Who is YOUR Beneficiary?

In my personal insurance benefits practice, almost every policy I write has a life insurance component and therefore requires a beneficiary designation.


What is a beneficiary?

Simple answer – the individual, institution or entity to which the proceeds of a life insurance policy are payable on the death of the person insured.


Most life insurance applications, or applications for insurance that include survivor benefits, include “beneficiary” on the very first page! If it is on the first page, it means it is important. Often, however, beneficiary designation is not given the importance it deserves.

In my practice, every client receives an annual letter that includes a review of the policy benefits, suggestions for additions or changes the insured might undertake and a reminder of the beneficiary designation made at the time of application or change date.

We are always surprised by number of telephone calls we get in response to that single reminder item.

Lives and lifestyles change with time...

The time to discover the named beneficiary is not the rightful or intended recipient is not when the insured has died! Litigation can be the consequence of a neglected Life insurance policy.

The proceeds of a life insurance policy is just money – cash when it is needed to complete or continue the financial plans and goals of the insured when they are no longer alive.

Life insurance creates an estate and can provide:

When a person is named as beneficiary, the proceeds can pass to that person tax free.

If the beneficiary is “estate” the proceeds are treated as income in the year the insured dies and subject to income tax rules often resulting in a reduced amount for distribution by the estate.

Life insurance proceeds are paid out NET of any loans against the policy (whole life policies have cash value that can be borrowed during the premium paying period). Life insurance policies with guaranteed values are considered property.

Some Life insurance contracts permit the insured owner to access a percentage of the death benefit proceeds at the time they are diagnosed with a terminal illness.

Most beneficiary designations in Canada are “revocable”, except in Quebec.

“Revocable” means the owner of the policy can change the beneficiary designation anytime.

“Irrevocable” beneficiary designation requires written consent from the beneficiary before a change can be made.

The owner of the policy can be the life insured or some other person or entity: for example, a corporation, a business partner or a spouse. The owner has the rights to the policy, including cash values or other values. The owner is responsible to maintain the policy in force, often by paying the scheduled premium, and can usually name or change beneficiaries. The owner can also be the beneficiary.

What is insurable interest? Insurance companies are vigilant with regard to insurable interest. The parties must have a legitimate connection that justifies the relationship between the insured and the beneficiary.

For most individual personal policies, the owner and insured are one and the same.

While it is not necessary to involve a lawyer in securing a policy of life insurance, if you are making a will, or if the insurance is to protect the owners or shareholders of a business, you need a lawyer. Also, seek the advice of a lawyer specialized in wills and estates where there are minor or disabled children.

Where the beneficiary or beneficiaries are minor children, a trustee is required. This designation requires careful thought and should include consultation with the proposed trustee. At the time, a lawyer might be consulted to draw a will if none exists or to offer advice on the selection of a trustee.

Where life insurance is purchased to effect an orderly transition of business interests, a lawyer should be included in the process to ensure the language of the agreement is consistent with the intentions of the insured.

Life insurance is most useful in business arrangements where a significant age difference exists between partners, or the percentage of ownership of the business is unequal.

Another consideration is contingent beneficiary. A person or persons who become beneficiaries on the death of the primary beneficiary.

Beneficiary designations are generally on the front page of an application for life insurance because it is such an important component of the contract.


This is intended as a simple overview, not to be used as a legal document or considered advice.

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