Naming and changing a beneficiary

What a designation actually does

It instructs the insurer who to pay. That instruction sits with the policy, not with your will, and for the policy it generally governs.

This surprises people. A will that leaves everything to your current spouse does not redirect a life insurance policy still naming a former one. The insurer pays the designation. Rules vary by province and there are exceptions, and the safe assumption is that the designation controls the policy.

Naming a person also means the money goes directly to them. It does not pass through the estate, which normally means it avoids probate, arrives faster, and in most provinces is beyond the reach of estate creditors. That is a substantial advantage and it is discussed in naming your estate versus a person.

Primary and contingent

Primary is who receives the benefit. You can name more than one and specify how it divides, either in percentages or in shares.

Contingent is who receives it if every primary beneficiary has died before you. Naming one is worth the thirty seconds it takes.

Without a contingent beneficiary, if your sole primary beneficiary predeceases you and you never update the designation, the benefit typically falls into your estate. That drags it into probate, exposes it to creditors, and hands the decision to your will rather than to your designation. All avoidable.

Getting the wording right

Use full legal names, with dates of birth where the insurer allows. “My wife” is ambiguous if you remarry. “My children” raises questions about stepchildren, children born later, and children who predecease you.

Say how it divides. If you name three people, specify equal shares or set percentages. Percentages must total 100.

Say what happens if a named beneficiary dies first. Some designations let you specify whether that person’s share goes to their own children or is redistributed among the surviving beneficiaries. These produce very different results and the difference is worth thinking about.

Do not name a minor directly. This causes real problems and there are better structures. See naming a child under 18.

Take care naming a person who receives disability benefits. A lump sum can affect eligibility for provincial support programs. There are structures to handle this, and it needs proper advice rather than a designation form.

Changing one

Usually straightforward. Contact the insurer, complete a change of beneficiary form, and keep a copy. Some allow it online.

The change takes effect when the insurer receives it, so do not assume a form sitting on your desk has done anything. Confirm it was processed.

Three situations where you cannot simply change it:

An irrevocable designation. The named person must consent in writing. See irrevocable beneficiaries.

A court order or separation agreement requiring someone to remain named. Changing it may breach the order. See after separation or divorce.

A policy assigned as collateral to a lender, which restricts what the owner can do.

When to review it

Every one of these should trigger a check:

Marriage, separation or divorce. The birth or adoption of a child. The death of anyone named. A beneficiary’s circumstances changing, including a disability or a bankruptcy. Buying property with someone. Starting a business with partners. Changing jobs, which affects group coverage designations. Making or updating a will.

The most expensive version of getting this wrong is a divorce followed by fifteen years of never updating the designation. In most Canadian provinces, a divorce does not automatically revoke a beneficiary designation. The former spouse remains named and the insurer pays them.

Check every policy, not just the main one

People remember their individual policy and forget the others.

Group coverage at work has its own designation, often completed on the first day of a job and never looked at again. Registered plans have their own designations too, and they are separate from your will and from your insurance.

If you are doing this exercise, do it across everything at once and write down what you found.

Tell someone

A designation only works if a claim gets made. Tell the people you have named that the policy exists, which insurer holds it, and where the paperwork is.

Unclaimed policies are a genuine problem in Canada, and the usual reason is that nobody knew. See filing a claim for what happens when a family has to go looking.