Starting a family can be a great reason to look into life insurance. It will give you some much needed peace of mind that your kids will have financial stability if you were to pass away unexpectedly. There are some additional steps that you can take to ensure that your kids are well protected with life insurance.
Make Your Children the Contingent Beneficiaries
Many people only list their spouse on their life insurance policy as the primary beneficiary. Unfortunately, this can cause some problems with your children if both you and your spouse pass away at the same time due to an unforeseen accident. That is why it will help to list your children as the contingent beneficiaries of the policy.
Anyone on a policy that is listed as a contingent beneficiary receive benefits under certain conditions. You can have your spouse listed as the main beneficiary, but set up the policy to pass along benefits to your children after your spouse passes away.
You can even have the money paid out to your children go directly to a trust, which will protect their money until additional conditions are met. For example, you can have the trust set aside the money for college tuition and withhold the remainder for graduation.
Use a Life Insurance Plan with Revocable Benefits
Between 40-50% of marriages end in a divorce. While the life insurance policy may have your current spouse as a beneficiary at first, you may not always want them to receive your life insurance benefits.
Select a policy that has revocable benefits, meaning that you can take your spouse off the policy in the unfortunate event of a divorce. It will ensure that your kids receive all of the benefits of the insurance policy instead of having to split it with a former spouse.
Assign Benefits Received as Percentages
The final payout of a life insurance policy will not be predictable with 100% accuracy. There will be additional costs to settle an estate that may come out of a life insurance policy, or you have a policy that grows and is now worth more money. It is best to assign each person in the policy a percentage of the benefits rather than a specific dollar amount. This will help clear up any confusion about how much everyone receives, and prevents your children from getting less than what you intended.
Speak to an insurance agent if you have questions about setting up life insurance with your kid's interests in mind.