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Naming Children as Life Insurance Beneficiaries

Many people purchase life insurance to provide for their children, but involving beneficiaries presents its own set of challenges.
Low-cost do-it-yourself (D.I.Y.) willsliving wills, and powers of attorney are possible in some simple cases and can be found on our companion site, Estate law varies from state to state, and estate planning situations can get complicated quickly. You may also want to consult with an estate planning attorney in your area for advice on your individual situation.
As the term implies, life insurance is an insurance plan that allows a parent, or other policy holder, to continue to provide financially for the beneficiaries after the parent’s death. Life insurance can provide income for the day to day support of a child and it can provide funds for long term or larger purchases such as a college education. Since many parents buy the life insurance with the goal of providing for their children they name their children as the beneficiaries of the policy.
However, this can be problematic. If a minor child is named as a beneficiary of the policy, the child may not be able to access the money until he or she reaches the age of majority. Some states require the insurance company to hold the life insurance proceeds, with interest, until the child legally becomes an adult. Other states may allow the life insurance funds to be dispersed to a court appointed guardian until the child becomes an adult.
Yet, many children who have lost their parent(s) need the life insurance funds immediately. In order to make sure that your children are able to use the life insurance proceeds in the way that you intend them to use the money, it is important that you:
  • Create a Trust: a trust may be created that names your children as beneficiaries. As with any other type of trust, you may make provisions that allow the trustee to distribute funds on behalf of your minor children. The proceeds of the trust may be transferred to your children when they reach an age that you specify. As with all types of trusts, the decisions that you make when setting up the trust will have significant tax and financial implications for your heirs.
  • Include Unborn Children: it is important that you do not exclude any children yet to be born from your life insurance policy if you think that there is a possibility that you might have more children. Your life insurance company can instruct you on how to make this designation. For example, you may be able to name your children of your marriage to John Doe as a group beneficiary. By not naming the children individually, you will include children yet to be born at the time that you complete the forms.  If you chose not to do this then you should be sure to amend your life insurance beneficiaries upon the birth of each child.
Another option is to name your spouse as the life insurance beneficiary if you trust your spouse and all of your children are shared with your spouse. In some states, you must name your spouse as your life insurance beneficiary unless your spouse provides written consent otherwise. So, if you intend to name your children, rather than your spouse, as the beneficiaries, then it is important that you do so in accordance with the requirements of state law.
Life insurance is a financial investment and a way for you to protect your family when you die. It is, therefore, important that you protect your children by naming them as beneficiaries in a way that complies with state law and meets the needs of your family.
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