Selling a life policy to a single mom.

[selfgen]

She’s in her late 20’s with two young children. She’s a friend of our family, she used to babysit our children when she was younger. Now I’m trying to make her understand that she needs to get some protection in case something happens to her. So many of these young parents are running around with young kids and without life insurance. And it’s so very inexpensive.
But anyway, my question is, is this where the beneficiary is a trust , an entity that ensures the death benefit actually goes toward the children rather than the children’s father or one of the insured’s family members, either of whom might misuse the proceeds. How does an agent instill confidence in the insured that their will will be done. Can someone explain how this happens during the application process? I am a health insurance agent and I hadn’t written that much life business but now I am starting to.
She doesn’t have a spouse to list as a beneficiary and what if she doesn’t have someone she can truly trust will do what’s best for her kids, should she die while they are young?

 

[rousemark]

She’s in her late 20’s with two young children. She’s a friend of our family, she used to babysit our children when she was younger. Now I’m trying to make her understand that she needs to get some protection in case something happens to her. So many of these young parents are running around with young kids and without life insurance. And it’s so very inexpensive.
But anyway, my question is, is this where the beneficiary is a trust , an entity that ensures the death benefit actually goes toward the children rather than the children’s father or one of the insured’s family members, either of whom might misuse the proceeds. How does an agent instill confidence in the insured that their will will be done. Can someone explain how this happens during the application process? I am a health insurance agent and I hadn’t written that much life business but now I am starting to.
She doesn’t have a spouse to list as a beneficiary and what if she doesn’t have someone she can truly trust will do what’s best for her kids, should she die while they are young?

Who would take custody of the kids?

 

[NewbieNewbie]

Get a trust. Not just who would take care of minor children is the correct answer. Who would take care of the kids is the real world answer for 99percent.

 

[InsuranceMonkey]

A life company cannot release a policy payout to a minor child. It would go to a probate court who would decide who they think the guardian should be. It can be a lengthy and costly process and you may end up with a guardian not of your liking. Setting up a trust is a much easier and simpler solution if you don't have an adult beneficiary who has your child's best interest in mind, and/or who would most likely be raising them to age of majority. A minor child as a beneficiary is a headache waiting to happen.

 

[Allen Trent]

Agree trust is best, but in reality a young single mom likely doesn't have the resources or follow through to get a trust done & paid for.

Name the Minor kids directly. This way, it is guaranteed to be their money & if they are still minors at time of claim, the court will assure the money is used solely for their benefit & accounted for annually via probate court. Randomly naming another relative, friend, etc that you hope will use funds for kids has way to many things that can go wrong such as: credit/bankruptcy problems of the person, divorce by the person, lawsuit against the person. Also, the person would have zero legal requirement to use or safeguard the money for the children. Lastly, if the person did do it perfectly for the kids, they could even face gift taxes if they gave the kids more than the 15k or so allowed per year.

 

[Cornelius]

Put a policy in place and suggest she get a Legalshield membership ($24.95 month) That way she can get the Will done which is included in the membership or a Trust at a potential discount of course depending on the state provider law firm contract.

 

[scagnt83]

A life company cannot release a policy payout to a minor child. It would go to a probate court who would decide who they think the guardian should be. It can be a lengthy and costly process and you may end up with a guardian not of your liking. Setting up a trust is a much easier and simpler solution if you don't have an adult beneficiary who has your child's best interest in mind, and/or who would most likely be raising them to age of majority. A minor child as a beneficiary is a headache waiting to happen.

This is not correct.

Family Court decides who the Guardian of a child will be (at least in most states I think). Not Probate court. And that process is going to happen regardless of life insurance funds or not.

If you think most 20 something single moms are going to set up a trust, then you have not sold many policies to 20 something single moms. Wont happen with 95% of them because its not feasible for most of them.

UTMA designation on the app is the most reasonable solution in all states other than SC and VT.

 

[InsuranceMonkey]

Agreed. It is a very large leap of faith to name an adult Bene hoping they'll do what's right.

 

[scagnt83]

UTMA is your answer. Uniform Transfer to Minor Act. It allows an adult Custodian to be named on a financial account that is for the benefit of a minor. All states allow this except for SC and VT (last I checked).

If for some reason the carrier does not let you designate a Custodian (to my knowledge this would be against state law unless in SC or VT), you can sometimes designate a specific bank account (of the minor child) to receive the funds. And you set up that bank account as a UTMA account with the Custodian of your choice.

This solution allows you to ensure the Custodian of your choice controls the funds, regardless of who receives legal custody of the child.

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As pointed out, a Trust is the most secure way to go. But most single moms in their 20s dont have the spare funds to pay an attorney.

UTMA is the alternative.

 

[scagnt83]

Randomly naming another relative, friend, etc that you hope will use funds for kids has way to many things that can go wrong such as: credit/bankruptcy problems of the person, divorce by the person, lawsuit against the person. Also, the person would have zero legal requirement to use or safeguard the money for the children. Lastly, if the person did do it perfectly for the kids, they could even face gift taxes if they gave the kids more than the 15k or so allowed per year.

This brings up a lot of excellent points.

UTMA helps solve a lot of possible issues. The custodian could certainly abuse the funds, but the child would at least have legal recourse against them. And knowing that would hopefully discourage most from attempting anything shady.


But there is the whole family dynamic issue at hand. I have seen parents admit the other parent would use the money for the kids .... but still didnt wan them to get it.... instead trusted a sibling or extended family member, etc. Bad blood makes for very poor financial decisions sometimes.

I once heard of a situation where the grandparents were named Bene, hated the dad... who received full custody after a custody battle with the grandparents ... and they refused to give any of the funds to the father for living expenses... instead just spoiled the kids and bought a huge house for the "grandkids to visit at". Three kids shared 2 bedrooms, but the grandparents bought a new house with a bedroom for each child when they visit.

Had the grandparents been named Custodian under UTMA, the father could have pursued legal action against the grandparents for misusing the UTMA funds to buy a new house for themselves.