Salient LI Pitches
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Salient Life Insurance pitches
The Married Women’s Property Act, 1874 is a simple yet powerful way of creating safe
wealth for the immediate family viz. wife and children; under MWPA, a trust is created
under which the money is absolutely encumbrance-free, free from creditors, court
attachments and also tax attachments.
Importance of MWP Act
In terms of Section 6 of the Act, a life insurance policy can be effected by any married
man on his life and expressed on the face of it to the benefit of his wife and/or of his wife
and children or any of them shall ensure and be deemed to be a trust for the benefit of
the wife or of his wife or children or any of them according to the interest so expressed
and shall not, so long any object of the trust remains, be to the controlled of the husband
or his creditors or form part of his estate.
A simple way of making the settlement for the benefits of the wife and/or the children
without formality of the deed of settlement and without incurring any expense
It gives the beneficiaries certain statutory privileges by virtue of which they secure
special protection against the creditors of the assured
The policy monies will not be aggregated with other estate, since it is an estate in
Non-Aggregations of MWP Policies
A policy under MWP operates as a valid declaration of trust giving the beneficiary a
vested interest in the said policy. Such a policy will not be aggregated with the other
property left by the policyholder provided he never had any interest of any kind in the
There is no limit as to amount of the policy or to the number of policies taken under
section 6 of the MWP Act.
Who is a customer for MWPA provisions?
People running business on borrowed capital
People who have not made sufficient provision for wife and children financially
People who consider that it is imperative to make certain amount available for wife
and children free from creditors and court attachments.
Section 6 provisions
Buying insurance under Section 6 amounts to creating a trust
The moment the policy is issued, it shall insure as a trust and no separate trust is
required to be created
Policyholder (married man) loses control over the policy and the policy no longer
forms part of his estate
The beneficiaries can only be wife and children
Policyholder can appoint a beneficiary as a trustee (wife or major child) or even
appoint a corporate trustee for a fee
In case no trustee is appointed, the official trustee of the state shall be the trustee.
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A policy can be brought under MWPA only at inception i.e. at proposal stage, by
indicating “policy under Section 6 (married man) or Section 5 (married woman) of
MWPA, 1874 in the columns “Nomination” and “Purpose of Insurance”
Assignment is a way of creating a benefit for any specified member of the immediate or
extended family or parent.
In case of unfortunate death of the client, wealth would automatically get transferred to
the legal heirs; Sometimes, an HNI client may be interested in keeping aside a portion of
their wealth for their parents, siblings, family of a relative or a charitable organization,
with or without the knowledge of their immediate family, viz. wife and children
Under Section 39 of the Insurance Act, 1938, a policy on the life of self can be assigned,
either conditionally (usually in case of taking a loan) or absolutely (out of love and
affection) to another individual or non-individual by endorsing the policy in the favour of
the assignee, by routing it through the insurer.
A nomination only serves such purpose as to discharge the insurer and may or may not
be the legal heir of the insured. Also, a nomination can be cancelled by a will or a legal
An assignment is on the other hand a transfer of ownership of asset to another entity;
which cannot be over-ridden by a will or a court order, thus ensuring that what the client
decided as benefit for an “x” family member would be received by that individual alone.
Assignment can only be made after the policy has been issued and not at proposal
A Hindu Undivided Family (HUF) is the creation of the Hindu Law; an HUF consists of all
persons lineally descended from a common ancestor including their wives and
Sometimes HNI clients opine that in their absence a huge amount of wealth going to
their wife and/or son may not be the best arrangement and may spoil them, so on and so
Another provision of income tax that can come handy is the Hindu Undivided Family
An HUF created by the client or of which the HUF is a co-parecener (male) /member
(female) can propose life insurance on the life of any of its co-parecener/members.
The effect is that the maturity/death proceeds do not go to any one individual but
become a part of the HUF corpus thus benefiting the entire family and used for such
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purposes as may be desired by the client, rather than being squandered away by one or
two “black sheep”.
Business Insurance cases
Key Person Insurance (KPI)
Under KPI, a business can protect itself against economic setback in the event of death
of its key personnel; the business by having such risk management practices in place
can attract better talent, have the trust of creditors, bankers, vendors, clients etc. and
can have a business continuation/succession plan in place.
Under KPI, the company/firm proposes insurance, pays premium while the life insured is
the KP. Premiums paid under KPI are allowed as expenditure under section 37(1)
thereby helping the firm reduce its profits for the year and thereby lowering taxes.
Claim, if any, is payable to the firm as compensation/corpus to undertake necessary
expenditure in hiring and training a replacement of the KP, thereby allowing business
continuity and free from disruptions.
Partnership Insurance (PSI)
A firm has insurable interest in the life of its partners and can buy insurance on the lives
Like KPI, a partnership firm can protect itself against interruptions to business,
interference from family members and costly litigation in the event of unfortunate death
of a business partner.
Again, premium paid by a firm for keeping a policy on the life of a partner in force, is
deductible as business expenditure under section 37(1) and claim, if any is payable to
HNI clients who are in business and in arrangements such as partnerships can secure
their business, built with sweat and intellect; ensure that the business continues to exist
for future generations and carries their dream forward.
Only Term Insurance is permitted under KPI and PSI.
Employer-Employee Insurance (EEI)
HNI clients, who are in business or in high ranking positions with organizations can
consider arrangements to increase loyalty of their employees and in turn improve
motivation and reduce turnover in this era of high aspirations of employees.
Employer-Employee insurance arrangement permits a business to pay premiums for life
insurance on the life of their employees (not necessarily KP) and allow the benefits to
accrue to the employees. Unlike KPI or PSI above, EEI claim proceeds are payable to
employee/their beneficiaries only and no benefit accrue to the employer. Due to this, the
premiums paid on behalf of employees are treated as perquisite in the hands of the
employees under section 17(2) and can in turn be claimed as deduction from income
under section 80(c). Arrangements can be made where the employer is the Proposer
(scheme A) or the employee (scheme B) itself is Proposer and Life Insured while the
Employer is only the premium payor.
All type of insurance plans can be pitched under EEI, including pension plans.
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Insurance - A key component of financial planning
Insurance solutions can provide a sophisticated means of managing wealth, offering
generational planning tools for high net worth clients.
Insurance may offer an important solution not always considered in overall wealth
management. Not only may it help protect against life’s uncertainties, but it can also
provide advantages in terms of investment efficiency, taxation and risk coverage.
“Life insurance is increasingly looked upon as a tool to protect and enhance savings; not
as an alternative to trusts but as a complementary estate planning option,” explains
Simon Pavitt, Global Wealth Solutions Insurance Director for Europe and the Middle
East. “Indeed, it can provide liquidity to facilitate the distribution of business and financial
assets to loved ones when someone dies, releasing cash-flow which might otherwise
have to come from the sale of, or borrowing against other assets.”
Whilst benefits vary by jurisdiction, insurance can offer a deferral of tax liability as well as
protection of assets by holding them within a policy that may not be directly owned by
the individual. Some clients may also hold investments where net return after tax could
be improved by combining them with a tailor-made policy that has local life insurance tax
benefits as well as those of gross roll up.
quot;As parents, we all wish our children to benefit from our effortsquot;
Leaving money for children can be an emotional, complex and expensive process. Nigel
Nicholson, Director, Insurance Development, Global Wealth Solutions explains: “As
parents, we all wish our children to benefit from our efforts. In some circumstances, the
sheltering of assets to ensure their delivery to loved ones in the most tax-efficient
manner can mean using offshore life insurance structures. Clients can specify the
amount their beneficiaries will receive and may be able to leave their assets to named
individuals rather than to the estate. Life insurance may also be used to pass the whole
asset value of the policy to beneficiaries without creating a charge to inheritance tax or
death duties. This is often best delivered by using a life policy in conjunction with a trust
so that the trust is the beneficiary of the policy on the death of the insured person.”
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