The pros and cons of buying term insurance under MWP Act

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Summary

  • This Act ensures that priority should be given to the policyholder’s immediate family’s needs

When you buy term insurance under the Married Women’s Property (MWP) Act, 1874, your policy is treated as a trust and claim proceeds are free from creditors, court, taxation, and payouts. Thus, in the event of the policyholder’s death, the proceeds are given only to the beneficiaries mentioned in the policy. These beneficiaries can be the policyholder’s spouse or children. The policy cannot be attached to the policyholder’s debts, as technically, it no longer belongs to him.

While such policies have many benefits, you must also know some drawbacks when buying term insurance under the MWP Act.

Pros: This Act ensures that priority should be given to the policyholder’s immediate family’s needs. This Act essentially serves as a protection against extended family members, loan repayment, or other creditors who might claim the money after the death of the policyholder and ensures that the financial future of the insured’s wife and children is protected.

Rakesh Goyal, director, Probus Insurance, said, “This Act helps women’s empowerment by providing widows with financial security. The sum assured is given to the policyholder’s wife and children (defined as beneficiary while purchasing the term insurance policy) under the MWP Act."

The Act also shields the deceased’s wife and children from any possible financial disputes in the event of a property or any other joint family dispute.  Creating a separate trust under the MWP Act is not required in the case of  children.

Cons: One cannot assign an existing insurance policy under this Act and can opt for this Act only when buying the policy. Explaining this further, Sajja Praveen Chowdary, business head, Term Life Insurance, Policybazaar.com, said, “the MWP attachment can be made only at the time of the policy issue. You cannot do it later. Also, you cannot change beneficiaries stated under MWP Act at a later date. Besides, the proposer cannot assign a policy under MWP Act to someone else." 

This implies that the beneficiary, as decided upon by a policyholder during the time of purchasing the policy, cannot ever be changed under this Act. 

If you have added your wife as a beneficiary, she will continue to be the beneficiary irrespective of any change in your marital status, be it divorce or separation.

Goyal said, “Parents cannot be added as a beneficiary under this Act and hence this could be a problem for elderly people if they do not have any other financial plans. Also, there is no provision for taking any kind of loan against the policy covered under the Act."

Thus, when you buy pure term insurance, you should do a good analysis of all your needs. The policy should cover yourself for the loan amount over and above the family’s long-term and short-term financial needs. This will help you insulate family members from any liability without disrupting their lifestyle and goals.

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