Protecting Your Protection Cover | HDFC Bank

Were you aware that Indian Law allows creditors to claim your life insurance money after your death against your dues on personal, professional and business loans? That means that the money, which should have rightfully gone to your loved ones, will instead be accessed by third parties. How can you prevent this?

This can be done using the Married Women’s Property Act of 1874.

The Married Women’s Property Act of 1874 (MWP Act) was formed to safeguard a married woman’s property from creditors and other family members. As per the Act, this includes all property vested in or acquired by them.

Section 6 of the MWP Act addresses life insurance, ensuring that if a husband purchases a policy under this Act, the proceeds remain protected from court attachments. This guarantees that, upon his death, the funds are passed directly to his wife and/or children, safeguarding their financial security.

The policies are considered an automatic trust, and there is no need to create a Trust under the Trust Act. The proposer can appoint a trustee (not a beneficiary) to ensure the life cover financially secures his family on his death. And though the husband must service the premiums, he loses all control over the policy since it becomes trust property. In fact, on the death of the policyholder, maturity of the policy or even on surrender, the benefits go to the wife and/or children (beneficiaries).

Any married man, divorcee or widower who is also a resident of this country can buy a life cover under this Act. A married woman can buy the policy under this Act, keeping her children as her nominees.

Self-employed individuals, particularly business owners, should consider this policy under the Act to protect against financial risks. In proprietorships and partnerships, owners face unlimited liability. If the business incurs losses or is wound up, creditors can claim and sell personal assets to recover their dues, such as property, vehicles, and even life insurance savings.

In this scenario, creditors cannot access these funds even if the policyholder passes away. This ensures that the financial security of the policyholder’s wife and/or children is protected.

Getting a policy assigned under the MWP Act is easy and inexpensive. To take the policy under the Act, the proposer must fill up an MWP addendum along with the life insurance proposal form.

• Appointing beneficiaries: You could choose your wife alone as a beneficiary, your children (biological or adopted), or both children and wife together.
• Appointing trustees: Each policy will be treated as a separate trust, requiring you, the proposer, to appoint a trustee. You may appoint one or more trustees, including beneficiaries, if desired. Obtain written consent from the appointed trustee, documented in an addendum, to affirm their role. The trustee must be an adult and sign this addendum. You also have the option to change the trustee at any time.

Besides these,

• Important considerations: Once in force, insurance policies cannot be brought under the coverage of the MWP Act in life insurance.
• In case of a death claim, the trust receives the policy proceeds and cannot be claimed by the debtors, nor will it form part of the estate of the proposer. Hence, the welfare of the wife and/or children is protected with utmost care.

The Married Women’s Property Act of 1874 offers crucial protection for life insurance proceeds, ensuring they go directly to your loved ones rather than creditors. By setting up a policy under this Act, you safeguard your family’s financial future, even in the face of business liabilities or personal debts. Simply complete the MWP addendum with your life insurance proposal, appoint a trusted trustee, and enjoy peace of mind knowing that your family’s security is protected.

Please get in touch with your nearest HDFC Bank Branch to learn more about the Life Insurance product options available under the MWP Act.

Disclaimer: *Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.