What typically happens with death benefits for minor beneficiaries under age 18?

When a life insurance policy designates a minor as a beneficiary, the insurance company typically cannot make direct payments to the minor because they do not legally have the capacity to receive funds. Instead, the common practice is for the insurer to establish a trust or custodial account for the minor beneficiary. This setup ensures that the funds are managed appropriately until the minor reaches the age of majority, at which point the funds can be disbursed to them.

Establishing a trust provides protection for the minor's financial interests and allows for the funds to be used for their benefit, such as education expenses or care, under the oversight of a responsible adult or trustee. This ensures that the death benefits are used for the intended purpose and not mismanaged since minors may not have the financial acumen to handle such funds directly.

Trusts serve not only to manage the money responsibly but also to protect it from potential claims from creditors or other legal issues that might arise as the child grows. Overall, the establishment of a trust aligns with the objective of safeguarding the well-being and financial security of minor beneficiaries until they are legally capable of managing their inheritance independently.