When you buy a policy for a significant sum, you may want to list a variety of people as beneficiaries. However, you should remember why you initially got a plan.
If the policy is primarily to support your children after you have died, then name them first. If you want to leave it to your spouse to make up for lost income in your absence, he or she should be listed as the primary beneficiary. If you want the policy to be used to keep a family business going, then adjust the beneficiaries accordingly.
Note that you should also list contingent beneficiaries. This is a person (or multiple people) who will receive the policy proceeds, if the primary beneficiary is not around. Primary beneficiaries may be hard to find, may refuse the funds, or could have passed away. Therefore, make sure that you have someone else to receive those funds. If you have more than one contingent beneficiary, allocate the policy proceeds as you wish (provided they combine for 100%).
If you want to leave the plan to your spouse, list him or her them as the primary beneficiary. If you have children, list them as secondary beneficiaries.
However, take care when listing minors.
You can list minors on your policy. However, if you die, and your beneficiaries aren’t of legal age, they may face a long road to see the funds. Restrictions on how much money minors can access via a life insurance policy vary from state to state, so the transfer won't be as clean and simple as it would be with an adult. In some cases, the court may even have to appoint a guardian to administer the funds.
It’s not that you have to avoid listing minors. However, you must understand what may happen if you do.
An adult you trust to administer the funds in your absence may be a better choice to make certain that your minor beneficiaries don't have to fight for the money. However, do not list that trusted adult as the beneficiary if it is not your spouse. Why? If you die, then they die, the life insurance proceeds will be administered according to their estate plan and not yours! This is where estate planning kicks in to avoid such unintended consequences with legal strategies, like trusts.
When it comes to life insurance policies and protections, recommendations are specific to your individual personal financial situation, preferences and goals. Keep this in mind at all times.
Reference: CBS News (Oct. 6, 2022) “Choosing life insurance beneficiaries? Make these 3 smart moves”