Your life insurance policy is aimed at safeguarding the financial well-being of your loved ones in the event of your untimely demise. The death benefit pay-out from your policy will be received by those you list as nominees in your policy document. While naming your child as an insurance nominee for your life insurance plan may seem prudent, you must consider the nitty-gritty of this process before deciding.
Is it not preferable to Name My Child as A Life Insurance Nominee?
As a parent, your child is your top priority. You wouldn’t want their educational aspirations to be jeopardised if something untoward were to happen to you. Therefore, making your child a nominee for your life insurance policy may not be such a bad idea.
Alternatives to Naming Your Child as a Nominee for Your Life Insurance
If your child is a minor (under 18 years of age), the policy pay-out may be too much for them to bear and a minor will not get the financial benefit if the policyholder fails to give appointee’s information, who is given the pay-out until the minor reaches the age of 18. Hence, you may avoid naming your minor child as the primary nominee for your life insurance plan. However, you can ensure that the death benefit pay-out takes care of your child’s expenses in the following ways:
● Appoint a Custodian -
You can name a person you trust as the legal custodian for your policy pay-out. This person will receive the death benefit pay-out on behalf of your minor child and manage the same to cover your child’s expenses.
● Form a Trust -
Creating a living or revocable trust may also be a prudent choice. In such cases, your insurer pays the death benefit to the trust, which is managed by a trustee.
This trust must be structured in a way that the trustee must use the money for the care of the child. Moreover, since this is a revocable trust, you can alter its terms as and when needed to ensure your child has a financially secured future.
● Name your Child’s Legal Guardian as Contingent Beneficiary -
When drafting a will, most people name their family members or friends as legal guardians of their children. This is done to ensure the child remains safe if something untoward were to happen to both parents.
If you’ve made this inclusion in your will, you should also amend your insurance beneficiary line-up. By naming the legal guardian of your child as a contingent beneficiary in your policy, you ensure that after the death of your spouse (primary beneficiary), the death benefit goes to the guardian of your child who will use it to look after your child.
Wrapping It Up
Life insurance plans are aimed to help your family meet their financial expenses and achieve life goals in your absence. To this end, you can ensure that your child is well taken care of in your absence by naming him/her as a nominee for your life insurance policy. However, when doing so there are certain caveats to consider.