122282029. You can also visit our website: www.jayantharde.com