Policies purchased under MWP Act, 1874 - 2

A policy can be purchased and at the time of proposal itself it can be shown as a purchase under Section 6(1). So the main points to be noted are:

1. The policy shall be on the life of the husband / father

2. It is purchased for the benefit of his:

            a. wife

            b. wife and child

      c.wife and children (named/specified)

      d.wife and children(not named, i.e. as a class)

      e. child

      f.children

3. Where wife or child / children are named they become beneficiaries under the policy. When they are not named, i.e. they are named as a class a child born after the purchase of the policy or a new wife married after the purchase of the policy automatically becomes beneficiary under the policy.

4. There is no nominee under the policy. The concept is of beneficiary.

5. A Trust is to be created under the Indian Trust Act, 1882.

6. Life Insurance Corporation of India gives the necessary forms and addendums to proposers to create Trusts and frame Trust rules. I am not aware whether other insurers do this.

7. Trusts are to be managed by Trustees. So the proposer appoints Trustees of his choice. If he does not appoint Trustees the Official Trustee of the State acts as Trustee.

8. These processes are simple and easy.

9. ‘A’ purchases a policy. Simultaneously he fills the addendum and creates a Trust. Trust will be managed by one or more Trustees appointed by ‘A’ through the addendum. Any one can be Trustee, for example father of wife.

10. No stamp duty is required to create a Trust at this stage.     If ‘A’ dies, claim will be paid to the Trustees by the insurer. Trustees will hand over the claim to the beneficiaries. This policy is treated as a separate estate for the benefit of wife and children and cannot be claimed by the creditors of ‘A’. It is beyond their reach.

Key words:

MWP Act, 1874

Trust

Trustee

Beneficiary