PSI Ohio Insurance Practice Exam

How might an individual ensure their minor child receives life insurance benefits appropriately?

1. List an adult relative as the beneficiary.

2. Delay the payment until the child reaches adulthood.

3. Create a trust for the benefits.

4. Purchase a separate policy for the minor.

The correct answer is: Create a trust for the benefits.

Creating a trust for the benefits is an effective way to ensure that a minor child receives life insurance benefits appropriately. When a life insurance policy names a trust as the beneficiary, the funds from the policy are held and managed by the trust, providing an organized method for handling the money until the child reaches an appropriate age or stage in life to receive it. This arrangement allows for structured disbursement according to the terms set forth in the trust document, which can include gradual payouts or specific conditions for receiving the funds. Additionally, using a trust can help avoid the complications that may arise from naming a minor directly as the beneficiary, since minors may not have the legal capacity to manage large sums of money. A trust ensures that the benefits are used for the minor's best interests, such as educational expenses or health care, thus providing peace of mind for the policyholder. This method is generally more reliable than other options like listing an adult relative as the beneficiary, which could lead to possible mishandling of funds, or delaying payment until the child reaches adulthood, which may not take into account the child's immediate needs. Purchasing a separate policy for the minor does not address the management and disbursement of benefits, as it would still require a strategy for handling