The designation of a minor as beneficiary creates problems that are not ordinarily encountered with an adult beneficiary. Perhaps the most obvious complication arises when an insured designates a minor as beneficiary without reserving the right to revoke the designation. This would now be a rare occurrence since most policies today routinely provide that the policyowner reserves the right to change a beneficiary designation. However, if the policy does not reserve the right and the insured wants to change the beneficiary, assign the policy as collateral for a loan, make a policy loan, or surrender the policy for its cash value, he or she could do so only with the minor�s consent�which the minor does not have legal capacity to give. The insured might seek to have a guardian appointed for the minor, but it is highly unlikely that a court would permit the guardian to waive the minor�s rights.

There will almost certainly be problems if the policy matures while the beneficiary is still a minor. The insurance company cannot safely make payments directly to the minor since he or she is not legally competent to receive payment and release the insurer. Upon the attainment of majority, the minor might repudiate the release in the receipt and demand payment of the proceeds once again. To protect itself the company would have to insist on the appointment of a guardian, which involves expense to the minor�s estate. In some states insurance companies are authorized by special statutes to waive the guardianship requirement and make payment on behalf of the minor to an adult person, usually a parent or someone standing in place of a parent. However, the amounts that can be distributed under these statutes tend to be nominal; the usual limit is less than $500, although a few states permit amounts up to $1,500 to be paid in this manner.

Statutes in 44 states provide that persons who have attained the age of 18 years have reached the age of majority and thus are competent to receive and give full acquittance and discharge for any amount. Some of the remaining states give minors between the ages of 18 and 21 special capacity for limited amounts, ranging from $2,000 to $3,000, in any one year in the form of benefits payable upon the death of the insured, as long as the insurance policy or the policy settlement agreement specifically provides for direct payments to such minor. In some states the statute applies only to periodic payments that do not exceed the specified maximum in any one year.

Statutes in a few states also embrace benefits payable under annuity contracts. Some statutes permit either a lump-sum payment or periodic payments not exceeding the stipulated amount in any one year. For example, a New York statute permits the payment of $3,000 to a minor, either in a lump sum or in periodic payments not exceeding $3,000 per year. The New York statute also pertains to benefits payable upon the maturity of a policy as an endowment.

Difficulties also exist with respect to the election of settlement options by a minor or a guardian acting on the minor�s behalf. The statutes above authorize installment payments directly to minors only when the settlement option was elected by the insured or other owner of the policy. They do not authorize the minor to elect a settlement option. Because it is quite clear that a minor lacks the legal capacity to elect a settlement option, most companies are not willing to run the risk of the minor�s later repudiation of the contract unless the amounts involved are small. However, if the beneficiary is within one or 2 years of attaining his majority, an insurer may agree to a settlement involving the payment of interest only with a provision for payment of principal to the minor beneficiary at his or her majority or to his or her estate in the event of death.