What is MWP Act in Term Insurance & How it Works?

Today, buying a term insurance policy is one of the easiest ways to ensure a financially secure future for your loved ones, especially your wife and children. However, purchasing a policy alone may not guarantee they will receive the assured sum. Relatives or creditors might claim the money, jeopardising their financial security.

The MWP Act solves this by giving married women the right to hold property, including term insurance benefits. It creates an independent estate for the policy, ensuring the death benefit passes smoothly to the beneficiaries.

Keep reading to learn more about the Married Women's Property Act (MWP Act) and term life insurance.

In 1923, the MWP Act was amended to include life insurance policies, offering financial protection to married women and their children.

The act became incorporated into the life insurance policy. It mandated that the money received by the beneficiary (wife, children, or both) is solely their property and cannot be used to repay any husband's liabilities.

Here is an overview of how the MWP Act works:

• When an individual buys a term insurance policy under the MWP Act, a separate estate is created for the beneficiaries (wife and children).
• Before the policy is issued, the insured must choose the beneficiaries (wife, children, or both) and assign them a specific portion of the sum assured. These aspects cannot be changed once the plan becomes active.
• In case of the holder’s death, the policy remains independent from their other assets and thus goes directly to the benefiting individuals.
• Legally, family members, like parents, in-laws, or relatives, cannot lay claim to the death benefits.
• Even creditors cannot ask for the policyholder’s debt to be settled using these funds, ensuring the beneficiary’s financial well-being.

Separate Estate for Your Policy

Protection from Lenders

Post-Divorce Entitlement

Empowering Financial Independence

Despite the benefits, term insurance policies with the MWP Act also have their fair share of cons. They are as follows:

• It is not legally possible to amend or change the policy after issuance.
• Additional documentation is required to appoint trustees to manage the policy. 
• Beneficiaries cannot be changed or added after the policy has been issued.
• The policy is treated as a trust, so the beneficiaries cannot use its proceeds to pay off the policyholder’s debt or other liabilities.

1. Individual Term Insurance Plans

2. Joint Life Insurance Policies

The following types of individuals should consider purchasing term insurance under the MWP Act:

• Salaried individuals and businesses with high outstanding debt
• People living in joint families or Hindu Undivided Families (HUFs)
• Individuals with unstable income

To understand how the MWP Act can financially safeguard your family’s future, here are a few illustrations:

Suppose Mr Banik purchased a term life insurance policy under the MWP Act and added his wife and children as the nominees. Now, at the time of his unfortunate death, he had an outstanding personal loan. Thus, his lenders demanded that his debt be cleared from the sum assured received by his wife.

However, as the policy was bought under the Married Women’s Property Act, even if the lenders take the issue to court, the verdict would be passed in favour of Mr Banik’s wife and children, thus financially securing their future.

Let’s take another example. 

Mr Singh lives with his wife and kids in a Hindu Undivided Family (HUF). To financially safeguard their future, he buys a term insurance policy under the MWP Act and distributes the proceeds equally.

After his unfortunate demise, his relatives tried to get a share of the money. However, they could not legally lay a claim as the funds were only available to the beneficiaries. His wife got a lump sum payment, while for the children, the money was secured in the form of an estate.

You can easily buy a term insurance plan under the MWP Act by following these steps:

1. Visit your preferred provider’s website to buy a term insurance plan.

2. Fill up all the required details.

3. Locate the section that asks whether you are purchasing the term plan under the MWP Act and choose ‘Yes’.

4. Provide the required nominee details like the name, relationship, and coverage amount.

1. Wife

2. Child/Children

3. Both Wife and Children

Policyholder’s Age

Lifestyle and Health

Number of Beneficiaries

Here are some of the common mistakes you should avoid when purchasing a term insurance policy under the MWP Act:

• Not choosing sufficient policy coverage
• Going for shorter policy terms due to the lower premiums
• Delaying the purchase of a policy until reaching a specific age
• Providing incorrect medical information to the insurer
• Not comparing various term insurance plans online
• Choosing either too many or no riders at all
• Not considering e-insurance options
• Not reading the policy’s terms and conditions

1. Right to Own an Independent Insurance Policy

2. Ownership of Earnings

3. Initiate Legal Action

4. Insurance Coverage for Married Women

Before the MWP Act came into effect, if a married man had any outstanding debt at the time of his death, the creditors had the right to claim the individual’s property and assets, including the death benefit from the life insurance policy.

However, after the enactment of Section 6 of the Married Women's Property Act, the proceeds from a term life insurance policy purchased by a married man under this law are only claimable by the person’s wife and/or children. Creditors will not have any right to the death benefit.

5. Husband's Liability for Breach of Trust

6. Husband's Liability for Ante-Nuptial Debts

7. Liability for Post-Nuptial Debts

When a person having a term life insurance policy under the MWP Act gets mutually divorced from his wife, the following things happen:

• The court settles their alimony, property and other aspects.
• The husband can remove the wife from his assets and insurance policies as a beneficiary.
• However, in the case of a term life insurance policy under the MWP Act, the wife will remain entitled to the death benefits.