Who gets your life insurance?
Upon the policyholder’s death, the death benefit is paid to the beneficiaries named in the life insurance policy.
Designating a beneficiary may seem straightforward, but here’s what you should consider to make the best decision.
1. Who Are Your Beneficiaries?
In addition to their names, indicate how you are related or what your relationship is.
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 you can designate a beneficiary that wasn’t born when taking out your life insurance policy?
If you think that you will be having more children or grandchildren, then write ‘born or unborn children’ or ‘born or unborn grandchildren’ to make sure they receive a portion of the death benefit.
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 his/her consent.
Irrevocable
This means you can’t remove the beneficiary from your life insurance policy without his/her 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.
Think of them as secondary beneficiaries.
In the event that the death benefit cannot be paid to your primary beneficiaries, it will go to the them, and not your estate.
5. Playing the Percentages
You can indicate the percentage that each beneficiary will be entitled to.
If no percentages are indicated, then the death benefit is split evenly among them.
6. Financial Unburdening for Your Loved Ones
Upon your death, your loved ones will have expenses to pay, such as income tax, unpaid debts and funeral expenses.
To alleviate this financial burden, designate them as your beneficiaries. They will be able to use the death benefit to pay these expenses and avoid having to go into debt themselves.
7. Life Events
Designate another beneficiary after a divorce or in the event that the beneficiary dies before you.
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.
9. Advisor Assistance
To make a well-informed decision about your beneficiaries, speak to a financial security advisor.
This person can also help you make a change of beneficiary in your life insurance policy.
