Beneficiary Designations: Needs Analysis & Underwriting

The beneficiary is the person or entity designated to receive the death benefit. Proper designation is one of the most consequential decisions in policy setup.

Revocable vs. irrevocable designation:

A revocable beneficiary can be changed by the policy owner at any time without the beneficiary's consent. Most designations are revocable.
An irrevocable beneficiary cannot be changed, and the policy owner cannot assign, surrender, take a loan against, or make material changes to the policy without the irrevocable beneficiary's written consent. An irrevocable designation ties the owner's hands.

Estate as beneficiary: if the estate is named as beneficiary (or if no beneficiary is designated and all named beneficiaries have predeceased the insured), the death benefit flows into the estate. This means:

The proceeds are subject to probate fees (estate administration tax).
The proceeds are available to creditors of the estate.
Distribution follows the will or, if there is no will, the intestacy rules.

Naming a specific person as beneficiary bypasses the estate, avoiding probate fees and shielding the proceeds from creditors (with important nuances -- see the taxation and legal module).

Preferred beneficiaries (spouse, child, grandchild, parent of the insured) receive additional creditor-protection under the Ontario Insurance Act: while such a designation is in force, the policy's cash value and death benefit are exempt from seizure by the insured's creditors.

Contingent beneficiary: named to receive proceeds if the primary beneficiary predeceases the insured. Naming a contingent beneficiary prevents the benefit from falling into the estate if the primary beneficiary dies first.

Common mistake: assuming that naming a spouse as beneficiary is always irrevocable. A spouse designation is revocable unless explicitly made irrevocable. The designation type must be stated in writing.

Recall: What rights does the policy owner lose when a beneficiary is made irrevocable? Why does naming the estate as beneficiary expose the death benefit to creditors?

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The beneficiary is the person or entity designated to receive the death benefit. Proper designation is one of the most consequential decisions in policy setup.

Revocable vs. irrevocable designation:

A revocable beneficiary can be changed by the policy owner at any time without the beneficiary's consent. Most designations are revocable.
An irrevocable beneficiary cannot be changed, and the policy owner cannot assign, surrender, take a loan against, or make material changes to the policy without the irrevocable beneficiary's written consent. An irrevocable designation ties the owner's hands.

The proceeds are subject to probate fees (estate administration tax).
The proceeds are available to creditors of the estate.
Distribution follows the will or, if there is no will, the intestacy rules.

Naming a specific person as beneficiary bypasses the estate, avoiding probate fees and shielding the proceeds from creditors (with important nuances -- see the taxation and legal module).

Recall: What rights does the policy owner lose when a beneficiary is made irrevocable? Why does naming the estate as beneficiary expose the death benefit to creditors?