Protect Family’s Future with MWP Act in Term Insurance
Choosing the MWP option when purchasing term insurance protects your payout from creditors and disputes, ensuring your family receives the full benefit. Learn how.
8 min read
December 12, 2024
Kumari Savita
Did you know that just by checking “yes” beside the MWP option during term insurance purchase can save your life insurance payout from falling into the wrong hands? The Married Women’s Property (MWP) Act, 1874, provides a unique legal framework to protect your loved ones through term insurance. Despite its importance, the concept is not widely understood or utilized. Let’s dive deeper into what is MWP Act, how it functions, and its relevance in securing your family’s financial future.
At a Glance
Concise overview for quick reference:
Aspect | Details |
Purpose | Preventing creditors or unwanted relatives from claiming life insurance payout. |
Eligible Beneficiaries | > Children (for policies taken under section 5)
> Wife and kids (for policies taken under section 6). |
Key Considerations | > A life policy can only be listed under MWPA during time of purchase.
> Beneficiaries can’t be changed in any form or manner post purchase.
> You can only choose your wife/child/children (biological and adopted) as beneficiaries. |
Process of Purchase | Determine eligibility and make MWPA designation at the time of term policy purchase. Seek assistance from an insurance advisor to simplify the process. |
Relevance Today | Essential for those managing loans, family responsibilities, and long-term security. |
What is MWP Act in Term Insurance?
The MWP Act was introduced in 1874 to offer financial security to married women, ensuring that assets such as life insurance proceeds directly benefit them and their children. When applied to a term insurance policy, it creates a legal barrier that prevents creditors, relatives, or even the policyholder’s will from interfering with the payout.
Aspect | Section 5 of MWPA | Section 6 of MWPA |
Policyholder | Married woman | Married man |
Purpose | A married woman can independently take a term insurance policy in her name. | A married man can take a term insurance policy for the benefit of his wife and/or children. |
Beneficiaries | Whoever the policyholder designates. | Wife and/or children are sole beneficiaries. |
Protection | Shields the married woman’s policy from her husband’s creditors or claims. | Protects the policy proceeds from the husband’s creditors, family and prevents inclusion in his estate. |
How the MWP Act in Insurance Works
> Beneficiary Nomination: You must specify your wife and/or children as beneficiaries. Once named, this cannot be altered during the policy term.
> Trust Formation: The insurance policy becomes a trust, and the proceeds are managed exclusively for the beneficiaries’ benefit. This ensures that even if the policyholder’s financial situation deteriorates, creditors cannot claim these proceeds.
> Court Protection: In case of disputes, courts uphold the integrity of the MWP Act, ensuring payouts are used solely for the beneficiaries' welfare.
Who Should Opt for the MWP Act?
The following points highlight how different groups can benefit from the protection offered by the MWPA, making it a vital tool to safeguard finances.
a) Business owners and entrepreneurs
Business owners often rely on loans to fund operations, expand ventures, or manage cash flow. Many business owners also consider group insurance to cover key individuals and support business growth. However, this does not guarantee that their family will remain protected in the event of their demise. If the policyholder passes away, creditors may claim insurance proceeds to settle debts.
The Married woman property act in India ensures that life insurance proceeds are protected from such claims, securing the financial future of the policyholder’s spouse and children. This provides peace of mind for entrepreneurs with significant financial exposure.
b) Individuals with loans
Many salaried professionals have outstanding liabilities, such as home loans, car loans, or personal loans. In the absence of adequate protection, their families may face difficulties repaying these debts. The MWP Act shields the insurance payout from being redirected to creditors, ensuring that the intended beneficiaries—wife and children—receive the full amount to sustain their lifestyle or settle other financial needs.
c) Young families
For young couples starting families, securing long-term financial stability for their children is vital. Unexpected tragedies can disrupt plans for education, healthcare, and living expenses. The MWP Act offers a safety net, ensuring children's future needs are supported, even in the policyholder’s absence. Parents and guardians should also consider child insurance for added protection.
d) High-Net-Worth Individuals
High net worth individuals hold large estates and complex financial portfolios. A term insurance under MWP Act ensures that their beneficiaries are shielded from potential claims over their estate. It protects their spouse and children from financial disputes outside of the inheritance process.
e) Individuals in joint family setups
Married women’s property act in term insurance ensures that in joint families where property disputes are common, wife and children receive the insurance payout, free from complications.
f) Non-resident Indians (NRIs)
MWPA in term insurance provides financial security for NRIs' spouses and children settled in India. This eliminates the risk of cross-border dispute over assets, foreign laws or creditors claiming the insurance money.
Key Benefits of the MWP Act in Insurance
The Married Women’s Property (MWP) Act offers unique advantages that go beyond the standard benefits of term insurance. Following are the key benefits:
> Guaranteed financial protection for your loved ones
The primary purpose of the MWP Act is to ensure that the sum assured from the term insurance policy reaches the intended beneficiaries- wife and/or children- without interference. This protection guarantees financial stability in the absence of the breadwinner, especially for non-working spouses or dependents.
Unlike traditional term plans where beneficiaries might face disputes or creditor claims, the married woman property act in India creates a legal structure that prioritizes their welfare.
> Safeguards insurance proceeds from creditors
If you have existing debts, such as home loans, business loans, or personal liabilities, your creditors cannot claim the proceeds of a policy endorsed under the MWP Act. This protection is crucial for individuals with high financial exposure, ensuring their families are not burdened by outstanding dues.
> Eliminates family disputes
In scenarios where inheritance issues or joint family setups can complicate the allocation of insurance proceeds, the Married Woman Property Act in India acts as a safeguard. By establishing a legal trust, the act ensures the sum assured is distributed solely to the named beneficiaries, avoiding prolonged disputes among extended family members.
> Irrevocable beneficiary designation
Once beneficiaries are designated under the MWP Act, they cannot be changed. This unalterable nature ensures long-term security for the wife and children, shielding the policy from arbitrary modifications. It’s an especially reassuring feature for individuals who want to protect their family in unpredictable personal or financial circumstances.
> Legal immunity from third-party claims
A policy under the MWP Act becomes a separate legal entity, meaning it is immune from claims by relatives, creditors, or legal heirs not named in the policy. This ensures that your wife and children receive the entire sum assured without external claims diminishing the payout.
> Flexible application process
Opting for the MWP Act while purchasing term insurance is straightforward and doesn’t involve additional costs. Most insurers include an option in the application form, allowing the buyer to seamlessly endorse the policy under this act. The buyer only needs to specify their wife and/or children as beneficiaries during the purchase process.
> Builds long-term security for women and children
In the absence of a financial safety net, many families face challenges like unmet educational goals, inability to repay debts, or even loss of assets. By endorsing the policy under the MWP Act, you create a reliable safety net that ensures the proceeds are exclusively used for your family’s future expenses, such as education, healthcare, and living costs.
> Enhances trust and transparency
The act’s legal structure fosters trust and transparency in estate planning. The creation of a trust ensures that your wife and children can rely on the funds being managed appropriately, free from mismanagement or diversion.
Steps to Buying a Policy Under the MWP Act
Most insurers provide an easy-to-fill section during the application process, requiring you to nominate your wife and/or children as beneficiaries. There are no additional charges or complicated legal procedures involved. Once completed, the endorsement ensures automatic protection under the act.
Step-1- Select a Term Insurance Plan
Evaluate term plans based on your needs and choose one that aligns with your financial goals.
Step-2- Opt for the MWP Act Endorsement
During the application process, select the MWP Act option. This is usually a checkbox or a specific section in the application form.
Step-3- Define Beneficiaries
Clearly mention your wife and/or children as the beneficiaries.
Step-4- Submit the Application
Complete the required term insurance documentation and proceed with the purchase in accordance to the insurer’s terms and conditions. There are no separate forms or additional fees involved in the process.
Debunking Myths about MWP Act
The Married Women’s Property (MWP) Act, when applied to term insurance, offers unparalleled protection for a policyholder's family. However, misconceptions about its functionality and implications often deter individuals from using it effectively. Let’s clear up some of the most common myths surrounding the MWP Act:
Myth | Fact |
You can add/ remove beneficiaries after the policy is issued. | Once the policy has been issued under the MWP Act, you cannot change the beneficiaries. |
Loans can be taken against this policy. | This policy cannot be assigned or used as collateral to loans. |
The MWP act is only useful for individuals with debt. | It also protects against family disputes and external claims. |
The MWP can be opted with any insurance policy. | Only term insurance policies include MWP act. |
MWP act prioritises creditors over beneficiaries. | Policies under MWP act are protected from creditors no matter the liability. |
Opting MWPA comes at an extra-cost. | Opting for the MWPA is free of cost. |
The MWP act makes policies inflexible. | Policy features can be changed with the beneficiaries’ consent. |
The MWP Act in insurance is a powerful yet underutilized tool in financial planning. It is particularly relevant for individuals in their 30s who are balancing loans, family responsibilities, and long-term security.
Recommended Plans
Following are our top recommendations for term insurance policies available in the market:
Insurer | Plan Name | Key Features |
HDFC Life | HDFC Life Click 2 Protect | > Critical illness riders > Return of premium option > Flexibility in cover amount over time |
ICICI Prudential Life | ICICI Prudential iProtect Smart | > Accidental death cover > Waiver of premium > Critical illness cover options |
Tata AIA Life | Tata AIA Sampoorna Raksha Supreme | > Flexible payout options > Enhanced life stage cover > Riders for added benefits |
Kotak Mahindra Life | Kotak Saral Jeevan Bima Plan | > Flexible premium payment modes > Preferential rates for female lives. > Critical illness riders |
Example Scenario
Let us consider the following scenarios to understand the benefits of the MWP act better.
a) Protection against creditors
Mr. Sharma, a 40-year-old businessman, takes a substantial loan to expand his manufacturing unit. He worries that in case of his untimely demise, creditors may seize assets or claim his term insurance proceeds.
By endorsing his policy under Section 6 of the MWP Act, Mr. Sharma ensures that the insurance payout will go solely to his wife and children, safeguarding their future even amidst financial liabilities.
b) Joint Family Dispute Prevention
Mr. Patel, the primary earner in a joint family, faces disagreements over inheritance. He wants to ensure that his wife and children are financially secure after his death.
A term insurance policy under the MWP Act avoids disputes, legally binding the proceeds to his designated beneficiaries and keeping them out of reach from extended family members.
MWP-Related FAQs
a) Is it possible to surrender a policy taken under the MWPA?
Yes. Policies under the MWPA can be surrendered only if the surrender request is initiated by the policyholder and signed by all the policy beneficiaries.
b) How is the policy affected in the event of the couple's divorce?
Beneficiaries cannot be changed once a policy is purchased under the MWP Act. Therefore, the wife will remain entitled to the policy payout post divorce.
c) What happens if the wife, being the sole policy beneficiary, dies before the policyholder?
Your legal heir will be entitled to the policy payout if the listed beneficiary—your wife—passes away before you. This is why policy consultants advise listing more than one beneficiary when purchasing a life insurance policy.
Take Action Today!
Ready to secure your family's future? Book a free call with One Assure to discuss how term insurance with MWP Act endorsement can safeguard your loved ones. Our experts will guide you through the process, helping you make informed decisions tailored to your unique needs. For more such insightful articles head to our blog page.