When do you need to update your beneficiary?

January 20th, 2015

Now that the chaos of Christmas and the excitement of the new year has passed, it may be time to reflect on the great (and perhaps not so great) moments of past year. Births, marriages, and other important changes in our life whether they bring us great joy or not, are things to contemplate as we move into a new year.

As many of us look back at the important events – especially with the ongoing changes in our lives, it is a great opportunity to review the beneficiaries on our personal life insurance policies (and other similar policies such as critical illness, disability, and more) to ensure these policies respond in accordance to our intentions. Reviewing things such as limits, and beneficiaries ensures these policies reflect and pay out in a way which honours one’s personal wishes upon passing. Movement in one’s life is inevitable and ongoing—and easily missed. However, with these ongoing changes it is important to ensure that your broker or agent has taken care of your personal insurance needs in order for your family and loved ones to be taken care of when you are gone.

Rogers Insurance’s Account Executive in Life, Travel and Benefits – Aline Barker comments “One of the advantages of personal life insurance policies is in which they provide an option to have a beneficiary designated to receive such funds, bypassing estate and probate court and their fees – it is also important to note that all non-group benefits (individually purchased) life insurance policies are paid out tax-free to the beneficiary.”

Expanding on Barker’s comments, beneficiaries on such policies listed above are tax-free to beneficiaries (as long as they are paid with after tax dollars, which almost all individual life insurance policies are or provided as a taxable benefit under a group plan) and generally circumvent or bypass estate and probate court – and as many may (unfortunately) know, probate fees (depending on the province) vary from flat fees to a percentage of the estate value. Knowing this, it is important that policyholders should take into careful consideration their existing beneficiaries and contingent beneficiaries on their personal life insurance policies (and again, other similar policies). Changes and milestones in one’s life whether it being marriage, dissolution of a marriage, children born, or even a death to an existing beneficiary should be reviewed thoroughly with one’s broker or agent.

Discussion with one’s broker or agent may further reveal other personal insurance needs such as the discussion of appropriate life insurance limits, other products such as critical illness, long term care, and more. Other needs may come to light with newly acquired assets such as a new home, or changes in lifestyle and overall personal development and financial goals.

Beneficiaries are sometime that most of us are aware of when it comes to our life insurance policies, but what about contingent beneficiaries?

Barker elaborates on the importance of contingent beneficiaries, “Always ensure you have a contingent beneficiary named, especially when your spouse is the primary beneficiary as spouses spend the most time together and may be involved in the same unfortunate circumstances that may have them both pass at the same time. Children are commonly named as contingent beneficiaries with a trustee should they be minors in the event of a payment” She further adds, “Naming the ‘estate’ as a beneficiary or contingent beneficiary may also not be the best idea as this then renders the funds back into probate”.

Expanding on Barker’s comments, it should be noted that beneficiaries indeed are paid out in the event of the primary beneficiaries’ passing (prior to, or in conjunction with the named person), and are as important as a primary beneficiary when taking into consideration as to how one wishes for their policy to assist their family and loved ones after one’s passing.

As we take time to reflect back on the last year and ensure that family and loved ones whom we intend to have taken care of with our policies are indeed listed and named – and if not, corrected immediately with the help of a broker or agent and a thorough review of all of one’s long-term financial/insurance needs.

Blog Author: Samantha Millar, CAIB, ACS | Marketing Broker | Rogers Insurance Ltd.

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