Why Not to Name Your Minor Child as Your Life Insurance Beneficiary
The primary reason we buy life insurance is to provide financial protection to loved ones in the event of our premature death. We want to minimize the potential financial loss our family may have to deal with and ensure they are left with some amount of financial security. Benefits can be used to pay for living expenses or go toward funding your child’s education, for example. However, the legal and financial implications can be serious—and counter to what you want—if you do not take proper steps to set up your life insurance policy and name your beneficiaries appropriately.
Because the reason for buying life insurance is both personal and emotional, some carry their emotions into naming their beneficiaries, and end up making a less than optimum decision in their choice of beneficiary. One mistake some people make is to name their minor children as primary beneficiaries. In this case, should you die while your children are still minors, the consequences can be both costly and problematic, mainly because the life insurance company will not pay the benefits directly to your children who are still minors.
Before a life insurance company will pay any benefit, they will want to see that a court-approved guardian of the minor’s estate has been appointed. The court appointed guardian is responsible for receiving, managing, and disbursing the life insurance assets on behalf of the minor child—in other words, ensuring the proceeds are managed properly and competently. You should speak with a qualified estate attorney to understand what is needed to draft an estate plan that avoids naming a minor child as a beneficiary so the need for a court proceeding to have an appointed guardian to administer proceeds is also avoided as this can cause delays for your children to access their funds and it is also expensive for your estate.
If you did not previously arrange for a trustee of the funds designated for your minor children’s health, education, maintenance and support, the court will appoint one to control the money until the child reaches the legal age in the state of residence (age 18 or 21). This entire process can delay by weeks or months the benefit you want your children to be able to receive at the time of your death. Do not make the mistake of naming a minor child as the beneficiary on your life insurance policy, as the only possible outcome will be complicated legalities and delays in your child receiving the benefit—the very results you were trying to avoid by purchasing life insurance in the first place.
I am an experienced estate lawyer in Delaware County and routinely consult with clients regarding their estate plans. Together we develop the best plan to ensure the proceeds of their estates and life insurance policies are delivered appropriately and without undue delay. Please feel free to contact me at firstname.lastname@example.org or 267.399.3710 for your free initial consultation on how I can assist you in developing an estate plan that will ensure your final wishes are carried out to the benefit of your loved ones.