Many parents name their minor children as beneficiaries on their life insurance policies to ensure their children are financially supported in the event of the parent’s death before the child reaches adulthood.
When the insurer is ready to pay out the insurance proceeds, the process differs depending on whether a trustee has been named for the minor beneficiary.
If a trustee is named, the policy proceeds can be paid directly to the trustee.
However, if no trustee is named, uncertainty may arise regarding how the minor’s funds should be paid out. The minor, parent, or legal custodian may be unsure how to approach the insurer to request payout of the minor’s share. In such cases, there are three possible options:
- Payment into Court – Under section 220 of the Insurance Act, the insurer must pay the minor’s share of the proceeds, along with any applicable interest, into Court within 30 days of a claim. These funds are then managed and invested by the Accountant of the Superior Court of Justice until the child reaches the age of majority. No court order is required for this payment.
- Payment to a Guardian of Property – If a guardian of property has been appointed under section 47 of the Children’s Law Reform Act, the minor’s share may be paid to them. However, section 220(4) of the Insurance Act gives the insurer discretion and does not mandate payment to a guardian where one has been appointed. To be appointed as guardian, the applicant must obtain the consent of the Children’s Lawyer, who typically requires that the applicant has sufficient income, assets, and experience managing money.
- Direct Payment to Parent or Legal Custodian – If the insurance proceeds are $35,000.00 or less, section 51 of the Children’s Law Reform Act allows direct payment to the child’s parent or legal custodian. The current prescribed amount is $35,000.00, set by O. Reg. 120/21.
In summary, if a trustee is named, funds are paid to them. If no trustee is named, the most straightforward course of action is usually to request that the insurer pay the money into Court. If the minor requires access to the funds for a specific purpose before reaching the age of majority, a request for payment out of Court can be made through the Minors’ Funds Program.
Alternatively, if guardianship is preferred, a guardian may be appointed under section 47 of the Children’s Law Reform Act. In light of the discretionary nature of section 220(4) of the Insurance Act, it may be advisable for the applicant to seek a court order authorizing payment of the minor’s share to them, as appointed guardian.
For amounts of $35,000.00 or less, the process is more streamlined and the insurer is discharged of its duty to payout the policy proceeds once the funds are paid to the minor’s parent or legal custodian.
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