Naming a Minor as Life Insurance Beneficiary: Understanding the Implications
A recent discussion on The Dr. John Delony Show brought to light a surprising situation: a woman discovered her husband had named their two-year-old child, not her, as the primary beneficiary of his life insurance policy. This sparked a crucial conversation about the potential complexities of such a decision, especially for parents.
A life insurance policy can name a minor as the primary beneficiary, but there are things to know. (Photo by Sarah Chai/Pexels.com)
While the intention is often to secure a child’s financial future, naming a minor as the primary beneficiary presents various legal and logistical challenges that should be considered.
Can the Spouse Override the Beneficiary Decision?
In many cases, a spouse is the default primary beneficiary of a life insurance policy. However, policies can be changed. The spouse’s rights can also be affected by the state where the couple resides.
In the United States, some states have community property laws that protect a spouse’s rights to a deceased partner’s estate. Generally, a life insurance payout is separate from an estate unless the policy is written “in trust.” In community property states such as Arizona, Idaho, Louisiana, New Mexico, Texas, and Wisconsin, the surviving spouse might be entitled to 50% of the death benefit, even if someone else is named as the beneficiary. In these cases, insurance providers could be required to split the payout between the legal spouse and the named beneficiary, depending on the legal interpretation of shared marital assets.
Why Naming a Minor as Beneficiary Is Legally Complex
Designating a child as the beneficiary of a life insurance policy may seem like a straightforward decision, but it presents logistical and legal hurdles. In most U.S. states, minors cannot directly receive payouts until they reach 18 — or 21 in some jurisdictions. If a policyholder passes away before their child reaches adulthood, the funds will not automatically transfer to the minor. Instead, a court may appoint a guardian or custodian to manage the money on the child’s behalf. Ideally, a parent would name a trusted adult custodian in the policy documentation, and failing that, the matter would go to probate court for a judge to decide. This process can delay access to the funds and potentially create family tension if the surviving parent is not the primary beneficiary or guardian.
A Will Isn’t Enough to Override a Life Insurance Policy
It’s crucial to understand that the named beneficiary on a life insurance policy takes precedence over instructions in a will. Even if the husband declares in his will that his wife should receive the proceeds, the insurance company is legally bound to follow the named beneficiary on the policy unless instructed otherwise through formal legal changes. In rare cases, contesting the designation is possible—particularly if fraud, coercion, or legal ambiguities are involved—but such challenges must be resolved through the courts, and there is no guarantee of success.
How to Protect Your Child’s Financial Future Without Overlooking Your Spouse
For those who want to provide for a child while avoiding these pitfalls, establishing a trust may be the safest and most effective route. This allows the child to be named as a beneficiary while assigning a trustee to manage the life insurance payout according to the deceased’s wishes. This method ensures proper management of the funds and eliminates the need for probate and court intervention. Alternatively, policyholders can name their spouse as the primary beneficiary, with the child listed as a contingent beneficiary. This allows the spouse to oversee the child’s financial needs while still granting access to funds if the spouse is no longer alive.
Final Thoughts
While the thought behind naming a child as a life insurance beneficiary may be commendable, it’s essential to understand the legal ramifications and potential consequences. As the woman on Dr. John Delony’s show discovered, seemingly small financial decisions can have a major emotional and legal impact, especially when the people most affected weren’t consulted. If you’re navigating life insurance planning, it is wise to seek legal advice to ensure your loved ones are cared for in the way you truly intend. Careful planning today can help prevent heartache, confusion, and conflict in the future.
