1. Method 1
Make the contingent beneficiary of an insured's life insurance policy a Testamentary Trust in the insured's Will. The terms of the Will can contain this trust, which does not spring to life until the death of the insured. Referencing the trust in the Will is a precise way to ensure that the parent's exact wishes for their children are followed. The trust, which is a legal document, names the person the insured chooses as the Trustee, and describes how the parent would like to have the money managed and spent and for how long.
With this method, the contingent beneficiary section of the life insurance application could spell out like this:
(Trustee's name) as Trustee under (Article xx) of (Insured's name)'s Last Will and Testament dated (date).
2. Method 2
Take advantage of the Uniform Transfers to Minors Act (UTMA) is another way to ensure that children receive proceeds from a life insurance policy, especially if the parents have not yet executed their Wills. Under the UTMA, the parents would name an adult custodian who is given the discretion to make distributions for the minor's welfare. The UTMA account (which is essentially a statutory trust) allows parents to choose to choose a custodian - a person they trust - who would manage the life insurance death proceeds, and other assets they might have in the account, as they see fit prior to the children reaching majority.
With this method, some insurers have a specific form to assist in making a beneficiary designation with UTMA custodian the beneficiary or contingent beneficiary of a life insurance policy.
If no special form is available, the following wording would generally be accepted:
(Custodian's name) as custodian for (child's name) under the (State) Uniform Transfers to Minors Act.
3. Method 3
Designate a Living Trust as beneficiary or contingent beneficiary in place of the child directly. This is similar to the testamentary trust referenced in method 1 above, except that living trust exists at the moment it is executed, whereas the trust in the insured's Will (testamentary trust) begins its life only at the insured's death. Like the trust in a Will, a living trust allows the insured to detail the terms and conditions of gifts and plans for every contingency. The downside of this type of trust is that it will require some level of administration from the outset.