When you purchase a life insurance policy, you have the option of naming a beneficiary who will receive the proceeds of the policy upon your death. When you have a family, it is common to name your spouse as the primary beneficiary. But what about the contingent, or secondary, beneficiary? If you have kids, you may initially think to name them as beneficiaries as well. However, here are 5 important things to consider before naming your children as beneficiaries.
Age of your children
When naming a child as a beneficiary, it is important to consider their age. If they are under the age of 18, they will not be able to receive the proceeds of the policy directly. Instead, unless designated by you beforehand, the court will appoint a guardian or custodian to manage the funds until the child reaches the age of majority.
Designating a custodian
To avoid the need for court intervention, you can name a custodian for your life insurance benefits who will manage the funds on behalf of your children until they reach a certain age. This custodian can be a trusted family member or friend who you believe will act in the best interest of your children.
Consider a trust
A helpful option is to create a trust and name the trust as the beneficiary of your life insurance policy. This allows you to control how the funds are used and who manages them. You can also specify how the funds are distributed, such as for education, housing, or healthcare expenses, even after your children turn 18.
Discuss with the proposed guardian/custodian
Before naming a minor as a beneficiary, it is important to discuss your plans with the proposed guardian or custodian. Make sure they are willing and able to take on the responsibility of managing the funds on behalf of the child.
Review your beneficiary designations regularly
It is important to review your beneficiary designations regularly, especially if your circumstances change. This includes the birth of additional children, divorce, or the death of a named beneficiary.
A life insurance policy is a wonderful way to provide for the future financial needs of your children. However, once again, it is important to carefully consider your children’s ages, designate a custodian or set up a trust, discuss plans with the proposed guardian, and review your designations regularly. By taking these steps, you can ensure that the funds are used in the best interest of your children in providing for their future needs.
CEG Life Insurance Services can help
If you would like a complimentary review of your beneficiary arrangements on your current life insurance policy, or need help getting a life insurance policy to protect your family, CEG Life Insurance Services can help. Contact us today to speak to a licensed life insurance professional.