What women should know before buying life insurance – Forbes Advisor INDIA
Life insurance looms large in every individual’s financial portfolio, especially as the potential risks to human lives have become much more visible and evident over the past couple of years. Although there has been a promising increase in the purchase of life insurance solutions during the pandemic, India still has a long way to go.
It is no news that India’s life insurance penetration (set at 3.2% in FY21) is lower than its global peers. However, the data paints a darker picture when you look at the adequacy of life insurance coverage held by individuals. What’s more, women represent a smaller proportion of life insurance buyers, even though they are now participating in greater numbers in the labor force.
The insurance regulator’s annual report for the 2020 financial year shows that of the total first-year premiums collected in the financial year, only 34% were from women. Moreover, almost a third of policies purchased by women came from just 3 major states – Maharashtra (11.98%), Uttar Pradesh (9.87%) and West Bengal (10.60%).
This begs the question: Why aren’t women proactively buying life insurance? Although several factors can contribute to this, a key aspect remains the poor knowledge of the financial product. With a better understanding of the buying process comes greater accountability and here’s what you need to know.
Term plans are cheaper for women than for men
According to several studies, women tend to live longer than men and hence term plan premiums tend to be comparatively lower for women. Increasing age also offers a cost advantage to women. Let’s learn what that means. Typically, the mortality assumption for females is considered to be a three year decline in male mortality. This means that a 35-year-old woman is equal to a 32-year-old man, which makes term plans cheaper and more attractive to her.
1. Housewives also need insurance
Given pre-existing gender roles, women typically take on many household responsibilities. From household chores to childcare, women carry out these responsibilities whether they are breadwinners or housewives. Although women are not paid to undertake these household activities, an economic value is attributed to these jobs. It is therefore essential that women take out life insurance as their absence threatens to disrupt the economic stability of the household.
Some insurance solutions offer the possibility of extending coverage to the spouse in the event of the death of the insured. If you are a housewife, you can consider such insurance solutions with your earning spouse to ensure you are covered.
2. Common and individual goals
In a two-income household, typically, the higher income earner gives priority to purchasing life insurance. But, even when you are the lowest-earning member of the household, the loss of income can significantly derail shared family aspirations. It is therefore essential that every woman actively participates in the financial decisions made by the family and takes out a life insurance policy for an assured future.
3. Cover your health expenses:
Biologically and genetically, women are exposed to unique health issues and risks. This could include diseases like breast and cervical cancer, apart from other chronic diseases. The different stages of pregnancy carry their own set of risks and expenses that each woman or family must plan for. While medicine and technology have come a long way in offering solutions to mitigate these risks, the cost of managing expenses arising from critical illnesses can put us in a difficult financial position. It is therefore important to ensure that your life insurance plan is comprehensive and covers you against such problems which could otherwise significantly erode your savings.
Is taking out life insurance enough?
As the context of the world in which we operate changes at a rapid pace, one can’t help but wonder if buying life insurance is enough to protect the dreams and aspirations of your loved ones? In India, men remain the main purchasers of life insurance policies. However, women play an important role in influencing this purchase and therefore need to be aware of one key factor.
Consider this example – your family had to take out a personal loan to meet some emergency requirements. In addition, you already have a home loan that you are currently repaying. After considering your financial needs, the husband has taken out a policy worth INR 1 crore, which will pass on the financial benefits to your family in the event of your death. But what if your creditors take a large chunk of those benefits to settle your debt? Is your family really protected?
Although logic dictates that you would have taken into account your existing debt when buying a life insurance policy, we have already learned that the reality is that most Indians are insufficiently covered.
It is therefore essential to find out about a legal provision that ensures that the benefits of a married man’s life insurance policy reach the intended beneficiaries. This is called the Married Women’s Property Act (MWPA).
What is the Married Women’s Property Act (MWPA)?
When a married man takes out a life insurance policy, the wife and children are usually the beneficiaries. After death, it is possible that the monetary benefits arising from the life insurance policy may become a matter of litigation due to claims from parents, in-laws, creditors, etc. Such unforeseen circumstances can threaten the goal of security for his wife and children.
In such a scenario, MWPA can be useful. The MWPA is a welfare law designed to ensure absolute ownership of a married woman’s earnings, property, investments, and savings. Section 6 of this Act specifically states that when a husband takes out a life insurance policy and names his wife and children as beneficiaries, the resulting benefits – be it a death benefit or any additional premium – can only be claimed by the wife and children.
So, as married women, it is essential to know about this act and advise your spouse to take out a life insurance policy under this legal provision. When your spouse purchases a temporary plan under the MWPA, it becomes a trust and only the trustees named under the policy have access to its benefits. Simply put, it gives the wife and children complete and unchallenged control over the life insurance policy. No other entity, including your relatives, creditors, etc. can’t claim it.
So every earning husband, especially with existing debt or expecting to have debt in the future, should opt for a term insurance plan under the MWPA. There have been countless cases in the past involving disputes over property, especially money. Without explicit declarations, these conflicts drag on for several years. In such cases, a life insurance policy underwritten under the MWPA offers a clear and indisputable solution, at least as far as the benefits of life coverage are concerned.
Opting for the MWPA provision when purchasing a life insurance policy is also quite simple. If you are purchasing a term plan, the application form includes an option to purchase the policy under the MWPA. All you have to do is select the option. The beneficiaries you name in said application form will be covered by the MWPA (provided they are your wife and children).
Things to know about life insurance under the Married Women’s Property Act
Any married man residing in India can opt for such coverage and designate his wife and/or children as beneficiaries. Once designated, the beneficiaries remain unchanged for the duration of the mandate. This means that in the event of a divorce, your ex-wife and children will continue to be beneficiaries of the policy and receive death benefits after your death.
It is also important to designate more than one beneficiary when purchasing such life coverage. In the event that your spouse dies before you, it is essential that the benefits of your death cover be passed on to your children without dispute. Only your wife and children are protected under this provision and no other relatives including parents can be included under the MWPA umbrella.
Another critical point to remember is that once you have purchased life insurance coverage, it cannot be assigned after the fact under the MWPA. You can only opt for MWPA at the time of purchase. However, you can purchase multiple fonts under MWPA, but each must be registered separately.
Like all financial purchases, it’s important to be aligned with your ultimate goal. Only if your goal is the financial protection of your wife and children, the life insurance policy should be purchased under the MWPA. If you purchase an endowment plan as part of your retirement planning, purchasing the policy under MWPA will deprive you of a corpus in times of need. It is therefore essential that you thoroughly research the subject, ensure that it matches your objectives, and then opt for this legal provision.