Understanding Insurance Basics

Life and Health Insurance

Naming a beneficiary

Naming a beneficiary is important to ensure that the life insurance benefit paid upon your death goes to whomever you want to receive it.

You can name more than one beneficiary. If you name more than one beneficiary for your life insurance policy, the insurance company will divide the death benefit among them.

Beneficiaries may be revocable or irrevocable:

• If the beneficiary is revocable, you can change the beneficiary at any time without advising the beneficiary.
  
  
• If the beneficiary is irrevocable, you must have the irrevocable beneficiary's written permission before making beneficiary changes.
  
  If you live in Quebec and name your spouse as your beneficiary, the designation is automatically irrevocable, unless you specifically make it revocable when you first designate your spouse.

The person(s) you name on the life insurance policy will receive the proceeds of the death benefit when you die. For example, you may want to name your spouse or child as the beneficiary of your life insurance policy:

• If you name your spouse, another family member, friend or charitable organization as beneficiary, the death benefit will be paid directly to them and will not be subject to taxes when your estate is settled.
  
  
• If you name your estate as beneficiary, the death benefit will become part of your estate and be distributed according to the terms of your will.
  
  In this case, the death benefit will be subject to estate taxes and will not be accessible to your beneficiary until your will has been dealt with by the courts.
  
  If the death benefit is part of your estate, it can be seized by creditors to pay for your outstanding debts.
  
  
• If your named beneficiary is under legal age at the time of your death, you may want to set up a trust and designate a trustee or administrator who can receive and hold in trust the proceeds of the death benefit on behalf of the minor.
  
  Otherwise, the death benefit, plus accrued interest, will be held in trust by the province or territory and paid out when the beneficiary reaches legal age.
  
  Consult a lawyer or financial advisor for more information.
  
  
• If you do not name a beneficiary, your estate will be the default beneficiary.
  
  The proceeds of the death benefit will become part of your estate, subject to estate taxes, and also be vulnerable to claims from creditors.

When you purchase life insurance, you will need to complete a beneficiary designation form. Be sure to complete and sign the designation of beneficiary form and return it to the insurer. Otherwise, the insurer will consider that you have not properly designated any beneficiary. You will need to name a beneficiary for each policy that you have.

Also, consider naming a contingent beneficiary. This is the person(s) who will receive the proceeds of the death benefit should your named beneficiary die before you or die at the same time as you.

Review your beneficiary designations from time to time and update them if necessary.