Chapter 10 Notes: Applications of Life Insurance

1. Married Women’s Property (MWP) Act, 1874

Informational Overview & Legal Framework

Section 6 of the Married Women’s Property (MWP) Act, 1874 provides financial security for the wife and children of a married man. When a married man takes a life insurance policy on his own life and expresses on the face of the policy that it is for the benefit of his wife, children, or any of them, it automatically creates an irrevocable, non-amendable Trust.

Core Provisions & Creditor Protection

• Shield from Creditors: The policy remains completely beyond the control of court attachments, creditors, and the life assured himself.
• Claim Disbursement: All maturity and death claim cheques are paid strictly to the appointed trustees for the benefit of the beneficiaries.
• Official Trustee: If the policyholder does not appoint a special trustee, claim proceeds become payable to the Official Trustee of the State.
• Policy Restrictions: MWP Act policies cannot be surrendered, and neither nomination nor assignment is permitted.

2. Keyman Insurance

Purpose & Eligibility

Keyman insurance is a specialized business protection policy purchased by a commercial firm to compensate for financial loss arising from the death or extended incapacity of a key employee.

• Eligible Key Person: Anyone directly associated with the business whose loss causes financial strain—such as a director, partner, key project manager, or sales manager controlling significant revenue.
• Plan Requirement: Issued strictly as a Term Insurance Policy.

Financial & Tax Specifications

• Sum Assured Linkage: Linked directly to business profitability (assessed through audited financial statements and IT returns) rather than the key person's personal income.
• Taxation Rules: Premiums paid by the company are deductible as business expenses. However, the death benefit received by the company is taxed as business income.

3. Mortgage Redemption Insurance (MRI)

Loan Protection Mechanism

Mortgage Redemption Insurance (MRI) is a loan protector policy designed to provide financial protection to home loan borrowers and their dependents. Mortgage refers to the practice of pledging property as collateral while leaving the borrower in possession.

Specifications & Key Attributes

• Product Classification: Categorized as Decreasing Term Life Assurance.
• Benefit Structure: The sum assured decreases annually to match the reducing outstanding home loan balance, while the premium remains level/constant throughout the policy term.
• Zero Value Feature: Yields no surrender value and no maturity benefits.

4. Summary Matrix & Exam Key Takeaways

Exam Quick Points

• MWP Act Protection: Assets under MWP Act Section 6 cannot be attached by court orders or business creditors.
• Keyman Sum Assured: Evaluated against company profitability, not individual salary.
• MRI Classification: Decreasing term assurance where cover reduces while premium stays level.