Who Gets Your Life Insurance?

| September 22, 2014 | 9 Comments

Life insurance checklist

The one thing you can count on in life is change. From getting married and having kids to getting divorced, then remarried and gaining step-children. The one thing that sometimes doesn’t get changed are the beneficiaries on your life insurance policy.  The main reason you have life insurance is to make sure your loved ones are taken care of – but they won’t if they are not named beneficiaries on your policy!

 Who can be your beneficiary?

You can choose anyone you want as your life insurance beneficiary.  Most people typically choose their spouse, children, or a member of their family.  The person you choose does not have to be related or connected to you in any way.  In fact, you could even name a charity instead of a person.  Also, consider naming a contingent beneficiary. This is the person who will receive the death benefit if your primary beneficiary die before you or die at the same time as you.

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.

Things to consider:

  • 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.
  • 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 deciding on who will be your beneficiary of your life insurance policy, it is important to know the reason and where the death benefit is needed for. For most people, the estate needs the money to pay off liabilities, for estate taxes, income replacement or to provide financial security for your family. Knowing how the tax-free death benefit will be used will help you choose who should be your beneficiary.

When should you review your policy

How awkward would it be if your old college sweetheart gets a big tax-free payout if you die while your spouse and kids get nothing because you never looked at your insurance policy since you bought it back in your 20’s. One of the important benefits of reviewing your policy is making sure the beneficiaries are up to date. When ever your life changes such as getting married, having kids, divorce or buying a house you should review your insurance policies to make sure you have the right coverage and the right people will be taken care of.

No worries, I have a will

Congratulations on having a will, most people do not and it is an important document to have. However designating someone in your will does not override an earlier beneficiary designation in an insurance policy, unless the life insurance policy is specifically identified in the will. If you name your current spouse the sole beneficiary to your estate in your will, it will not override the beneficiary designation of your ex-spouse on your life insurance policy if you don’t identify the insurance policy in your will.

Since no one can tell when your time of death may come, it is important to review your life insurance policy periodically, particularly after major life changes such as a divorce or a birth, to make amendments accordingly. If you have taken the important step of having a life insurance policy, make sure the money gets to the right people.

Andrew W. Bradley


Photo credit: Chris Devers / Foter / Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic (CC BY-NC-ND 2.0)





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Category: Family, Finance, Living

About the Author ()

Andrew is a licensed Life Insurance Broker and Registered Retirement Consultant-RRC® helping Ottawa families since 2011. Awards : 2017 ThreeBestRated.ca -Handpicked Top 3 Financial Services in Ottawa, 2017 Faces Magazine Awards – Ottawa’s Favorite Financial Advisor, 2017 Feedspot Top 40 Life Insurance Blogs on the web and 2016 Insurance Business Magazine – Life & Health Advisor of the Year Finalist.

Comments (9)

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  1. Victoria Ess says:

    Thanks for the post which I’ve bookmarked to read over later. I don’t have life insurance right now, and definitely need to start planning for it.

  2. Judy Cowan says:

    Thanks for the review of this topic, it does sound like we have it set up right which is always good to know.

  3. Andrew says:

    Thanks Victoria for your comments, you will have to read my next post when it goes up. I think you will find it interesting, I hope.


  4. Kirsten says:

    That is definitely something that we need to update. We haven’t reviewed our policy since we set it up and a lot has changed. Thanks for the reminder!

  5. DARLENE W says:

    Good to know, it has been quite a while since we reviewed

  6. Elizabeth Matthiesen says:

    this is extremely important, who wants their ex to benefit and their present family to receive nothing. I learnt through experience that you have to check these policies ones self. In my case, I had asked and heard they were in my name on checking however I discovered that the policy actually stated whoever he was married to at the time of his death was the beneficiary! Each and every policy has to be looked at and individually altered to suit your needs, remember a court order if needed to prove that you have the right to do this (which I needed)

  7. DARLENE W says:

    You think that everything will work its way out, but you need to have something in writing

  8. kathy downey says:

    Thanks so much for this post !

  9. kathy downey says:

    I’ve bookmarked to read over later with Hubby

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