All the following statements concerning the treatment of minors as beneficiaries of life insurance policies are correct EXCEPT:

• A. In most cases in which a minor is designated as the primary beneficiary of a life insurance policy, the contract provides that the designation is irrevocable.
• B. If a minor is an irrevocable beneficiary, the minor lacks the legal capacity to consent to the insured's request to surrender the policy or make a policy loan.
• C. If the insured dies while the beneficiary is still a minor, the insurer must refrain from paying the proceeds directly to the minor since they are not legally competent to receive payment and release the insurer.
• D. Statutes in most states provide that persons who have attained the age of 18 years have reached the age of majority and thus are competent to receive proceeds in any amount.

Answer: (A)

When a minor is named as a beneficiary, the money from a life insurance policy is protected and handled in a way that keeps flexibility for the policyowner, because minors cannot manage funds themselves. In practice, the policyowner often designates a minor as beneficiary but the designation is revocable, or the proceeds are placed in a custodial arrangement or trust for the minor. This flexibility is important so the owner can adjust beneficiaries in light of life changes and so the funds can be managed properly for the minor’s benefit.

The statement that the designation is irrevocable in most cases is not accurate. Irrevocability would prevent the policyowner from changing the beneficiary designation in the future, which is contrary to common planning practices for minors. That’s why this item is the exception.

The other points line up with standard practice. If a minor is an irrevocable beneficiary, the minor lacks the legal capacity to consent to surrender or to take out a policy loan, so the insurer’s actions must reflect that limitation. If the insured dies while the beneficiary is still a minor, the proceeds aren’t paid directly to the minor because the minor isn’t legally competent to receive such payments; instead, they are paid to a guardian, custodian, or a trust for the minor’s benefit. And in most states, reaching 18 marks the age of majority, meaning that an 18-year-old is generally competent to receive proceeds in full, subject to any custodial arrangements still in place.