Life insurance helps provide financial support for the people you love after you die. For this reason, new parents often find themselves buying their first life insurance policy after their first child is born. But have you considered how you're going to leave your children your life insurance after you're gone?
If you've purchased a life insurance policy for the benefit of your children, you may need to make legal arrangements for how the proceeds will be distributed and managed — especially if your children are minors at the time of your death. If you haven't appointed a guardian to manage your life insurance policy's payout and your children are not legal adults, the court will most likely appoint one for you. If you don't want to leave this decision up to the court and would prefer to avoid having your children incur attorney and court fees that could dip into their benefits, consider the following:
- Assign a trusted guardian as the beneficiary — Naming minor children as beneficiaries on your life insurance policy is a common mistake that many new parents make. Appointing an adult guardian who you trust to manage the proceeds of your life insurance policy and who will use the money to benefit your children, is one solution. Be sure to discuss any beneficiary changes with your life insurance agent or company representative.
- Establish a living trust — A living trust is another way to ensure that the payout from your life policy goes to benefit your children — as you have intended. In a living trust, you name your children as the beneficiaries of any money that the trust receives from your policy. When you die, the money goes into the trust and is managed according to your wishes for your children by a trustee (typically a trusted adult that you appoint).
- Consider a Uniform Transfer to Minors Act (UTMA) account — Under your state's UTMA, you designate that the proceeds from your life policy are paid to an adult custodian for the benefit of your minor child and held in an UTMA account. The guardian must distribute the funds to your child per your wishes as required by the Act. If you have more than one child, you will need to establish a separate UTMA account for each child. Be sure to consult a qualified attorney or financial advisor if you are unsure of your state's UTMA requirements.
Selecting life insurance is just the first step to ensure that your children are taken care of financially after you're gone. However, it's equally important to properly designate the beneficiaries of your policy — especially when you have minor children.
This article presents three very common ways for you to make sure that your life insurance policy protects your children after you're gone. For a free quote and more information about child life insurance, visit the Protective Life Insurance website.
If you'd like to read more about understanding your beneficiary options or life insurance considerations for parents of special needs children, visit the Protective Learning Center.