Parents spend much of their lives caring for and protecting their children. However, their concern for their children isn't limited to the present. Most parents worry about protecting their children in the event that they are not around to see them grow into adulthood. A life insurance policy can ensure that minor children are protected financially, but naming them as beneficiaries isn't as simple as it may seem. In fact, in many cases, it isn't the best solution at all.
Making a Minor a Life Insurance Beneficiary
An individual can name a minor the beneficiary of a life insurance policy. Parents typically want to ensure that their children will be protected in the event of their untimely deaths. Often, parents name a spouse as beneficiary with the idea that the spouse will use much of the proceeds to care for the children. In some cases, however, a parent may prefer to identify a child as a beneficiary, such as in the case of a single-parent family. A pitfall of minors as beneficiaries is that they can't take legal control of the money or other property. As such, a guardian would have to take control of the proceeds and manage them for the child. This can prove costly and time-consuming. A parent may assume that the surviving parent would be able to manage the proceeds, but that is not the case. Even when a parent is available, a court must appoint/approve a guardian to handle the life insurance monies if children are named as beneficiaries.
Soon-to-Be Adult Beneficiaries
The parent of an older minor may feel more comfortable naming the child as a beneficiary. For example, a parent of a 17-year-old may reason that the child will soon turn 18 and have the right to legal control of the money. While this is accurate, many young adults struggle with managing money and may be susceptible to bad influences. For this reason, even naming an older child can prove a risky decision.
Responsible Adult Custodian
A parent can name a custodian to handle the money until the minors are of legal age. The problem with this is that the custodian does not have to spend the proceeds on behalf of the children. If the parent is not 100 percent sure the custodian will have the best interests of the children at heart, this is another risky choice.
A Viable Solution
While each insurance buyer's situation may vary, many parents plan for their children by creating a trust. They then designate the trust as the beneficiary of their life insurance policy. This solution allows parents to not only ensure that the life insurance proceeds benefit their children but also that the money is used in the manner they desire and based on the time frame they deem fit for their children. Trusts can also provide some benefits in terms of protecting life insurance proceeds from creditors.
If you want the best option for your minor beneficiaries, seek the help of an experienced Oklahoma City life insurance professional. Call us at 405-373-2977 for a free consultation.