When thinking of the future, it’s natural to consider the children in your life. Purchasing a life insurance policy allows you to designate a beneficiary (or beneficiaries, plural). If you pass away while insured, these are the people who will receive your policy’s death benefit.
If you are a parent, a grandparent (or the coolest aunt/uncle in your family), you may be wondering if you are able to name a child as a life insurance beneficiary.
Though it may seem like a great idea, minor beneficiaries can present complications. There are legal restrictions that prevent children from directly receiving a death benefit until they reach the age of maturity (typically 18 years old).
Can a Minor Be a Beneficiary of Life Insurance?
While some insurance companies may offer the option to name a child as a beneficiary, it may not be the best choice. If you die with a minor beneficiary named, chances are they won’t see the money from your life insurance policy for quite some time.
What Happens When a Beneficiary Is a Minor?
Let’s say you were to appoint your minor child as your life insurance beneficiary. What happens when a minor receives a life insurance death benefit?
Legally, life insurance companies cannot send a payout to a person who has not reached the age of maturity. In most states, this occurs at the age of 18, but in other states, the age of maturity can be as high as 21 (here’s looking at you, Mississippi).
If you pass away and your child receives your life insurance policy’s death benefit, the court system will appoint an adult to manage the funds for them. As legal processes go, this can take months. In the interim, your child wouldn’t have access to the money you intended to be available to take care of them.
Though there may be instances when minors can be beneficiaries on life insurance policies, there are better ways to offer a little financial security for the children in your life.
Leaving Life Insurance to a Minor
If you want your minor to be a beneficiary, there are options. If you are a parent or guardian, your primary focus is likely making sure your children are cared for, even if something were to happen to you. Life insurance can help with that.
Naming a Spouse as a Life Insurance Beneficiary
If you are married to your child’s other parent or guardian, you might consider naming your spouse or domestic partner as your primary beneficiary. The death benefit would go directly to your partner, and they could use the payout as they please.
If you go this route, talk with each other about your final wishes and hopes for your children. Having a plan for the future, especially for the tough stuff, is important.
Who Should Be My Beneficiary if I’m Single?
Term life insurance can help give single parents some peace of mind. Your policy’s death benefit can be used for your child’s living expenses, college tuition, and any costs the future might bring.
Seeing how it may not be the best idea to name a child as a life insurance beneficiary, naming a trust as your policy’s beneficiary is a great option.
Can a Minor Be a Beneficiary of a Trust?
There are several different types of trusts to consider. When you establish a trust, you will typically be asked to designate how you want the money in your trust to be distributed. If you have more than one child or want to earmark some of the money for a particular milestone (college, buying a house, first child), a trust can help you do that by dispersing money to certain people at specific ages.
One type of trust is a revocable trust. A revocable trust allows you to easily adjust assets within the trust as well as the beneficiaries of the trust.
Another type of trust is an irrevocable life insurance trust (ILIT). An ILIT is designed to hold your life insurance policy and pay your premiums. If you pass away while insured, your life insurance company would send your policy’s death benefit to the trust.
Minors can be beneficiaries of trusts, and many financial advisors recommended this option for parents looking to provide some financial protection for their young dependents.
Getting Started With Life Insurance
Protecting your children’s future is a parental priority. A term life insurance policy can help offer some financial support should you pass away.
Bestow makes term life insurance straightforward and stress-free. Apply today! Most get a same-day decision. Once approved, you can name a spouse, domestic partner, or trust as your beneficiary. With rates starting from just $11 per month and coverage options up to $1.5 million, you can breathe easy knowing your little loved ones have some financial protection (upon approval).
Key Takeaways
- Naming a minor as a beneficiary on an insurance policy can create challenges should you pass away before they reach the age of maturity.
- There are other options to consider, aside from naming a minor as a beneficiary of your life insurance policy, such as naming a co-parent or trust as your designated beneficiary.
- If you purchase a term life insurance policy, you can typically name a spouse, domestic partner, or trust as your beneficiary.
Bestow does not give tax or legal advice.
The information provided is not intended to offer any tax, legal or financial advice. It is always a good idea to consult your tax, legal and financial advisors regarding your specific situation.
