Beneficiaries and Claims
Designating beneficiaries correctly is a critical step in ensuring life insurance proceeds are distributed according to your wishes. Understanding the claims process also provides clarity and reassurance for loved ones.
Types of Beneficiaries
Primary Beneficiary
- The individual or organization first entitled to receive the benefit.
- Can be a spouse, child, other family member, or even a charity.
Contingent (Secondary) Beneficiary
- Receives the benefit if the primary beneficiary is unable to do so, for example if they predecease the insured.
Revocable vs. Irrevocable Beneficiaries
- Revocable: The policyholder may change the beneficiary designation at any time.
- Irrevocable: Requires the beneficiary's written consent before any changes can be made. In Canada, if a spouse is named irrevocably, they must agree to changes.
Considerations in Designating Beneficiaries
- Minors: If a child is named as a beneficiary, proceeds are generally paid into a trust or to a court-appointed guardian until the child reaches the age of majority. Naming a trustee in the policy can provide more control.
- Multiple Beneficiaries: Policyholders can designate multiple beneficiaries and specify how the benefit is divided, either equally or in percentages.
- Estate as Beneficiary: If the estate is named, proceeds are subject to probate fees and may be accessible to creditors. This option can also delay payout.
The Claims Process in Canada
Notification
The beneficiary or family member notifies the insurance company of the insured's death.
Documentation
The beneficiary completes a claim form and provides a death certificate, and may need to provide the policy contract.
Review
The insurer reviews the claim, including verifying that premiums were paid and that no exclusions apply (for example, suicide during the first two years of the policy).
Payout
Once approved, the insurer pays the death benefit directly to the beneficiary. In Canada, these benefits are generally received tax-free.
Importance of Regular Reviews
Beneficiary designations should be reviewed after major life events such as marriage, divorce, or the birth of a child. Outdated designations can result in proceeds going to unintended recipients.
Need Help with Beneficiaries?
Our insurance specialists can help you set up the right beneficiary designations for your policy.
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