The primary purpose of having a life insurance cover is to help the surviving family members maintain the same standard of living after one's death. This would require adequate protection to the nominees so that they are financially secure even after the bread earner's death.
To ensure this, the proposer (one who takes insurance on one's name) nominates his/her family members. However, merely nominating family members may not serve the purpose as nomination only ensures that the insure hands over the death claim proceeds to the nominees and the legal heirs may still lay claim on the proceeds.
How beneficial nominees is different from nominee
Nominees till now acted as receivers of the insurance proceeds on behalf of the legal heirs of the policyholder. The revised Insurance (Amendment) Act 2015 has created a 'beneficial nominee' category, which clearly make the nominees such as spouse, parents and children as the final recipients of the insurance proceeds.
If a person nominates someone as a 'beneficial nominee' then the nominee becomes both the receiver and the final beneficiary as per this new clause. The new clause also makes it simpler for the policyholders to specify multiple beneficial nominees and their share in the proceeds.
Why nomination is not sufficient
It is to be mentioned here that a husband can also name his wife and kids as beneficial nominees in a life insurance policy. Once beneficial nominees are named no one else can challenge their right to the death benefits of the policy. However, the beneficial nominees so named can be changed during the tenure of the policy. This means that in case of divorce or under the influence of other family members the husband can change the beneficiaries of the policy at a later stage.
Buying life insurance under MWP Act can be a solution
The proceeds of a life insurance policy may still be recovered by one's creditors if some money is due to them or even by the legal heirs of the deceased. Their rights supersede that of beneficial nominees.
To avoid such a situation, one can buy the policy under Section 6 of the Married Women's Property Act (MWP), which gives special protection to one's wife and children, and prevents creditors from attaching a life insurance policy taken under this Act.
Here is what the law says:
Section 6 of the Married Women's Property Act (MWPA), 1874, provides that a policy of insurance effected by any married man on his own life and expressed on the face of it to be for the benefit of his wife, or of his wife and children, or any of them, shall ensure and be deemed to be a trust for the benefit of his wife, or of his wife and children, or any of them according to the interests so expressed, and shall not, so long as any object of the trust remains, be subject to the control of the husband, or to his creditors, or form part of his estate.
Who can take for whom
Any married man residing in India (except Jammu and Kashmir) can avail benefit under this Act. 'Married man' here also includes a widower and a divorcee who can name his children, if he wishes, as beneficiaries in a policy endorsed under this Act Under the MWPA only the wife and children can be named as beneficiaries. Consequently, no other family member or any other heir can lay a claim to the policy benefits. Thus, even if the husband and wife divorce after the policy is taken, the beneficiaries (wife and/or children) will continue to remain the same
How to go about it
This can be done by simply filling in a MWP addendum while applying for insurance, without formally creating a settlement deed or a trust separately. This benefit can only be obtained while taking the policy. Further, any addition or changes in the endorsement of the policy under the MWP Act is not allowed later on which means that even the husband (the insured) cannot change the beneficiaries of the policy later on.
Safeguards under MWP Act
Once the policy is bought under the MWP Act, it simply means that any insurance policy taken by the husband and endorsed under the MWPA in favour of his wife or children or any of them, will always be their property. None of the husband's creditors will have any right over the policy. Even the husband's parents won't have any right to the benefits. In fact, the husband will also have no rights over the survival benefits of the policy, if any. As per the Act, as long the beneficiaries named in the policy are alive, no one else will have any right to the benefits.
This is particularly relevant in case of a joint family as there can be other claimants to the policy proceedsif the insured dies. Therefore, do not overlook it to avoid any legal hassles for surviving family members.
