YOU ASK:

How should a life insurance beneficiary be named if a minor?

WE ANSWER:

First off, it is not advisable for you to name a minor as a beneficiary in a life insurance policy.

Although it seems logical to name your children or grandchildren as beneficiaries in your life insurance, it is not wise to do so. This is because in the event that you die while they are still minors, the payout may be delayed because of legal complications. For one, minors do not have the legal capacity to conduct business.

There are various ways that you can name your minor beneficiaries to ensure that your children (who are still minors) and your spouse are taken care of. However, you should carefully study the implications of each choice and the possible consequences. To help you decide, you should ask your financial adviser or insurance agent for advice.

Set up a trust: Here, you don't name the minors as your beneficiaries. Instead, a trust is established to receive the death benefit of your insurance. You can choose the trustee who will manage the trust to help ensure that your family's interests are protected. You can also have the option of designating how the money will be used - you can specify that it be used for your family's basic and daily needs, or for the tuition of the children. You can also set the trust up in such a way that the funds are distributed at a certain age of the minor. (i.e. a portion of the insurance proceeds is given to the child on his 18^th birthday, another portion on his 21^st birthday and so on). The executor is designated in your will.
Set up a guardian who will act in behalf of your child and safeguard the interests of your child. You should, however, note that the guardian will be given the authority over the money so you should choose wisely. There is danger of the guardian misusing the funds or investing it unwisely so that your child ends up with nothing.
Leaving the proceeds in a restricted account. This directs the money into an account in the minor's name and he can get it when he becomes an adult. However, you should also consider the effect of leaving a large sum of money to a person who has just turned 18. You may be doing the child more harm than good when you provide him access to a large amount of money at so young an age. That is why this option is only recommended if the policy amount is small.

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