It sounds reasonable to me.
While I'm not super familiar with this part of things, the basic idea is that minors can't enter into contracts, and pretty much all bank accounts have contracts under the hood that govern the banker/client relationship.
A custodian or guardian is just an adult person who agrees to enter into that underlying bank contract and hold the money for the minor's benefit. Obviously the mom is a perfectly reasonable choice in both regards.
I bet she can just open a custodial bank account for him at her bank, then work with the insurance company to get the son's portion of the proceeds deposited into that bank account. There may be some signatures or insurance paperwork or medallion guarantees and such, but it certainly doesn't need a lawyer.
The age thing is always unclear to me. The insurance company may require waiting until age 21, not 18.
I personally wouldn't want the insurance company to hold onto it, partly because it could get lost or forgotten, and partly that they may require waiting another four years to get the money, and you said the mom may want to use it for his college.