Can I name my grandchild as a life insurance beneficiary?
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Asked January 16, 2012
The beneficiary on a life insurance policy can be anyone the policy owner wants it to be, including children, grandchildren or even an employer. The primary concern for the insurance company is that the owner of the policy has and insurable interest, regardless of who that owner specifies as the beneficiary. So, if you are the owner of the policy, you can name anyone as the beneficiary, including grandchildren or even an organization such as your favorite charity.
The beneficiary does not have to have an insurable interest in the policy, only the policy owner, although some insurers or types of policy may have a different set of rules or procedures. In a vast majority of policies the beneficiary has something to lose if the person named in the policy passes away, such as the grandchild being left without a means to be properly cared for. However, where the beneficiary is a blood relative, the insurable interest is generally implied, even if the beneficiary is not a next of kin, which is often the case when a grandchild or nephew is named as the beneficiary.
Where a problem may arise with naming a grandchild as the beneficiary is when your grandchild is a minor at the time the policy comers up for settlement, because most states have laws regarding the way that money can be left to those under the age of majority, not because of insurance regulations themselves. In this circumstance, it might be better to set up the policy so that it will be deposited into a trust fund that pays regularly scheduled amounts to the guardians of the minor child, or even set it up so that the payout goes into a savings account that cannot be accessed until on or after the child's 18th birthday. The first possibility leaves open the possibility that the child's parents may not give the money to the child, but the second instance would guarantee payment, albeit months or years after the policy has been settled.
Answered January 16, 2012 by Anonymous