Insurance Uncovered

Is life insurance policy money protected from attachment by court order under Indian law?

Ramesh Yadav

Life insurance money cannot be attached by lenders to recover their dues if the borrower dies.

A lender doesn’t have the right over the insurance amount unless he/she is the nominee of the deceased or the deceased had pledged the insurance policy as a collateral to a loan. Where the insurance policy has been pledged as collateral, the insurance company will pay the lenders first, and the balance, if any, will be paid out to the nominee.

But a lender/bank may approach the court for settlement of dues using the proceeds of the life insurance policy of a deceased borrower.

When the deceased leaves behind unsettled debts, it shall be the liability of his/her Class I heir to discharge the debts from the inherited estate, say legal experts.

However, if you do not want lenders to make a claim on the insurance money and want to ensure the financial security of your nominee, you can have your life insurance policy registered under the Married Women’s Property Act, 1874. Section 6 of the MWP Act covers life insurance plans. In such a case, the life insurance policy does not form part of the estate of the deceased individual. The Act insulates all assets belonging to married women from attachment by a court, income-tax authorities or relatives.

Any married man can take a life insurance policy under the MWP Act. However, for a policy under the MWP Act, the beneficiaries can only be your wife and/or children; you can’t add your parents.

However, note that life insurance policies can be registered under the MWP Act only at the time of purchase. The policyholder is required to fill up the MWP Act form and provide details of the beneficiaries. Once mentioned, the beneficiaries under the policy cannot be changed. And, any change you want to make in the policy from then on cannot be done without the approval of the beneficiary.

Also, once you assign your life insurance policy under the MWP Act, you cannot borrow against the policy or assign it to another person. Even if the couple divorces at one point, the husband cannot change the policy beneficiary. In case of the beneficiary passing away before the policyholder, the insurance money will go to the policyholder’s legal heir.

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