When joining a life insurance contract, filling in the beneficiary information is mandatory. This procedure is not challenging, but it needs to be considered and done carefully. So, let’s explore this article to have more information on What is a Life Insurance beneficiary and Who can be a Life Insurance beneficiary.
What is a Life Insurance Beneficiary?
A Life Insurance Beneficiary is a person who directly receives all or a part of the benefits (sum assured) from the insurance company if the insured dies due to objective reasons as specified in the contract.
The beneficiary may be the purchaser of insurance, the insured or anyone with or without marriage or blood relation to the insurance holder or life insured. In short, except for exceptional cases (children under 18 years old), insurance companies generally do not set any rules on who is named as a beneficiary/beneficiaries.
If the primary insured dies, the beneficiary will receive the sum insured of the policy.
You have the right to choose beneficiaries based on your goals, needs and personal financial ability. This is to reduce the economic burden on your future beneficiary/ies in the event that you are no longer around.
For example: If a husband buys a life insurance policy for his wife and appoints their mutual son as the beneficiary, the person responsible for paying the premium is the husband, the insured is the wife. If the wife accidentally dies due to an objective cause during the contract term, their son will receive death insurance benefits as agreed in the contract.
However, in the case that the son in the above example also dies simultaneously with his mom, where does the sum assured go to?
This is why the term ‘Contingent Beneficiary’ appears and answers the above question!
The Contingent Beneficiary is a person who the policyholder designates. They will receive the money in such an event.
The contingent beneficiary is only entitled to insurance money if they meet certain predetermined conditions at the time of the insured’s death (these conditions can be found in the life insurance contract made between the life insurance company and the policyholder).
The contingent beneficiary is also called an alternate beneficiary.
The sum assured, also known as ‘death benefit’, will be paid to the insurance buyer’s estate if no filling in alternate or contingent beneficiary’s name is not entered.
In the above example, it is best if the policyholder (the husband) names his son as a Primary Beneficiary and names his parents as Contingent Beneficiaries in the policy contract where his wife is the insured. His son will receive his insurance payout when his wife passes away during the insurance term, and his grandparents will receive nothing. If the son dies after the mother, each of the grandparents will receive half of the amount insured if both of them still live.
Who can be a Life Insurance beneficiary?
Everyone has different life stories. It is hard to give a single piece of advice that applies to all cases. It is best to go through various common scenarios standard newbie life insurance policyholders often face, see which one is most similar to your case and get advice from there.
I am married and had no children when joining the life insurance policy.
Do you think your case is quite simple to make the related decisions? Most people will go ahead with the decision to name their partner as a beneficiary in this case.
I am married and had kids when joining the life insurance policy.
Naming your children as insurance beneficiaries seems to be a reasonable decision for most cases. Your children can get some money to help them make ends meet and achieve their dreams if you are no longer around beside your baby angels.
Another option is to name your spouse and your children as the beneficiaries if your partner is a housewife. With this decision, your partner can use the insurance paid-out to cover the living expenses of herself and your kids.
I am a single parent.
I buy a term life insurance plan to name my kid as a beneficiary, which helps me be more secure about my kid’s future in case I am no longer around with him. However, please be careful with having a child under 18 as the beneficiary of your life insurance. Because in most states in Canada and even other countries, the minor may not be in the right state to control the sum assured paid out to them. A trustee or an administrator has to be named, and a trust has to be set up for your kid, so when you die, the administrator or trustee will hold the life insurance sum-assured in the trust for your kid until they reach the age of 18.
I am an orphan, and I am still single.
In this case, you can consider a charity that you love or have always followed and supported. You can consider naming a charity organization as the beneficiary of your life insurance company or name the organization as both the owner and the beneficiary of a life insurance policy.
Is your case one of the four common scenarios we mention above? If not, comment below your case, and we will help you from there. Have further questions related to the Life Insurance beneficiary? Please get in touch with our trusted experts at Insurance Direct Canada (IDC).
During the insurance term, the insurance participants can change the name of a Beneficiary/ Beneficiaries at any time, as long as you meet the provisions of Law and rules set by the insurance company at the time the request is made, the same is applied with the name of Policy Holders.
But you cannot do the same with the name of the Insured. Your Insurance product, insurance amounts, insurance periods, premiums as well as other conditions (if any) are evaluated and approved on the basis of information of this person – the registered insured.
Is it acceptable that I do not name anybody as the beneficiary of the insurance contract? If yes, what will happen to the paid out when the insured dies?
According to the insurance contract and the laws/ rules set by the State, the policyholder has the right not to enter the beneficiary’s name. However, not filling in the beneficiary’s name will leave risks, the biggest risk is affecting benefits in the future such as:
– Compensation time will take longer than it should (even more than 02 years); and,
– The sum paid out value of the contract is not as intact as it should.
Different insurance companies may ask for different information. However, the essential information is always needed in all cases so that the insurer can locate your beneficiary more easily and quickly. So please provide as much information as possible.
Legally, the insurance company is required to inform the beneficiary when they are aware of the insured’s death. However, they cannot always know of your death. Therefore, please forget the idea ‘I want to give my beneficiary’ a surprise after my death’. Nothing may happen after that when no-body knows that you did buy a life insurance policy from a specific insurance carrier, then no-body will make a notification of your death to that company, and your insurance policy will be forgotten (forever). I bet that you do not want this script to happen. Then inform your beneficiary of this insurance of this policy and give her/ him a copy of this (At least before your death or when you nearly lose the possession of your faculties. Or you can consider transferring the responsibility to your lawyer.
We recommend you read your contract carefully because there is a high chance that you will find this information. In most cases, the beneficiary will have to do the following things, to mention a few:
1. Notify the right insurance company of the death of an insured person.
2. Send them the death certificate of the deceased.
3. Send them a copy of a life insurance policy/ contract.