Life Insurance beneficiaries are the ones who will receive the maximum amount of sum assured paid out under the Life Insurance Policy when the primary insured dies. The beneficiary can be anyone, whether related or unrelated to the insured of the policy.
The policyholder determines the designation of the beneficiary of the policy, and the beneficiary can be changed when the policyholder desires and the number of requests is unlimited, if it is still in the term of the contract.
The beneficiaries can be your spouse or your children, parents, grandparents, and relatives.
The beneficiary of the life insurance and the heir to the property
Though the beneficiary is understood to be the legal heir to the sum insured, in many cases, the insured dies. There are similarities and differences between them:
The beneficiary is like the heir to the property in that they only receive benefits when the owner of the property dies. There are significant insurance contracts in which the amount of compensation for death benefits is up to tens of billions CAD – so people also consider this a form of asset left to the beneficiary.
The difference between the life insurance beneficiaries and the heir to the property is that the beneficiary does not have to pay taxes to the sum assured that he will receive. Another difference is that while an heir is a relative, in another way, a person holding the blood relations with the deceased person, the Life Insurance does not need to bear any blood relations with the dead (the life insured), it is totally up to the policy holder’s decision, and it can be even a pet!
More things you should know about life insurance beneficiaries
– A policyholder has the right to appoint the beneficiary of the life insurance contract and can change the beneficiary’s name more than once during the term of the policy (The change needs to be notified in a written form and be sent to the insurance enterprise insurance).
– The Beneficiary is not necessarily only one person: A policyholder has the right to designate one or more than one person as the beneficiary/ beneficiaries. Suppose there are many beneficiaries in the same contract. In that case, it is necessary to divide the rate of entitlement to avoid future disputes (the total rate does not exceed 100% of the sum insured).
– The insurance buyer can designate any person as the beneficiary without necessarily having a blood relationship with them. For example, a bank buys life insurance for the bank borrower (usually a term life insurance package) and chooses the beneficiary as the bank. When the bank borrower dies unexpectedly, the bank’s risk is lower thanks to the bank sum assured from the life insurance
– If the Beneficiary is under 18 years old, the beneficiary’s legal guardian will replace the beneficiary to receive the sum insured when the insured dies.
– If the Beneficiary commits a criminal offense, the compensation amount will only be divided among the remaining beneficiaries in the contract
– The Beneficiary needs to have a death certificate of the insured to prove that the insured is dead and receive the sum assured.
– The insurance enterprise does not have to pay the premium if the insured dies or is permanently disabled due to the intentional fault of the insurance buyer, the intentional fault of the beneficiary, or the intentional fault of the insured himself. (According to the Slayer Law in Canada)
– Suppose one or several beneficiaries intentionally cause death or permanent injury to the insured person. In that case, the insurance enterprise must still pay the insurance premium to the remaining beneficiaries as agreed in the insurance contract. (The ones who do not join in causing the death of the insured)
What happens to a life insurance policy with no beneficiary?
You have the right not to choose a beneficiary of your life insurance policy. However, suppose you die unexpectedly during the time you still participate in the insurance policy. In that case, the absence of a beneficiary will affect your benefits (and maybe your whole family) as follows:
The insurance settlement time is quite long: after your death, it will be tough for the insurance company to decide who will receive the premium arbitrarily because there are no beneficiaries in the policy. Usually, if there is no Life Insurance Beneficiary mentioned, your sum assured will be transferred by the insurance company to many categories of yours such as real estate, finance, or investment fund. In addition, you may be deducted some additional fees, such as management fees, that you suggested earlier.
If your family and relatives want to receive the paid-out, your family and relatives will have to go through many procedures with many kinds of documents requested by the insurance company to prove the relative among them and you. This process may take 1-2 years. If the proof is flawed, not transparent, or a family member has an asset dispute, the time for settling the insurance can last for more than that!
To sum up
Life Insurance products protect you and your family and your loved ones by your side. So please choose your beneficiary carefully and make the right decision because it will significantly impact many people’s life.
In case you are still wondering who can be your Life Insurance Beneficiary? We’ll continue in another article.
To know about the prices, you can contact Insurance Direct Canada (IDC) – a trusted insurance broker who can provide you with life insurance quotes in Canada, for free.
Frequently Asked Questions
Which criteria should I take note of when I decide on the beneficiary of my life insurance policy?
These are crucial things that you should consider before deciding who is the insurance beneficiary of your policy:
– What is your most important purpose, and who will match this purpose when the insured dies?
– Who is financially dependent when the insured dies? Who do you want to take care of? Who will need the paid-out from this insurance policy in the future – at the death event of the insured?
– Who may be in good physical and mental health in the future that the insured passes away?
– Who will not use all the paid out to fall into gambling, drinking, or undervalued things?
Please consider whether the beneficiary’s health is good or not because they need to be in good health (physically and mentally) when they receive this amount and have a wise decision on how they should use it.
Can I designate my whole family as the beneficiaries in one life insurance policy in the contract in which I am the insured? If yes, should I do that?
As we mentioned above, “A Policyholder has the right to designate one or more than one person as the beneficiaries.” So the answer is yes, you can designate your whole family as the beneficiaries in the life insurance policy you bought. Nobody has the right to prevent you from doing that. But please note that you have to set the specific entitlement rate for each person to avoid disputes in the future.
When more than one person joins the same life insurance policy, if a risk occurs within the coverage of this insurance policy, then everyone in your family bears the same risk. It is the big con that you have to take into consideration. If your family is comfortably off, you had better buy each insurance policy for each member. Don’t put all your eggs in one basket!