Protecting Your Dependants' Right To Your Policy

Merely buying a life insurance policy will not necessarily take care of your dependants in case of your death. You need to put into place certain safeguards to ensure that the sum assured is indeed passed on to them. Getting the policy issued under the MWPA is perhaps the simplest and the least expensive way of protecting your family's financial interests, says Jay Sampat.

KEY POINTS:

• Buying a life insurance cover alone will not necessarily ensure that your loved ones get the insurance amount in the event of your death. If you are the owner of a small business and have accumulated debts, your creditors will have the first claim on your policy proceeds.
• For a married, male policyholder, it makes sense to bring one’s policy under the purview of the Married Women’s Property Act (MWPA) which ensures that on the death of the life assured, his dependants receive the proceeds, and not the creditors.
• In case the insured wishes to cover the policy under the MWPA, the policy can be taken only on his own name, i.e. the life assured has to be the proposer himself.

We all think that simply paying for an insurance policy will ensure the well-being of our dependants in case of any unforeseen events. However, what most insurance companies don’t tell you is that buying a life insurance cover alone will not necessarily ensure that your loved ones get the insurance amount in the event of your death. For instance, if you are the owner of a business and have accumulated debts, your creditors will have the first claim on your policy proceeds. Moreover, the savings element of your policy will be attached if you file for insolvency. There is however, a remedy available.

For a married, male policyholder, it makes sense to bring one’s policy under the purview of the Married Women’s Property Act (MWPA) to safeguard the interest of one’s family. This act ensures that on the death of the life assured, his dependants receive the proceeds, and not the creditors. The beneficiaries can be (a) The wife alone (b) the child/children alone (both natural and adopted) (c) wife and children together, or any of them. The policy can also be a named policy, meaning the name of the wife and the child/children are mentioned in the plan (or as a class by not mentioning the names). However, note that Mohammedan proposers can only take up named policies. While this option is available to both businessmen and salaried individuals, it is highly recommended for businessmen in the small and medium enterprises (SME) sector as their personal property stands the risk of getting attached if there is a winding up order.

Any married man can take a life insurance policy under the MWPA to protect his family, and does not have to pay a single rupee for this purpose. This includes divorced persons and widowers, who can use the provision for their children. Despite this being a fairly simple and inexpensive procedure, not many policyholders opt for it, primarily because of the lack of awareness. Another reason for the fewer number of opt-ins is because many men prefer to have complete control on their life insurance plans. Once covered under the MWPA, the proposers lose control of changing or making alterations in the plan.

If you want your policy covered under the MWPA, you need to simply inform your life insurance company about your requirement and fill up an application form. Some companies include this option in the main proposal form itself, and the policyholder is required to merely tick the box to indicate his acceptance. In addition to the regular proposal form which contains the policyholder’s details, the policyholder has to fill a separate form that 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 the MWPA. Remember, in such a case, the policy can be taken only on one’s own name, i.e. the life assured has to be the proposer himself.

This is also a great solution for a joint family setup, wherein there could be several complications in the ownership of property, a lot of the fine print not being explicitly specified. This is because the inheritance rules are not very clear, which increases the scope of family disputes over money and property. A policy covered under the MWPA will give a clear title to the beneficiary and an exercising right for the policyholder as well.

However, you need to exercise care if you plan to cover your insurance policies with a savings element under the Act. Unlike term policies, ULIPs and endowment plans are expected to provide money back at maturity. If you choose to get policies with a savings component issued under the MWPA, 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. Going forward, 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 MWPA, it ceases to be part of your estate and cannot be attached by courts for repayment of your personal debts. Hence, carefully evaluate such a decision before signing the dotted line.