Reasons Not to Designate Children as Life Insurance Beneficiaries

Life insurance policies allow you to designate specific beneficiaries. Names listed directly in these policies override what may otherwise be stated in your will. Most parents are inclined to list their children as beneficiaries, but this does not normally achieve the desired result. Here are a few reasons why.

1 – Delayed Receipt of Proceeds

If your children are under the legal age of 18, they will not receive your life insurance proceeds! This is one of the most important reasons not to designate children as life insurance beneficiaries. Insurance companies will not send a payout to minors. In Massachusetts, that’s defined as anyone under the age of 18.

Insurance companies may retain the funds until your children become adults or the courts may assign a legal guardian. Either way, this could leave your children without critical financial support for a period of time. Ask your Massachusetts estate planning attorney about creating a trust for your children, and making that trust the beneficiary of your life insurance benefits.

2 – Squandering of Funds

Even if your children are young adults, there are other reasons not to designate children as life insurance beneficiaries. They may not have the maturity to manage a large sum of cash. Imagine an 18-year old freshman in college suddenly receiving $500,000 in life insurance proceeds. Is he/she likely to stay in college, use the money to pay for education expenses, and save for his/her future? Is there a chance that your children will make some really poor decisions that will forever impact their future?

Even adults are prone to poor decision making, but young adults are more susceptible due to their inexperience with managing money. If you have specific goals in mind for your life insurance proceeds and/or want to extend the benefit of those funds through certain stages of your children’s lives, consider a trust as the legal mechanism that can protect those funds and honor your wishes.

More Reasons Not to Designate Children as Life Insurance Beneficiaries

Many people make the mistake of segregating their life insurance policy from the rest of their estate plan. It should actually be managed as a whole. In some cases, designating direct beneficiaries can be advantageous and in other cases it may have a negative impact. Work with your Massachusetts Estate Planning Attorney to identify all of your assets and debts, leveraging them in a manner that creates the most benefit for your heirs. Schedule a consultation with our team to get started.