Who gets your life insurance?

Why is it important to designate a beneficiary?

You may think that your life insurance will automatically go to your spouse or your children. Even though that would seem natural and obvious, they still have to be named as beneficiaries in your contract.

Without a beneficiary, the money goes to the estate

Failing to name a beneficiary means that your life insurance benefit will go to your estate. It will therefore be treated like any other asset, with debts and taxes having to be paid first, and the remainder being divided among your heirs.

A beneficiary ensures protection and simplicity

If you designate beneficiaries, you avoid this technicality.

• Your life insurance benefit will be excluded from your estate’s debts. It will be paid directly to the beneficiaries, even if your estate has debts. In cases where the estate’s debts are too high, heirs may choose to renounce it. By naming them as your beneficiaries, they will receive the death benefit directly.
• Payout is more direct. Settling an estate can take months—and that’s when everything has been well planned. Life insurance, however, is paid directly once the claim is processed.

1. Who are the beneficiaries?

These are the people you name in your life insurance policy to receive the death benefit upon your death. You must indicate your relationship to them on the policy, which could be spouse, child, grandchild or friend.

This guarantees that the right persons get the amount.

It is also possible to name a company or charitable organization as beneficiary.

2. Future generations

Did you know that when taking out your life insurance policy you can designate a beneficiary that wasn’t born?

If you’re expecting a child or planning to grow your family, or if you think more descendants are on the way, write ‘born and unborn children or grandchildren’. They will be included without you having to modify your policy every time the family welcomes a new member.

3. Change of mind

When designating a beneficiary, you must indicate whether this designation is revocable or irrevocable.

Revocable

This means you can remove the beneficiary from your life insurance policy without obtaining their consent.

Irrevocable

This means you can’t remove the beneficiary from your life insurance policy without their consent.

Revocable is the default option.

If you want a beneficiary to be irrevocable, you must specify it.

Please note that a child under age 18 or an adult declared incompetent cannot give their consent to such a change.

Irrevocable status for spouses in Quebec

In general, spouses are considered irrevocable.

If you would rather designate your spouse as revocable, be sure to check the corresponding box in your life insurance policy.

4. Plan B (just in case)

You may have noticed the term subrogated or contingent beneficiary when taking out life insurance.

This means that you can designate beneficiaries who will receive the insurance amount in the event that the primary beneficiaries are unable to. For example, if your spouse, designated as the primary beneficiary, were to die before you, the amount would go to your children, named as contingent beneficiaries.

By having a plan B, you can be certain that your life insurance will go to your loved ones, not your estate.

5. Playing the percentages

You can indicate the percentage that each beneficiary will be entitled to.

Without percentages, then the death benefit will be split evenly among them.

6. Lifting the financial burden off your loved ones

Upon your death, your loved ones may need to cover certain expenses quickly, such as income tax, funeral expenses, debts and other bills.

To alleviate this financial burden, designate them as your beneficiaries. Since a life insurance benefit is issued more quickly than the execution of a will, they will be able to use it to pay for urgent expenses without having to dip into their personal savings or go into debt.

7. A necessary update

Remember to keep your policies up to date when life events occur that could change your plans. Make a change of beneficiary when that person dies or gets divorced.

8. Minors

A beneficiary who is under 18 cannot receive a death benefit.

In Quebec, the surviving parent or legal guardian must manage a minor’s assets.

Elsewhere in Canada, a trustee must be named.

You may want to designate the same person named in your will to manage the money for your child.

9. Help from a financial security advisor

Are you unsure about who to name as your life insurance beneficiary or would you like to make a change of beneficiary? Speak with a financial security advisor so you can make informed decisions.