Having life insurance can help guarantee your family will be financially stable after your passing. But you can only make sure they get the money they need by naming them as your beneficiary. This is the individual or group of people who will receive money from your life insurance policy after you die, also known as a death benefit.
If you pass away without naming a beneficiary on your policy, the death benefit will be turned over to your estate. By designating a beneficiary, you can guarantee your family members or anyone else you wish will inherit your funds after you are gone.
Who Can I Choose to Be a Beneficiary?
When you take out a new life insurance policy, you have the option to name your children, spouse, dependents, or other family members as your beneficiaries. You are also allowed to designate a friend or your favourite charity to ensure they receive a considerable donation after your passing. The beneficiary does not have to be connected to you at all.
If you need to have more than one beneficiary on your policy, the insurer will divide your death benefits between them, or you can decide on a percentage that will go to each person, such as 50% to your children and 50% to your spouse.
Is It Possible to Name an Underage Child as a Beneficiary?
In some parts of Canada, such as in Ontario, children under 18 have no control over any death benefits left to them. If you want to list your underage children on your policy, you will need to appoint an administrator or trustee who will set up a trust for them. After the beneficiary turns 18 years old, the money will be paid out to them.
Choosing the Right Trustee
You must choose a trustee who is reliable and trustworthy. This person will be responsible for investing the death benefit as needed using a management plan approved by the court. They will need to keep detailed records of all their dealings with the money and review the accounts before the courts on a schedule. They will also need to be relied on to transfer all the benefits to the children once they reach 18.
If you pass away before you name an administrator or trustee for your policy, the money and any interest earned will be held in the trust by the province it is located in. The money will still be paid out to the children when they become of age.
How to Name a Beneficiary
When you name a beneficiary, you will likely choose to add either a sole beneficiary, a primary and secondary beneficiary, or a list of beneficiaries.
With a sole beneficiary, the full death benefit is paid directly to this individual.
With primary and secondary beneficiaries, if the primary individual passes away before you do, the secondary beneficiary on your list will obtain the death benefit instead.
And when you have a list of beneficiaries, your life insurance benefits will be split between the people on the list you provided.
Revocable and Irrevocable Beneficiaries
It is a good idea to discuss your life insurance plans with the person you wish to name your beneficiary. They will need to know details such as the insurer’s name and how to contact them to file a claim for benefits after you die. You will also need to decide if your beneficiary is irrevocable or revocable.
With an irrevocable beneficiary, you will need to have written permission from them before making any changes to your policy.
With a revocable beneficiary, you have the freedom to make changes to your policy at any time without informing them.
Making Changes to Your Insurance Policy
Once you decide your beneficiary, you are responsible for making sure all details are up to date. When significant life changes occur, such as a marriage or a new baby, it can directly affect your life insurance policy and how your death benefits are distributed. You may need to make some adjustments to who your beneficiary is or how much percentage they will receive from your death benefits.
This is a simple task. Most insurance providers require you to fill out a form or two to update your policy. Be sure to review your life insurance policy often with your agent and make necessary changes as needed.
Can My Estate Be My Beneficiary?
It is possible to name your estate as your beneficiary instead of a person. If you do this, your death benefits will then become a part of your estate. The money will be used according to your last will and testament.
If you decide on this option, you need to remember the death benefit will be subjected to any estate administration taxes. That is a tax charged to the total value of your estate. This includes all of your possessions, property, and any financial assets you may have.
If you owe any creditors, they can claim some of your death benefits to pay for any outstanding balance you have with them. That may result in your loved ones receiving less money than they would have if you named them as one of your beneficiaries instead.
What Happens if I Outlive My Beneficiary?
Suppose your named beneficiary dies before you do, or at the same time. You have the option to name an alternate person or a contingent beneficiary. They will receive the money if the person you declared as your beneficiary dies before you do or at the same time. If you do not name an alternate beneficiary, the funds will instead be paid to your estate.
Where to Find a Life Insurance Policy Near You
To learn more about how to choose a beneficiary for your life insurance policy, contact the experts at Hometown Life Insurance today. Our licensed professionals will be happy to answer any questions you have.
