Insurance for Estate Planning & Business Continuity — MWP Act, Keyman and Trust Structures

The Married Women's Property Act 1874 (MWP Act) creates one of the most powerful protective wrappers available in Indian estate planning. Section 6 of the MWP Act provides that a policy of life insurance effected by a married man on his own life, expressed on the face of it to be for the benefit of his wife, or his wife and children, or any of them, shall be deemed a trust for the benefit of those persons. The crucial consequence: such a policy is not part of the policyholder's estate, is not available to creditors of the policyholder, and is not subject to claims of the policyholder's heirs under personal succession law. The proceeds vest exclusively in the named beneficiaries through the deemed trust. The election under MWP Act must be made at policy inception (it cannot be added retrospectively), and once made, the policyholder loses the right to alter beneficiaries unilaterally, surrender the policy without trustee consent, or take a loan against it. For a businessperson with personal guarantees outstanding or a professional with malpractice exposure, an MWP-tagged term plan is the single most effective way to ring-fence financial protection for the family. Keyman insurance is a corporate-policyholder, key-employee-life-insured construct used to protect a business from the financial consequences of losing a critical person — typically a founder, CTO or rainmaker. The premium is deductible under Section 37(1) of the Income Tax Act if the policy is shown as a business expense and the insured has no personal beneficial interest, but the eventual claim or maturity proceeds become taxable in the hands of the company (without the Section 10(10D) exemption that applies to personal life insurance). Buy-sell agreements in partnerships and closely-held companies use cross-purchase or entity-purchase insurance: each partner takes a policy on the other partners' lives (cross-purchase) or the entity holds policies on each partner (entity-purchase), funding the buy-out of a deceased partner's share at a pre-agreed valuation formula. This avoids forced-sale of the business and clean exit for the deceased partner's family at a fair price. Group term insurance schemes for employer-employee constructions are governed by IRDAI group insurance regulations and offer simplified underwriting at scale, with premiums deductible to the employer and the death benefit tax-free in the employee's family's hands under Section 10(10D). On the succession side, the Insurance Laws (Amendment) Act 2015 introduced the concept of a "beneficial nominee" — Section 39 of the Insurance Act now provides that where the nominee is a parent, spouse, child or specified relative, that person becomes the beneficial owner of the proceeds (not merely a custodian) and the proceeds do not flow into the policyholder's general estate. For HNI estate planning, an insurance trust structure is increasingly used: a private discretionary trust is created with the policyholder as settlor, the trust as policyholder, and family members as beneficiaries. The trust pays premiums (often funded by gifts from the settlor) and on death, proceeds vest in the trust corpus and are distributed per the trust deed. This structure delivers creditor protection, succession control beyond the lifetime of the settlor, and clean separation from probate. NRI proposers face additional considerations: residence at proposal, currency of premium and claim, FATCA / CRS reporting, and tax treatment of proceeds in the country of residence — typically requiring coordinated cross-border tax advice.