Many people decide on the beneficiary name before purchasing life insurance policy. For most of us, it seems a straightforward to choose the beneficiary. Learning a little more about them will help you know more about this. There are a lot of things that you must be aware of. In this article, you’ll find a few important factors that must be considered before making any decision on your beneficiary. Contingent vs. Primary Beneficiary
- Irrevocable vs. Revocable beneficiary
- No beneficiary available
- Multiple beneficiaries, one is deceased
- Benefits of named beneficiaries
- A typical family arrangement
Contingent vs. Primary Beneficiary
It can also be termed as “primary vs. backup”. You may have prepared a list of people to whom you want to make the beneficiary of your life insurance policy. Normally, you make your spouse as the primary beneficiary.
But, if your spouse passes away at the same time as you, what happens in that case? This is the situation where we recommend our clients to name backup or contingent beneficiaries. A second beneficiary list is prepared which contains the names of the contingent beneficiaries. If this situation occurs, the insurance company will pay your death benefits to the contingent beneficiaries. You kids would be a common option for the contingent beneficiaries.
Irrevocable vs. Revocable beneficiary
You cannot alter the title of the irrevocable beneficiary without written approval of that beneficiary. That’s what an irrevocable statement tells about the beneficiary. Therefore, we recommend our clients to never mark any beneficiary as irrevocable until unless you need to do so.
No beneficiary available
Your death benefits will be paid to your estate, in case the life insurance firm cannot pay your beneficiaries. You and your spouse passes away at the same time and you have not marked any contingent beneficiary, then the insurance company at this point will simply pay your death benefits to the estate. Further distribution of your death benefits would then be tackled by estate laws and your will (if have already made it).
Multiple beneficiaries and one of them is deceased
In this case, the life insurance agencies will generally reallocate their part of the insurance proceeds between the remaining beneficiaries.
The list of people that you have named as the beneficiaries, they are generally known as “named beneficiaries”. According to the Canadian privacy laws, the insurance agency are not allowed to disclose to whom they have paid and for how much they have paid to the beneficiaries. This clearly means that the life insurance proceeds are very secretive. This is a perfect vehicle for those who seeks to pass their inheritance down in a secretive manner.
A typical family arrangement
If you are married and have kids, we are suggesting you two alternatives in that case:
- When you are done with kids, name your better half as the primary beneficiary and your kids as the contingent beneficiaries.
- When you are thinking about having more kids, leave the contingent beneficiary silent and name your better half as primary beneficiaries. This will protect you against forgetfulness.
Our expert team is here to help you in every aspect. They’ll make things easier to understand and if you still have any question about beneficiary provisions, feel free to call us at 1-888-414-6729