A detailed post by CA Nitin Kaushik on X (formerly Twitter) has reignited public conversation around a little-known but powerful legal shield that can prevent families from losing their insurance payout to lenders.
In his post, Kaushik warns that many Indian households falsely assume that buying life insurance automatically secures their family’s future. In reality, he writes, few policyholders realise that insurance proceeds can be legally claimed by creditors if the deceased had outstanding loans, EMIs, business credit or any unpaid liability.
“The same money meant to protect a family often becomes the money used to settle old debts,” Kaushik notes in the post, highlighting how loan obligations can erode — or completely wipe out — the intended benefit of a life insurance policy.
1874 law almost no one talks about
Kaushik points to a largely forgotten provision tucked inside the Married Women’s Property (MWP) Act, 1874, which can safeguard an insurance payout from such claims. When a life insurance policy is purchased under this Act, the money becomes legally untouchable for creditors — a complete protection that cannot be overridden by banks or lenders.
“Not partially. Not conditionally. Fully protected,” he emphasises.
How the MWP protection changes everything
To illustrate, Kaushik lays out a scenario: A salaried individual with ₹30 lakh in liabilities and a ₹1 crore term plan would see creditors step in first after their death — unless the policy is covered under the MWP Act. In that case, the entire ₹1 crore would be paid directly and exclusively to the spouse and children, forming what he calls a “financial fortress around the family.”
Without MWP protection, he warns, families receive “what’s left, not what was promised.”
The missing layer of family financial security
Breaking down a framework he terms the Family Security Ratio, Kaushik says true protection rests on three pillars:
- 40% income
- 35% savings + insurance
- 25% legal structuring
Most families, he argues, build the first two layers but ignore the third — even though legal structure often becomes the decisive shield in moments of crisis.
“The MWP Act turns a simple insurance policy into a long-term emotional guarantee,” he writes. “If a household depends on a single earning member, this isn’t just a financial step — it’s an act of love in legal form.”
Kaushik concludes the thread with a call to action: Families should verify whether their existing life insurance policies are taken under the MWP Act, because the protection must be added before a policy is issued — it cannot be retrofitted later.
“True planning isn’t about predicting life,” he writes. “It’s about protecting the people who live on after you.”
Leave a Reply