Should Your Children be Life Insurance Beneficiaries?
Many people take out a life insurance policy for the purpose of providing for their children should they pass away. Ensuring that your children benefit from your life insurance doesn’t necessarily mean they need to be listed as the beneficiary, but if you do choose to make a child a life insurance beneficiary, there are some important things to keep in mind.
Children Who Are Minors
If your children are minors - as most children are at the time that you are going through the life insurance quotes process and a policy is taken out - they will not be able to receive the death benefit directly. In most cases, an adult or a trust will be named as the beneficiary to handle the money in the child’s name until they are of age.
The most secure way to take care of money left to a minor child through a life insurance policy is to use a trust. It is generally unwise to list a minor child as the direct beneficiary of a life insurance policy. Should you pass away while that child is still underage, the courts will appoint someone to take care of the money for them until they are old enough to receive it. This may not be the person you would have wanted in that position. Setting up a trust creates a solid legal means by which the money will be held and cared for. You will be able to name the trustee who takes care of the trust.
Another option is to make the person who will receive guardianship of your children the beneficiary of the policy, allowing them to use the money for the care of your children after you pass away.
Naming a Trusted Adult
Rather than naming a child as a beneficiary, many people who do not use a trust choose to name another adult as the beneficiary and entrust them with the task of distributing the money as needed for the care of their children and other financial needs.
It is important that you choose someone who is trustworthy and will follow your instructions in regards to the distribution of the money. If the beneficiary is not the guardian of the child, and you want the money to be saved for that child to obtain at a later date, this should be discussed in full ahead of time and provisions made for when and how the money will be given to the child. Make sure everything is in writing so that it will be done as requested after your death.
When your children come of age, you can change the beneficiary on your life insurance policy to name your children directly if you wish. Many people name their spouse as the main beneficiary, and may name children as alternate beneficiaries should the spouse have passed away at the time of the death benefit disbursement. This way if you should forget to make the beneficiary change on the policy after your spouse passes, your children will automatically be next in line.
It is also possible to split the benefits among multiple beneficiaries, so that each of your children can receive a portion of the death benefit amount. In some cases, if there is one child who is older than the others, you may name that child as the beneficiary and task them with disbursing benefits to the siblings when they come of age.
It’s important to note that after a death, people may disagree as to how the money should be split up. For this reason it is usually the best idea to make very clear where the money should go and in what amounts. Setting this down in a legal manner prevents the kind of disagreements that can follow an unexpected death and the settling of financial matters.
Ensuring Children are Provided For
Most people will name a spouse as life insurance beneficiary since that person will be most likely to have the care of the children in the case of a death. In the absence of such a person, a trusted adult or a trust is the best way to make sure that your children are cared for. Ensure that you follow up on the listing of beneficiaries by using your will to make clear your wishes after your death.
Naming a child as direct beneficiary without a trust or an adult to make sure it reaches them is usually a risky idea. Take the time to obtain legal advice on this matter if you have concerns about how your death benefits should be handled. Your insurance professional can also help you to name beneficiaries appropriately and make sure everything stays up to date.