Has it been a while since you obtained life insurance to protect your loved ones? If so, it’s a good time to ensure your beneficiary designations reflect your current wishes, especially if your life circumstances have changed. Here are some considerations to help with your beneficiary checkup.

Beneficiary basics

A beneficiary is someone you designate to be the recipient of insurance policy proceeds upon your death. This allows the proceeds to be paid outside your estate, directly to the beneficiary. Payment will be relatively prompt, minimal paperwork is required, and the funds will not be subject to probate fees. 

If no beneficiary is designated, the proceeds will be paid to your estate. Your estate’s executor must apply to validate your will in court and funds will be subject to probate fees. BC’s Probate Fee Act details the fee structure that currently approaches approximately 1.4% of the value of an average policy. 

Beneficiaries are not only for life insurance. Review all insurance policies, accounts, and investment vehicles for which you have designated beneficiaries. Your designation is separate for each and supersedes any directive in your will unless your will specifically identifies the policy in question. 

Types of beneficiary designations

Primary and contingent beneficiary

Your primary beneficiary is the person you name to receive the death benefit. However, you may wish to name a contingent beneficiary in case your primary beneficiary dies. If you and your primary beneficiary die at the same time, insurance law deems that your beneficiary is deceased before you and proceeds will be paid directly to your contingent beneficiary. If one is not named, payment will be made to your estate.

Multiple beneficiaries. You can elect several beneficiaries and you will need to specify how you would like the proceeds paid out in percentage amounts to each beneficiary.  

Minor children as beneficiaries

If a child under 18 is designated as your beneficiary, make sure you designate a trustee to receive the funds on the child’s behalf. If no trustee is designated, the funds will be paid into the courts and the Public Trustee will be involved. 

Corporations as beneficiaries

This is a popular strategy since there is a mechanism for corporations to pay life insurance policy proceeds as tax-free capital dividends to shareholders. Corporations are also subject to a lower income tax rate, so tax efficiencies are gained by paying corporately. The corporation named as beneficiary should also be paying the premiums for the life insurance policy. Speak with your accountant about whether this strategy is best for you.

Charities as beneficiaries. You may name one or more charities as your beneficiary. Professional tax advice can determine if your charity designation renders your premiums tax deductible.

Assignments

An assignment is where you assign the policy proceeds to a lender as collateral for a loan (e.g., a business or clinic loan). The lender receives their funds to repay the loan before the residual is paid to your beneficiaries. If you change lenders or pay off the loan, it can be easy to forget to remove the original assignment, which can cause delays at time of death. 

To schedule a complimentary insurance review with a licensed, noncommissioned Doctors of BC insurance advisor, contact us at insurance@doctorsofbc.ca or phone 604 638-7914.
—Hali Stus
Insurance Advisor, Doctors of BC

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