The Quick Answer

Naming children as beneficiaries

It is a great idea to get life insurance to secure your children’s futures but it can get a little complicated when your children are not of age. Depending on the state, your child may need to be at least 18 or even 21 to receive the death benefit payment. 

The death benefit payment will be left for the court to decide what to do with the funds. They will name a guardian for the child’s death benefit payment to watch over what happens until the child is of age. This guardian will charge fees for the duration of that time making it difficult for your beneficiary to do much with the death benefit. However, there is a way to overcome this and make it so everything you had in mind goes as planned.

List a custodian

To avoid all of those problems listed above, you should get a custodian enlisted. The best custodians are people you know personally. Custodians will be trusted with making financial decisions that are in the child beneficiary’s best interest. When the child becomes of age, they will then have full control of the death benefit.

It is also possible to select a property guardian and a personal guardian. The property guardian takes care of the death benefit itself while the personal guardian is the one that will personally take care of the child. This is normally done when there is a close family member or friend that can take care of the child perfectly but is maybe not the best to take care of the child’s finances.

Name a guardian as a contingent beneficiary

If you’re not 100 percent sure about naming your child as a beneficiary on your insurance policy, consider naming the child’s guardian.

When you create a will, it’s best practice to indicate who would be the legal guardian of your children if something happened to you and/or your partner. Often, this person is either your parent, a sibling or close friend. If you have already had those important conversations with your family and designated this important person in your will, consider making them the contingent — or backup — beneficiary.

The way this works is you would list your spouse or partner as the primary beneficiary on your policy and then the legal guardian as the contingent beneficiary. The guardian will receive the money if all primary named beneficiaries are dead, either in a lump sum or in installments, and can use that money to raise your children into adulthood and provide for their future.