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Most people believe life insurance means financial security for their loved ones. But here’s the harsh truth: if you pass away with outstanding loans, your insurer first clears the banks’ dues before paying your family.
The Shocker
If you pass away, your home loan, car loan, business loan, even credit card dues may be cleared first from your life insurance money. Whatever is left (if anything) then goes to your wife and kids.
Vijay Maheshwari, a Chartered Wealth Manager, in a LinkedIn Post, has explained the fix for this:
The Married Women’s Property Act (MWPA), Section 6 ensures that your life insurance payout is protected. Once tagged under MWPA, the payout bypasses creditors, parents, or anyone else — and goes only to your wife and children.
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Important rules:
You must choose MWPA at the time of purchase. It cannot be added later.
It does not apply to loan-linked policies.
Best solution? Take two separate policies: one linked to the bank (to clear loans) and one under MWPA (for family).
Example:
Let’s say Rajesh, 40, has a ₹50 lakh term insurance policy. He also has a home loan of ₹30 lakh. If Rajesh passes away:
Without MWPA: The insurance company pays ₹50 lakh to his nominee. The bank immediately claims ₹30 lakh towards the loan. His family is left with ₹20 lakh.
With MWPA: Rajesh buys the same policy under MWPA. Now, the full ₹50 lakh goes directly to his wife and kids. The bank cannot touch this money. The home loan will still exist, but it must be settled separately.
By simply choosing MWPA at purchase, Rajesh ensures his family’s financial security is non-negotiable.This is the difference between thinking you are protected and actually being protected.
Takeaway: Life insurance isn’t just about buying a policy. It’s about making sure the right people receive the money. With MWPA, your wife and kids are always protected.
When you pass away, banks and lenders are paid before your family.
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