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Beneficiaries: 101

Updated: May 31, 2022

What is a beneficiary?

When you purchase a life insurance policy you can name a beneficiary. A beneficiary is a person or persons who will receive the death benefit from your life insurance policy when you die. If you die without naming anyone, the money will go to your estate (the sum of all your property, possessions, financial assets and debts) by default. When you name a beneficiary, the money does not go to your estate, but goes directly to the beneficiary.

Who can be a beneficiary?

You can name your spouse, children, dependants, another family member, a friend or a charity as a beneficiary. If you name more than one beneficiary, the insurance company will divide the death benefit between them. You can assign percentages of the death benefit to each beneficiary, e.g. 50 per cent to your spouse, 50 per cent to your children.

Can I name my under-age children as beneficiaries?

In Ontario, children under 18 cannot receive control over any money left to them in an insurance policy. If you want the children to receive the money, you should name a trustee or administrator and set up a trust for the children. When you die, the trustee or administrator will hold the death benefit in trust for the children until they are 18 years old, at which point the money will be paid out to the child.

It is important to choose a responsible trustee who you can trust. The trustee is responsible for:

  • keeping careful records of all dealings with the money;

  • investing the money as required by a court-approved management plan;

  • passing the accounts before the courts on a fixed schedule; and

  • transferring all of the money to the children at age 18.

If you die without naming a trustee or administrator, the death benefit, and any earned interest, will be held in trust by the province of Ontario, and will be paid out when the children reach legal age.

Can I name my estate as beneficiary?

If you name your estate as beneficiary, the death benefit will become a part of your estate. The funds will be used according to the terms of your will. If you choose this option, keep in mind that the death benefit will be subject to estate administration tax. The estate administration tax is charged on the total value of your estate, including all property, possessions and financial assets. Creditors may claim the death benefit to pay for any outstanding debts. This could result in your family receiving less money than they would if you named them as beneficiaries.

How do I name a beneficiary?

If you wish to, you can name your beneficiaries when you purchase your policy. You should discuss your plans with your beneficiary. You should decide if the beneficiary is revocable, or irrevocable.

  • Revocable beneficiary: you can change the beneficiary at any time without telling them.

  • Irrevocable beneficiary: you must have written permission from the irrevocable beneficiary before you can make any changes.

How do I update or change my named beneficiaries?

There are different requirements for revocable and irrevocable beneficiaries. Contact your insurance agent or company for more information.

What if my beneficiary dies before or at the same time I do?

You can name an alternate or contingent beneficiary. This person will receive the death benefit if your named beneficiary dies before you or at the same time you do. If you have not named an alternate or contingent beneficiary, your death benefit will be paid to your estate.

Article sourced from The Financial Services Commission of Ontario website.

The information contained in these articles are for general information purposes only. Nicole Marques assumes no responsibility for errors or omissions in the contents of the Service. In no event shall Nicole Marques be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the information provided in this article. Nicole Marques reserves the right to make additions, deletions, or modifications to the contents on the Service at any time without prior notice. The information provided above is for general information only. It is not to be relied upon as providing legal or tax advice. You are encouraged to consult with a professional tax and/or legal advisor and/or financial advisor about your particular circumstances.

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