Monday, September 24, 2012

Use Caution When Naming Minor Children as Your Life Insurance Beneficiaries

Use Caution When Naming Minor Children as Your Life Insurance Beneficiaries

In the spirit of September being Life Insurance Awareness Month, I want to point out something that may seem unassuming but could end up having negative unintended consequences: naming minor children (in the legal sense of that definition) as beneficiaries of your life insurance in their own right. Hang on a minute and I’ll explain.

Of course you can name your kids as your beneficiaries! After all, isn’t that why you’re buying that death benefit coverage in the first place? So you see, I get that. However, naming a minor in their own right (as I call it) could create a problem for them down the road. Should the unthinkable happen and you pass away while your child is still younger than legal age, your kid will not be able to access the money until he/she reaches the age of majority (which is 18 or 21, depending on the laws in your state).

Obviously, I am not a lawyer so I can’t go into the legal explanations. However, I can tell you that if your beneficiaries are younger than your state’s age of majority for purposes of receiving life insurance death benefit checks, you’d be wise to revisit your policy and be sure you clearly understand the ramifications involved. You definitely don’t want to be caught unaware and potentially put the very folks you intended to financially support or protect in a situation where they are unable to access the funds for God knows how long.

The good news, though, is that there are fairly simple means (that neither require a lawyer or accountant nor special drafting documents) by which you can name your minor dependents as beneficiaries. Sounds good, right? A knowledgeable (I repeat, knowledgeable) insurance professional, one who really knows what he or she is doing and is not just filling out paperwork, should be able to help you document things properly.

Generally, you’d do that by appointing an adult supervisor, someone you trust implicitly. That adult would be allowed to request (and provide detailed accounting for) some of the money necessary to care for the minor until the minor reached the legal age of majority, at which point they would take over and  assume full control of their money. Of course, you can always consult with your attorney to get his or her blessing, too.

In a nutshell, I’m suggesting that you simply make sure your minor beneficiaries are properly covered. Just because you have indicated their names on the insurance paperwork won’t change the law.

Wishing you a long, happy, healthy, and fulfilled life!
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