Children as Beneficiaries on a Life Policy

Written by Rachel Popkowski

Selecting who should receive your life insurance money (beneficiary) after you die seems simple, right? Not quite! Most individuals purchase life insurance as a way to take care of their families in the event of their untimely death, but selecting exactly who should receive that money can be tricky. 

The focus of this article is children as beneficiaries and whether that is your best option. The short answer is “no.” The reason is because life insurance companies won’t distribute benefits directly to minors.  (I mean, what 8-year-old kid is going to be able to responsibly manage a $500,000 life insurance benefit?) 

Your best option is one of the following:

  1. Create a trust and name the trust as the life insurance policy beneficiary.
  2. Name an adult custodian for the life insurance proceeds under the Uniform Transfers to Minor Act, which allows the proceeds from a life insurance policy to transfer to a child’s named custodian to help with the needs of the minor up until the child reaches a certain age, which is usually 21.
  3. Designate a reliable adult to manage the funds for the minor.

All the options listed above avoid probate (which is when the court appoints someone to handle the proceeds, sometimes with serious restrictions on use and distribution) and are not subject to the claims of creditors. We always recommend consulting an estate attorney to help you decide the best course of action for you and your children. 

Once you’ve selected your option, just make sure you have filled out the beneficiary paperwork correctly and then review the beneficiary designation every three years or after a major life event occurs, such as a death, birth, marriage, or divorce. Life is crazy enough as it is; don’t let an improperly designated beneficiary ruin your afterlife!