It is an instinct that makes most people think of their children when naming their life insurance beneficiary. Though it makes complete sense, is it ideal to choose a minor as the beneficiary? If your child is a minor, they won’t be able to access the money until they turn 18 or 21. You have to find a better way to provide for your kid and make the death benefit easily accessible to them.
Let’s look at some of the advantages and disadvantages of naming a child as a life insurance beneficiary:
Can a Minor Be Named as Your Life Insurance Beneficiary?
Yes, as the parent you can name your child as the beneficiary to your life insurance. But if you were to pass away while your child is still a minor, the death benefit won’t be given to your child. A guardian will be appointed to manage the funds until your child doesn’t come of age. The process of appointing a guardian and transfer of the death benefit may vary. It is best to discuss this with your insurance company and how the events will unfold in case you name a minor as your beneficiary.
Advantages of Naming a Minor as the Beneficiary
1. Financial Stability
Your child will eventually get access to the death benefit and will be financially stable in life. The life cover will eliminate the need of taking a loan for higher studies or to care of their basic necessities until they are settled.
2. Better Choice
As parents, your child is the best choice to be your insurance beneficiary. They are still dependent even if they have reached the legal age. It will take them time to get financially independent but till then a death benefit can provide for them.
Disadvantages of Naming a Minor as the Beneficiary
1. No Access to Money
Your child won’t be able to access the money until they come of age. They would have to take care of their expenses by depending on a family relative till they turn 18 or 21 to become independent.
2. Funds Managed by Someone else
The death benefit will be managed by a guardian appointed by the court. You will have no control on who gets picked as the guardian and is in charge of the money.
Though your child may not be the perfect pick for being your life insurance beneficiary, you could entrust the money with someone who is reliable. But if you do not know anyone who is dependable then you can set up a trust that will hold the money for your child. While deciding your life insurance beneficiary it is advised to discuss the possibility of setting up a trust to hold the money.