Setting Up Your Life Insurance the Right Way

Life insurance is one of the most straightforward and powerful tools for protecting your loved ones. But here’s the thing: if it is not set up properly, it might not work the way you intended—and could even cause more harm than good.

The reality is, simply having a policy is not enough. To make sure it truly serves your family when they need it most, you need to be thoughtful about how it is structured—especially who you name as your beneficiary.

Let’s walk through the common mistakes people make with life insurance—and what to do instead to protect your loved ones and your wishes.

Mistake #1: Naming a Minor as Your Beneficiary

It might feel natural to list your child or grandchild as the beneficiary of your life insurance policy. After all, you’re doing this for them, right?

But if a minor is named directly, the law steps in. Children cannot legally receive life insurance payouts outright.

This means the money will be held up in court while a judge appoints someone to manage it until the child turns 18. That process—called a conservatorship—can be slow, expensive, and stressful for your family.

Now, here is the kicker: once that child turns 18, they get full access to all the funds, with no restrictions or guidance. Imagine an 18-year-old suddenly receiving a large lump sum with no structure to manage it. Not ideal.

Some people try to solve this by naming a trusted adult—like a sibling or friend—with the understanding that they’ll “do the right thing” and use the money for the child. But that’s risky. Legally, that person has no obligation to use the money as you intended. And their own life circumstances—divorce, debt, or other issues—can put those funds at risk.

Mistake #2: Naming Adult Beneficiaries Without a Plan

Even when beneficiaries are adults, naming them directly can have unintended consequences.

Life changes. Someone you trust today could later face financial trouble, legal issues, or relationship changes. And once the insurance money is in their name, it’s considered their asset—making it vulnerable to lawsuits, divorce settlements, or creditors.

There’s also the issue of financial responsibility. A sudden windfall can sometimes lead to quick spending or poor investment decisions, especially without guidance or a plan.

So, while naming an adult beneficiary might seem simple, it can complicate things, change relationships and risk your gift.

The Better Option: Use a Trust

To truly protect the funds—and the people you care about—consider creating a Trust and naming it as the beneficiary of your life insurance policy.

A Trust is a legal arrangement where you name someone (a Trustee) to manage the funds according to instructions you create. It allows for control, protection, and peace of mind.

With a Trust, you can:

• Decide when and how the funds are distributed (not just all at once).
• Set conditions based on age, milestones, or needs.
• Protect the money from creditors, lawsuits, or divorce.
• Ensure it’s used exactly how you want it to be used.

For example, you might want the money used for college, a first home, or health expenses. Or you may want distributions spread out over time, so the money lasts longer. A Trust gives you that flexibility—and keeps the process out of the court system.

You can even design the Trust so that your beneficiaries eventually manage the funds themselves, but with safeguards to protect against external risks.

Planning Ahead Makes All the Difference

Setting up life insurance correctly isn’t just about filling out a form. It is about creating a plan that supports your family both now and long into the future.

The right structure ensures that what you have worked so hard for continues to take care of the people you love—without unnecessary complications, delays, or loss.

Whether you already have a policy or are just getting started, now is the perfect time to review your setup and make sure everything is aligned with your goals.

Because life insurance isn’t just about leaving money behind—it is about leaving clarity, care, and protection. Our firm is dedicated to helping you achieve that for you and those you care about. Let’s make sure your planning and policies reflect your actual wishes, not just the defaults in fine print. We are available Monday-Friday at 480-525-6244, and always by email. We offer a complimentary 30-minute meet and greet for new clients.