Who Can I Name As My Beneficiary?

When exploring life insurance options, you will likely come across the term “beneficiary.” Selecting a beneficiary is a common and important step when securing life insurance coverage, as it ensures that the financial support intended for your loved ones reaches them when it's needed most. From family members to charitable organizations, you have several options to consider. Keep reading to learn more about your choices and how to make an informed decision when designating a beneficiary!

Please Note: This blog provides a general overview of beneficiary designations to help you understand your options. It is not all-encompassing and should not be taken as specific advice. Be sure to discuss your unique circumstances with a licenced life insurance broker to ensure your policy aligns with your needs.

What is a beneficiary?

A beneficiary is a person, organization, or entity that you designate to receive the financial proceeds of your life insurance policy after you pass away. These proceeds can help cover essential expenses such as mortgage payments, outstanding debts, daily living costs, taxes owed, or even future financial goals.

When choosing a beneficiary, you have flexibility and can name a single person, multiple people, or, in many circumstances, a charitable or religious organization. Here are some common examples:

• Family Members or Loved Ones: Many policyholders name immediate family members, such as their spouse or children, as their primary beneficiaries. These are typically the individuals who will be most financially impacted by your passing.
• Entities: Instead of an individual, you can name an entity as your beneficiary. This could be a charity, a church, a business, or even an educational institution. By doing so, you can leave a lasting legacy by supporting a cause or organization that matters to you.
• Multiple Beneficiaries: You’re not limited to choosing just one beneficiary - you can name several and specify what percentage of the benefit each will receive. This allows you to distribute the proceeds according to your wishes.

Selecting the right beneficiary is an important decision, so take time to reflect on who would benefit most from the financial protection your policy provides. It’s also important to keep your policy up to date! For example, if you have experienced a relationship change (i.e. getting married or a relationship breakdown), have become a parent, have purchased a home, or have changed your address, make sure you inform your insurance provider so they can update your policy so that it accurately reflects your current wishes and circumstances.

Do I need to name a beneficiary?

While you are not required to name a beneficiary, it is highly recommended. If you do not select one, the payout from your life insurance policy will be distributed during the settlement of your estate. The process for handling this may vary depending on provincial and territorial laws.

However, this approach has significant downsides. When your estate is the beneficiary, the payout may become subject to taxes and probate fees, reducing the total amount available to your loved ones. Additionally, the distribution process may take longer, potentially delaying financial support for your dependents when they need it most.

By naming one or more beneficiaries directly, you can help ensure that the payout goes directly to the intended individuals or organizations without unnecessary delays or additional costs. This simple step can make a big difference in protecting their financial future.

Primary Beneficiary vs Secondary Beneficiary

When setting up a life insurance policy, you have the option to name both a primary and a secondary (or contingent) beneficiary. Here's how they differ:

• Primary Beneficiary: This is the first person or entity in line to receive the life insurance payout. If the primary beneficiary is alive when you pass away, they will receive the entire payout as specified in your policy.
• Secondary (Contingent) Beneficiary: A secondary or contingent beneficiary is next in line to inherit the payout if the primary beneficiary is unable to accept it. Common reasons for this could include the primary beneficiary passing away before receiving the benefit or choosing to decline it.

For example, many people designate their spouse as the primary beneficiary. In case their spouse cannot receive the payout, they might list their children or a legal guardian as the contingent beneficiaries. You can name multiple contingent beneficiaries and specify how the payout should be divided among them.
It’s often recommended to have both a primary and a contingent beneficiary on your policy. This ensures that if the primary beneficiary is unavailable, there is a clear plan for who will receive the benefit, helping to avoid complications and delays in distributing the funds.

Revocable vs Irrevocable Beneficiaries

When purchasing a life insurance policy, you will be asked whether you want to designate your beneficiary as revocable or irrevocable. Understanding the difference between these two types is important, as it can impact your ability to make future changes to your policy.

Revocable Beneficiary

With a revocable beneficiary, you can change the beneficiary on your policy at any time without needing their consent. This offers flexibility, allowing you to update your policy easily if your circumstances change, such as after a marriage, divorce, or birth of a child. It’s crucial to regularly review your policy and ensure that the listed beneficiary aligns with your current wishes, as neither a divorce nor a change in your will automatically updates the life insurance beneficiary. For most policyholders, naming a revocable beneficiary is the simplest and safest choice to avoid potential legal complications.

Irrevocable Beneficiary

An irrevocable beneficiary, on the other hand, cannot be changed without the beneficiary’s written consent. Once designated, the beneficiary has a legal right to the policy’s proceeds, which means that if you want to make any changes - whether to the beneficiary or to the policy itself - you need their approval. In some cases, such as legal agreements or court-ordered obligations, an irrevocable beneficiary may be required to secure financial support for dependents.

Since rules for revocable and irrevocable beneficiaries may differ by province, it’s wise to speak to a licenced life insurance broker for personalized advice and to ensure your decision aligns with your long-term financial goals.

Making a Minor your Beneficiary of your Life Insurance

Naming your children or grandchildren as beneficiaries of your life insurance policy can be a thoughtful way to ensure their financial future. However, if they are minors at the time of your passing, there are important considerations to keep in mind.
Minors cannot directly receive or manage life insurance proceeds until they reach the age of majority (usually 18 or 19, depending on the province). To ensure the money is handled responsibly and in the child’s best interest, you’ll need to establish a trust and appoint a trustee - someone who will oversee the funds on behalf of the minor.
The trustee’s role is to manage and safeguard the funds until the child reaches adulthood. This includes keeping accurate records of all transactions and ensuring the money is used appropriately to support the child’s well-being, such as covering educational expenses, medical costs, or other essentials. Once the minor reaches the age of majority, the trustee can transfer the remaining balance to them or distribute the funds as outlined by you.
While some may name an individual as a trustee, you can also consider setting up a life insurance trust instead of naming a direct trustee to manage the dispersal of the life insurance benefit amount. This option protects all parties involved and ensures your wishes for the proceeds are carried out. Setting up a trust requires careful planning and legal consultation from a lawyer, who will guide you through the process and ensure that everything is legally structured to protect your minor beneficiary’s financial interests.

Life Insurance Made Easy

Choosing the right beneficiary for your life insurance policy is an important decision, and it’s essential to ensure that your coverage aligns with your current wishes and provides financial security for the ones that matter most to you.
If you’re ready to secure your family’s future or want to learn more about the options available to you, reach out to a BIG broker or request a quote for life insurance online today.