Can a Minor Be Your Term Life Insurance Beneficiary?

When purchasing a term life plan, you can name a minor as a beneficiary for insurance. However, some terms and conditions apply. First, the minor person nominated as beneficiary must be your child. Second, if the beneficiary is minor at the time of claim settlement, they must have a legal guardian to receive the benefits on their behalf. 

Read on as we explain the legal aspects of naming a minor as a beneficiary for your insurance and walk you through some of the best practices you should follow when choosing a minor life insurance beneficiary. 

What Is a Term Life Insurance Beneficiary?

A beneficiary, also called a beneficial nominee, is a person the policyholder designates to receive the benefits from the term life insurance plan upon the policyholder’s death. The nominee can be your parent, spouse, sibling, child, or friend.

As per the Indian Contract Act, for a person to be a beneficiary in contracts like term life insurance, they must attain the age of majority, possess a sound mind, and not be disqualified from entering into an agreement by any law they are subject to. 

Moreover, you can have primary and secondary beneficiaries. If the primary beneficiary outlives the insured, they receive the death benefit, in part or whole. If they die before the insured, the secondary beneficiary receives the proceeds.

Naming a Minor as a Beneficiary: Legal Aspects

As per the Life Insurance Corporation of India (LIC) Act, a minor, i.e., a person below 18 years old, can’t be a nominee for term life insurance unless they are the policyholder’s child. That means you can nominate your own child as a beneficiary even if they are minors. However, there are some things to consider:

• The minor beneficiaries can only receive policy benefits once they attain the legal capacity established in the Indian Contract Act. 
• When designating a minor beneficiary, you must also assign a legal guardian to handle the term life insurance claim and receive the payout on the minor’s behalf. 
• As per the Guardian and Wards Act, the guardian can make decisions regarding the policy until the minor reaches the age of majority.
• When the minor reaches the age of majority, the guardian must give them the proceeds from the policy. 
• Consider establishing a trust to manage the policy benefits until the child reaches majority. You can create a deed for this trust specifying how trustees should use the funds, like education, medical expenses, etc. 

Mechanisms to Support Minor Beneficiaries

To safeguard the interest of your minor beneficiary for insurance, make sure to use the following mechanisms established by the law:

• Legal Guardianship: Always designate a legal guardian when choosing a minor term life insurance beneficiary. Legal guardians are required by the law to act in the minor’s best interests. Also, make sure the person you appoint as legal guardian can be trusted with financial management on behalf of the minor.
• Create a Minor’s Trust: Creating a trust allows you to protect proceeds from the policy until the minor reaches the majority. You can also specify how the trustee or guardian should use the funds until the minor is financially responsible.  

Best Practices for Naming a Minor as a Beneficiary

Here are some best practices to follow when designating a minor term life insurance beneficiary:

• Carefully review the provisions under laws like the LIC Act, Guardian and Wards Act, and Indian Contract Act to understand the legal and financial implications of having a minor beneficiary.
• Assign a legal guardian or establish a trust to ensure the policy benefits are managed wisely until the minor becomes financially and legally capable. 
• Policyholders must regularly update beneficiary designations to reflect any changes in their life or the minor’s circumstances. For instance, the minor beneficiary may expire before the policyholder. In such cases, it’s imperative to assign a new primary beneficiary.
• When selecting guardians and trustees to manage policy benefits, make sure they are trustworthy. These individuals must be capable of managing the funds responsibly and have a genuine interest in the minor’s welfare.

Add one more section about who can be the nominee in your life insurance plans.

Who Can Be A Nominee in Your Term Life Insurance?

Since nominees receive the death benefit, they are usually the most trusted people in the policyholder’s life. They may include:

1. Family Members: You can pick your immediate family, like spouse, children, parents, and siblings, as nominees.

2: Friends: People can also nominate their trusted friends as nominees in life insurance.

3. Relatives: Close relatives can also be chosen as nominees in life insurance. 

Key Takeaways

When purchasing a life plan in India, you can designate a minor as the beneficiary for insurance without any hassle. However, the minor beneficiary must be a child of the policyholder. Furthermore, it’s also advisable to always assign a trusted person as the minor’s guardian who can manage the policy payout on behalf of the beneficiary until they reach a majority.

Additionally, you can also consider platforms like PhonePe for a seamless and hassle-free insurance purchase experience.