Cover Point

Do my lenders have the right over the sum insured in my life insurance policy if I leave unsettled debts? What can I do to ensure that the insurance amount reaches my nominee?

Kumar

A lender doesn’t have a right over the insurance amount unless he is the nominee of the deceased or the deceased had pledged the insurance policy as collateral to the lender at the time of getting a loan. (Where the insurance policy has been pledged as collateral, the insurance company will pay the lender first and the balance, if any, will be paid out to the nominee). But, sometimes even if the policy has a nominee, the lender/bank may approach the court for settlement of the outstanding dues from the proceeds of the life insurance policy.

Legal experts say that when a deceased leaves behind unsettled debts, it shall be the liability of the Class I heir to discharge the debts from the inherited estate. If you want to ensure the financial security of your nominee, you can have your life insurance policy registered under Married Women's Property Act. The life insurance policy in such a case does not form a part of the estate of the deceased individual. The Act insulates all assets belonging to married women from attachment by a court or Income Tax authorities. For a policy under MWP Act, the beneficiary can be only the individual’s wife or his children or both of them jointly.

Note that life insurance policies can be registered under the MWP Act only at the time of purchase. Even term life policies which are bought online will have an option to choose for registering under MWP Act. Once you click on the option, it will require you to provide the name, age of the beneficiaries and your relationship with them. Law allows individuals to register more than one life insurance policy under MWP Act. But each policy has to be registered separately. Remember that once you assign your life insurance policy under MWP act, you cannot borrow against the policy or assign it to another person.

Before you register the policy under MWP think twice on who you want to nominate as beneficiary. Once mentioned, the beneficiaries under the policy cannot be changed.

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Send your queries to insurancequeries@thehindu.co.in

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