In Canada, after you pass away, the proceeds of your estate can take one of two routes:
1. Proceeds can pass seamlessly from you to your loved ones.
2. Proceeds can enter the probate system.
If no beneficiary is named, your assets will enter the probate system. The probate system can take a lot of time and cost a lot of money, depending on probate fees or estate administration tax in the province where you live and the value of assets distributed through your estate. That’s why it is so important to name a beneficiary for your assets such as a life insurance policy.
When it comes to life insurance, you have the opportunity to name a beneficiary when you purchase your policy. A beneficiary designation can also be made by simply completing a declaration form identifying the insurance company, policy number and the beneficiary. Your beneficiary can be anyone you choose and it can also be a charity or an institution. If you name a minor as your beneficiary, you should also name a Trustee in the event that you die before the minor reaches the age of majority.
Some events, like a change in marital status, the birth of a child or the death of a loved one, can mean that you should update the beneficiary named on your life insurance policy.
Consider naming a contingent beneficiary, or beneficiaries, on your life insurance policy. This will help move things along in the event that the primary beneficiary passes away and you don’t get around to naming a new one. If this were to happen, and you passed away before a new beneficiary was named, it could mean that the proceeds from your life insurance policy will have to pass through the lengthy, and often costly, probate system.
If more than one beneficiary is designated you should note the percentage of the proceeds each beneficiary will receive – not exact dollar amount
If you have any questions about your life insurance policy, or how to name or change your beneficiary, please contact your financial planner.