If you’re thinking about purchasing life insurance, it’s likely because you want to make sure those who depend on you are financially protected. So choosing your beneficiary—the person who will receive the death benefit if you pass away—might seem like a no-brainer. If you have children, it would seem natural to name them directly. But if they’re under 18, doing so can create unintended complications.
Should you name a minor as a beneficiary on your life insurance? Typically, no. There’s a better solution we’ll explain in this article.
Why Naming a Minor Directly Can Be a Problem
In most states, minors cannot legally receive life insurance proceeds outright. If a minor is named as a beneficiary and the policyholder dies, the state typically requires that a guardian be appointed by the court to manage the funds on the child’s behalf. This process can:
- Delay access to the money
- Require legal fees and court supervision
- Result in a guardian being appointed that you may not have chosen yourself
Once the child turns 18 or 21 (depending on the state), they would receive the entire lump sum—no strings attached, regardless of their financial maturity.
A Better Solution: UTMA Custodial Accounts
Instead of naming a minor as the direct beneficiary, consider using a custodial account set up under the the Uniform Transfers to Minors Act (UTMA). These allow you to:
- Designate a trusted adult custodian to manage the funds
- Avoid court-appointed guardianship
- Guarantee that the money is used for the child’s benefit, like education or basic needs
You can name the custodian of the UTMA account as the beneficiary of your life insurance policy, with instructions to manage the funds for your child until they reach the age of majority.
Other Alternatives to Consider
If you want more control over how the funds are used or distributed over time, you might consider setting up a trust and naming the trust as the beneficiary. This is more complex and may require legal help, but it can be especially useful for larger policies or when you have very specific intentions for the money.
Making Thoughtful Decisions About Life Insurance
We keep our clients informed so they know exactly how their money will move throughout every stage of being a policyholder. If you named your child as a beneficiary, it’s because you want them to end up with the money. It’s so important to understand how your child being a minor can throw a wrench in things. We recommend utilizing tools like a UTMA account because it smooths out the process for you and your dependents.
Are you reading this while reassessing your coverage or as a first-time life insurance buyer? Either way, we encourage you to try our online life insurance calculator. It’s free, totally anonymous, and doesn’t even require an email address.If you have any more questions like this, check out our blog! We regularly put out new articles answering questions about life insurance. For more personalized assistance, schedule a call with one of our experts.
