Married Women's Property Act

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Is your life insurance airtight?

Many consider insurance as the first step to building a savings portfolio, after all, there’s nothing as important as securing what you already have, beginning with the most important asset, your life. Life insurance salesmen are quick to ask the question “what would life be like for your dependents in the case of your untimely demise?” What most of them fail to tell you, however, is that if an unfortunate event does occur when you happen to be in debt, it’s your creditors who are going to benefit from your policy and not your wife or your children as you intended. That’s a pretty terrifying thought since the one thing that gives a person peace is the knowledge that the people who you care about will be looked after once you’re gone.

To elaborate, say a particular businessman passes away leaving behind about ten crores of debt ( outstanding loan) but also invested about  20 lakhs in life insurance for about 15 years which would mean his wife/or children would receive somewhere around 4-5 crores. In such a case the entire payout would go towards repaying the debt, along with any other assets he may have left behind, till the amount is recovered. This leaves us asking the question of whether there is no way for a man in debt to secure his family’s future or invest in life insurance without the proceeds being snapped up by creditors?

Well, of course, there is it’s called the Married Women’s Property Act or MWP Act and was originally set up in order to protect properties owned by women. Section 6 of this act covers life insurance policies and is the part that is most relevant today. According to this section, any married, divorces or widowed man can take a life insurance policy under this act which will cause said policy to automatically function as a trust under the Trust Act. While the trustees can be your doctor, chartered accountant, Advocate or financial advisor and the trustees can be changed at any time, the beneficiary ( wife & children ) can never be changed.

What does this mean, if you have any money invested in a life insurance policy under this act, in addition to it being safe from your creditors, even a court of law cannot attach it to any recovery of outstanding loan in case of your death. Furthermore, even in the case that you outlive the policy, the proceeds will still go to the beneficiary, making for a pretty airtight way to secure your wife and children’s future. A good rule of thumb before making such investments is to consult with a financial advisor or do some research on the human life value method or the capital need analysis method to figure out the ideal insurance cover for you.

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