Married Women's Property Act policy

What is a Married Women's Property Act policy?

A Married Women's Property Act (MWP Act) policy is a life insurance policy taken by a married man on his own life and stated on its face to be for the benefit of his wife, his children, or both. Section 6 of the Married Women's Property Act, 1874 turns such a policy into a trust for those beneficiaries. The money is not under the husband's control, is not part of his estate, and cannot be claimed by his creditors or his other heirs. It is the strongest form of protection Indian law offers for life insurance proceeds meant for a wife and children.

How an MWP Act policy works

The statute. Section 6(1) provides that such a policy "shall be deemed to be a trust" for the wife, or wife and children, according to the interest expressed, and that so long as any object of the trust remains, it is not subject to the control of the husband or his creditors and does not form part of his estate. Section 6(2), added in 1923 and replaced in 1959, makes the section apply to Hindus, Muslims, Sikhs, Jains and Buddhists, even though the rest of the 1874 Act does not apply to them.

Who can use it. The policyholder must be a married man insuring his own life. The beneficiaries can be his wife, his children, or both, in shares he specifies. Section 5 of the same Act separately lets a married woman take a policy on her own behalf as her separate property, but Section 6 trusts are framed around a husband's policy for his family.

Trustees. When the claim becomes payable, the money goes to the trustees named in the policy. If no special trustees are appointed, the Act directs payment to the Official Trustee of the state where the policy was effected. In practice, insurers ask for trustees to be named in an MWP addendum at the proposal stage. The wife can be a trustee.

Fraud on creditors. The protection does not apply if the policy was taken out with intent to defraud creditors. In that case creditors can still be paid from the proceeds.

Relationship with nomination. Section 39(12) of the Insurance Act, 1938 says the nomination rules in Section 39 do not apply to a policy covered by Section 6 of the MWP Act. There is one trap: if a nomination in favour of the wife, or the wife and children, is expressed as being made under Section 39, Section 6 is treated as not applying. The policy must therefore be written clearly as an MWP policy.

Practical consequences. Because the policy is held in trust, the beneficiaries are fixed once it is issued. Insurers generally do not allow the policyholder to change the beneficiaries, assign the policy or surrender it for his own benefit. The MWP declaration has to be on the face of the policy when it is issued, so it is normally chosen at the proposal stage rather than added later.

MWP policy vs ordinary nomination

What MWP Act policies mean for distribution

• Offer it where creditor risk exists. Business owners, professionals with personal guarantees, people with large loans, and families with disputes over property are the obvious cases. A term plan under the MWP Act can ensure the cover actually reaches the wife and children.
• Explain that it is irrevocable. The customer gives up the right to change beneficiaries, assign or surrender. Some customers will prefer an ordinary nomination plus a will for that reason. Record the customer's choice.
• Fill the MWP addendum correctly. Name the beneficiaries, their shares and the trustees. Avoid writing the same people as Section 39 nominees on the same policy.
• Plan the trustee. If the wife is the sole trustee and also the beneficiary, consider a second trustee for the case where both spouses die together.
• Do not present it as a tax product. The MWP Act decides ownership and creditor protection. Tax treatment of the payout follows the Income-tax rules for life insurance in the usual way.