HUF Insurance Policy

A Hindu Undivided Family, which is also known as Joint Hindu Family is governed by Hindu Law.

An HUF consists of all persons lineally descended from a common ancestor and have not separated and include their wives and unmarried daughters. The head of the family is called ‘Karta’ who is solely responsible for all the affairs of the family. The members of the family are called co–parceners who acquire interest in thefamily by birth. Co–parceners are admitted to the benefits of the family, but they are not liable to the commitment of HUF during their minority.

In view of the separate legal provisions especially in income tax law, the HUF has important significance in life insurance –LIC insurance policy is taken by the Karta on his life or on the lives of co–parceners. where under premiums are financed by HUF funds. As per the law relating of HUF, all income earned with the property of HUF, shall belong to HUF. As such where policies are taken on the lives of members of HUF and premiums thereunder are paid out of HUF funds, insurance amount when due would belong to HUF and it becomes a part of assets of HUF. However, under policies effected by the co–parceners. on their own lives and where under premiums are paid out of their own separate income, policy moneys when due become the part of the estate of the lives assured. It is also important to note that neither the Karta of HUF nor any member thereon can take out policies on their own lives for their own benefits or for the benefit of their dependants and finance them to the detriment of joint family funds. If, therefore, policy is financed through HUF funds irrespective of contractual positions enumerated in the policy document, with regard to the title thereto, the policy would belong to HUF entirely and as such the policy moneys would be payable only to the Karta of HUF who represents HUF as Manager. However, a member of HUF can take a policy on his own life for the benefit of his immediate family, provided the premiums thereunder are not paid from HUF funds.

The life insurance policies are also affected by the Karta on the lives of minor co –parceners.

The main distinction of such policies as compared to ordinary CDA or CAP policies or policies on the life of minor is that the latter policies cannot be issued with automatic vesting age clause.

In other words, CDA policies issued to the Karta on the lives of minors will not vest in the lives assured on the deferred date, but they will continue to be vested in the Proposer (if he is a Karta of HUF) or in HUF if the proposer is any other family member not being Karta and the date of vesting being only notional and being introduced to indicate the date on which the risk of the life assured commences if the life assured shall be alive on the differed date and if all the premiums due prior to the deferred date have been paid under CDA policies the cash option under CDA policy shall be paid to the Karta of HUF.

1. Assignment and Nomination

   Under policies effected by HUF on the life of its members and financed by HUF fund, no assignment can be effected by the life assured as the policy absolutely belongs to the HUF. Similarly no nomination can be made under such policies as only the Karta of HUF can receive and give valid discharge to the policy moneys. Hence, it is only the Karta of HUF who can effect the assignment either for valuable consideration or for natural love and affection by way of gift, among the members of the family. In addition to the execution of assignment and serving a notice thereof by the Karta, the members should countersign the text of the assignment just below the signature of the Karta as consenting parties and as such if any member is minor or incompetent to contract the policy cannot be assigned.

   Whenever policies are affected by the co –parceners of HUF on their own lives and where under premiums are being paid by the members themselves out of their own income, policy may be nominated in favour of the members of their immediate family.

   Assignment cannot be made under the policies issued on the life of Karta. Even nomination under such policies cannot be valid as such policies exclusively belong to HUF. In case of death of the life assured, next Karta surviving senior most member of the family becomes entitled to the policy moneys as a Karta of HUF and he receives it for the benefit of HUF.

2. Loan and Surrender Value

   Policies financed by HUF funds would belong to HUF exclusively. Hence life assured cannot give valid discharge to the policy moneys. He cannot, therefore, avail of loan or surrender value. However, the Karta can raise a loan or obtain surrender value subject to the conditions that rising of loan or obtaining surrender value is for the legal necessity or for the benefit of HUF. In that event a consent letter signed by the members of HUF must be obtained. Obviously, therefore, if any member is a minor or incompetent to contract, no loan can be granted or policy allowed to be surrendered.

   As per the present practice of LIC, to ascertain that payment is made to the right person, the following documentary evidence is called for:

   1. Certificate from the Bankers of HUF to the effect the claimant to whom policy payment is being made, is the Karta of HUF, or
   2. Bank Pass Book which indicates the name and designation of Karta, or
   3. The latest income–tax assessment order or a true copy thereof showing the relevant details, If any of the above documents is not forthcoming, a shown affidavit is called for.
3. HUF and Income tax:

   A Hindu Undivided Family is assessed to Income tax as a distinct entity or a unit of assessment. As per section 80C of the Income–tax Act, the following payments of premiums are admissible for HUF:

   1. Premiums paid to effect or keep in force an insurance on the life of any member of the family;
   2. Premiums paid in respect of joint life policy on the life of a male member and his wife. However, in the case of HUF, premiums paid on a Deferred Annuity Policy are not admissible for Income Tax relief.
4. HUF and MWP Act Policies:

   If a Karta of HUF takes out a life insurance policy and pays the premium out of the HUF funds, the policy belongs to HUF. In view of this position, the Karta of HUF cannot take out a policy under Section 6 of the MWP Act and pay the premiums from HUF funds because such a policy being a trust for the benefit of one’s wife and children, payment of premiums under such policies, is not a legitimate expenditure of HUF, but unauthorised appropriation to the detriment of joint family funds. As such, premiums under such policies should be paid out of Karta’s own income. The position is the same with regard to other married male members of the HUF.

5. HUF and Pension Policies:

   Pension Policy cannot be issued to the person as a member of HUF. Even if any person affects such a policy, it would be construed that the premiums are paid out of his personal Funds. The proceeds under the Pension Policies will not form part of HUF property.

6. Females as Co-Parceners OR Karta of HUF:

   As per amendments to Hindu succession act, dated 09/09/2005, daughters are to be considered as co-parceners. But their right to become Karta of HUF of father is not there.

   Other female members are merely the members of the HUF. As far as HUF is concerned a female member cannot be a coparcener. However, she can be member of the HUF, the difference between the two being the right of the coparcener to quit the HUF demanding portion of income. Whereas a female cannot be a coparcener, sometimes she may act as the Karta of the HUF under the following circumstances.

   Suppose Karta of the HUF, the father dies leaving a minor child as the eldest coparcener of the HUF, then during the minority of the son, mother will be acting as the Karta. It will be appreciated that this position arises only because the minor is barred from dealing with the HUF funds.

   These cases may be referred to Zonal Office without any commitment. A detailed letter from the proposer should accompany the proposal indicating the circumstances under which she is acting as the "Karta".

7. Proposals by Karta on the life of a female member:

   We have to get a letter from the other coparceners and all other members to the effect that they have no objection of affecting the policy on the life of that particular female member out of the HUF Funds. The Karta should also clearly indicate as to why the particular life is being chosen in preference to the coparceners and the other members. Since Moral Hazard plays a much more serious role in all these cases, it is necessary to insist on Special Moral Hazard Report from the Sr. Branch Manager.

8. Policies financed through HUF:
   Proposed by Karta on own life –Allowed
   Proposed by Karta on the life of any one coparcener - Allowed but letter from Karta and MHR should clarify why Karta chose one coparcener when there were many.
   Proposed by Karta on the life of female member – Letter from Karta and MHR as above. No objection letter from other coparceners and member
9. Maximum Insurance Allowed:

   If life assured is Karta:

   Then full credit is given i.e. Average Income x his own eligibility as per age Multiple.

   If co-parcener:

   Then his Share x his own eligibility as per age Multiple.

   e.g: If average income under HUF is 2,00,000 and there are 4 members in HUF, then his share will be 25% i.e. 50,000.

   His maximum eligibility will be 50,000 x Age multiple factor.