Often, life insurance is the first place parents turn when they start worrying about what will happen if one or both parents were to die prematurely. However, one must carefully consider before buying whether or not you need it and which policy is the best and who should manage the proceed until the minor child comes of age.

What Type of Life Insurance Do You Need, If Any?

A lot of insurance salespeople try to pressure parents into buying high-cost insurance plans by exploiting fears of premature death. Be cynical. Consider all sources of income for your kids if you were to die while they are still dependent upon your financial income.

You need not worry too much about life insurance if you are wealthy or have affluent relatives who would act guardian in case of your death. But, if you’re that man who is struggling to pay for your car job or your kids’ school books, you can’t afford to ignore the fact that your family may land in trouble if you die prematurely.

Keeping this in mind, we suggest you avoid expensive cash value life insurance (whole life, universal life, variable life) that offer “hidden cash” or lump sum payment after a certain period of time. This is a long term savings plan and won’t be available to your child if you were to die in the next few years.

Consider buying an affordable amount of term insurance; the cheapest form of life insurance, in case you’re young and healthy. Younger parents obtain a significant amount of coverage for relatively low cost, for the obvious reason that statistically they are unlikely to die soon, so the risk to the insurance company is low. Without putting too much financial pressure on your already delicate bank account, term life insurance will provide quick cash for your kids if required.

Leaving Life Insurance Benefits to Minor Children

Make sure you arrange for a competent adult to supervise the proceeds of your life insurance benefit via legal means or else the court will appoint a property guardian in case of your death. The process necessitates attorneys' fees, court proceedings and court supervision of life insurance benefits--costs and hassles that surely won't help your kids. There are several ways to prevent this:

--If you are confident of a beneficiary who will not waver from his or her duty even years down the line, the easiest option would be to name them as your beneficiary.

--Specify the percentage and name of each of your children as your life insurance policy beneficiaries and also name an adult custodian under your state's Uniform Transfers to Minors Act. Most insurance companies permit this and have forms for it.

--You can name the trustee as the beneficiary of the life insurance policy if you have a living trust. In the trust document, name the minor children as beneficiaries of any money the trust receives from the insurance policy. You'll need to give a copy of your living trust to the insurance company.