Minors as Life Insurance Beneficiaries: What You Need to Know

While it makes sense to use life insurance to protect a child, there are some disadvantages to naming a minor as a life insurance beneficiary. Can a minor be a beneficiary? The answer is often yes, but there may be extra legal and administrative steps before the death benefit can be disbursed appropriately.

Challenges to minors as insurance beneficiaries

If you have a life insurance policy, you typically choose a beneficiary — someone who will receive the policy's death benefit if you pass away. While you can list a minor child as the beneficiary, doing so isn't always the best idea.

Here are the challenges of naming a minor as a beneficiary:

Legal restrictions

In nearly every state, death benefits cannot be paid to anyone who hasn't yet reached the age of majority. In most states, that milestone is at least 18, although it's higher in some states. So while your child could be the beneficiary, they can't actually get the money themselves until they become an adult. This is one reason the question can a minor be a beneficiary on life insurance often needs a fuller answer than a simple yes or no.

A custodian is required

An adult custodian is responsible for receiving, holding and managing funds until the children reach the age of majority. This is often a trusted family member who lives nearby or another dependable adult.

Most insurance companies require court documents appointing a custodian over financial matters in order to issue payment. Obtaining court approval for a custodian can take time and may be costly. It’s helpful to be aware of these requirements early in the process so you can plan accordingly if you’re considering minors as beneficiaries.

The process can be slow

Even if all the steps above are undertaken, the court process can be lengthy for a life insurance payout when the beneficiary is a minor. That can delay your child's ability to use the funds for critical expenses like housing or school tuition by weeks or even months.

Quick takeaway: Yes, a child can sometimes be named as a beneficiary, but a trust, custodian or guardian arrangement may give you more control and may help avoid delays.

An overview:

Alternatives to making your children beneficiaries

Given the steps and potential delays to naming a minor as the primary beneficiary to your life insurance policy, it’s worth considering other options that could be a better fit. Meet with a financial advisor and an attorney specializing in estate planning to determine what works best for your situation. These are some popular alternatives:

Designate a guardian or trustee

If you're married, listing your surviving spouse as the primary beneficiary could be one solution. Your partner would receive the death benefit, and they can use it to cover your child's expenses.

Alternatively, you can list another person, such as a close relative or trusted friend, as the child's guardian or adult custodian. To make sure this step works appropriately, contact an attorney and update your will so that the funds will be used solely for your child's benefit.

Establish a trust

One way to list a minor child as a beneficiary is to set up a life insurance trust, a legal entity that holds assets. The trust is managed by a designated trustee — someone you trust — who oversees the account on behalf of the child.

The trust, not the child, is the primary beneficiary. The designated trustee uses the funds or transfers the money per your guidelines.

If you're considering a trust, talk to an attorney to make an informed decision.

Set up a custodial account

An adult can open an account and contribute to it on behalf of a child, and the custodial account can only be used for expenses related to the child's education or needs. Once the child reaches the age of majority, which varies by state, they can use the funds as they wish. For example, the child may use it to pay off student loan debt or as a down payment on a house. This type of setup may be worth discussing if you’re weighing whether a child should be a direct or contingent beneficiary.

Questions to ask when planning for a minor beneficiary: 

• Who would manage funds on behalf of my child if I pass away? 

• Should I set up a trust to control how and when funds are distributed? 

• Have I named a guardian in my will?  

• Have I discussed my plans with an estate planning attorney?

For related guidance, see what is a beneficiary?, how much life insurance do I need? and term vs. whole life insurance.

Child as beneficiary, or not?

With life insurance, naming your child as the beneficiary may seem like the most natural choice. But if your child is under 18, naming them as the beneficiary can cause delays and other complications.

Instead, explore other options like creating a trust or choosing a legal guardian. And, be sure to review your policy and update your beneficiaries, if necessary, to ensure the money goes to the right place.

Ultimately, when you purchase coverage through a life insurance company, your aim is to create a safety net for your loved ones. Some professional help can allow you to accomplish that goal in the best way. Writing a will, structuring trusts and handling guardianship can be complex issues, so an experienced attorney and a financial advisor can be invaluable.

Ask family and friends for recommendations on professionals they’ve used successfully. Alternatively, use the American College of Trust and Estate Counsel to locate an estate-planning attorney near you.