Life Insurance and Young Families

Article published on 29th May 2008

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What options are open to young families that have taken out life insurance?

It's generally a good idea to invest in some sort of life insurance, so that if the worst should happen those you leave behind (hopefully children and grandchildren rather than a young spouse or parents) will not have to worry about death duties or any other financial issue that can arise from the death of a loved one.

Generally, if a young couple take out life insurance, the chances are that the spouse or partner will be named the prime beneficiary of any payout should one or other die, with any children benefiting by proxy. Offspring can be named as contingent beneficiaries in the unfortunate circumstance that something happens to both policy-owning parents ate the same time. In this case any proceeds from the insurance payout will go to the offspring.

What should you do, however, if you wish to allow for special circumstances (in terms of management of the insurance payout) to cover premature death while your children are still young?

If children are named as contingent beneficiaries to a life insurance policy it is usually impossible to control how the proceeds from the insurance are administered to your offspring through your will. So it is not enough to make your wishes clear in a legal will and testament, because this has no effect on the life insurance payout. However, if you name your estate as the contingent beneficiary in your insurance policy then you can specify how monies are administered and used through your legal will. That said, naming your estate as beneficiary can be costly and time consuming in terms of probate considerations connected to your will.

You can also organise for proceeds from your life policy to be placed into a living trust, which would avoid probate and give you control over how and when the money is administered your children. You can usually find a reasonably good quality trust-based estate plan for between one and four thousand pounds - it's worth asking around different banks and investment companies for a good deal. If you want to make changes to such a trust as you and your children get older (such as naming a new beneficiary or trustee) then this will of course be possible but will usually incur some cost.

Any respectable firm of solicitors can help you plan the most appropriate course for your individual circumstances. As ever, be sure to ask around.

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