N.B.: In accordance with the provisions of Quebec's Civil Code, the following information on life insurance policies also applies to life and fixed-term annuities purchased from an insurer.
Why should I designate a beneficiary?
You've taken out life insurance to protect your loved ones. By designating one or more of these individuals as the beneficiary(ies) of your policy, you ensure that the proceeds will be paid directly to them, not your estate.
If you haven't designated a beneficiary, or if you've designated your estate, legal heirs or assigns, the proceeds will go to your estate, and used first and foremost to pay any creditors.
Who can I designate as my beneficiary?
You can name any identifiable individual as your beneficiary. Although you may designate someone not yet born, that person must be living, or conceived and subsequently born living and viable, to be entitled to the insurance proceeds.
When designating a beneficiary, it is better to do so specifically by name, so as to avoid any possible controversy. (For example: "I hereby designate my husband, Roger Barry.")
If you decide to designate your children as beneficiaries of your insurance policy without naming them individually, we suggest you do so in the following terms: "I hereby designate my existing and future children, with the proceeds to be divided equally among them."
You can also designate a charitable organization as your beneficiary.
What types of beneficiary are there?
Designations can be revocable or irrevocable. In the case of the former, the policyowner can change beneficiaries and perform certain policy transactions without the designated beneficiary's consent. In the case of the latter, the designated beneficiary's written consent must be obtained to change the designation or conduct such transactions.
By and large, all beneficiaries are revocable unless clear stipulations to the contrary have been made. The one exception to this rule is the designation of a legal or civil-union spouse, which is irrevocable unless the policyholder has specifically indicated otherwise.
How do I go about designating a beneficiary?
First, it's important to note that only the policyowner can designate or revoke a beneficiary. Designation may be made in the life insurance application, on the appropriate form, in a will, or on any other document signed by the policyowner.
Where a beneficiary is designated in the insurance application, the designation becomes effective when the application is received by the insurer.
Where a beneficiary is designated-or a revocable beneficiary revoked-in a will, it's important that the policy in question be properly identified by number and the insurer's name provided. For a beneficiary designation made via a will to take precedence over an existing designation, the testator's intent must be absolutely unequivocal. Furthermore, the date on the will must be later than that on the policy or most recent change of beneficiary. (N.B.: A designation of beneficiary made in a will is always revocable.)
Can I change beneficiaries?
You can change a revocable beneficiary at any time; however, in order to change an irrevocable beneficiary, that individual's consent must be obtained. If you wish to keep your options open, therefore, you should always make your designation revocable.
An irrevocable designation can also have a significant impact on your rights under the policy (for example, the right to a surrender value).
Unless the policy expressly states that you can exercise these rights without the consent of the irrevocable beneficiary, that consent will always be required (otherwise, the irrevocable beneficiary would be deprived of the advantages of such a designation).
Can I designate more than one beneficiary?
Yes. You can also specify the fraction or percentage attributable to each; otherwise, the policy proceeds will be divided equally.
If one of your beneficiaries is deceased when the death benefit becomes payable, two scenarios are possible:
- If the death benefit has been allocated equally, the deceased beneficiary's share will be divided among the survivors.
- If the death benefit has been divided unequally, the deceased beneficiary's share will be paid to the insured's estate, unless other provisions have been made.
You can also designate substitute beneficiaries. For example, let's say an insured designates her sister "Lori" as beneficiary, and her sister's son "Paul" as her substitute beneficiary. Paul will not receive anything if Lori is still alive when the insured dies.
What happens if my beneficiary predeceases me?
If you've designated a substitute (contingent) beneficiary, that person will automatically become the new beneficiary.
However, if the sole designated beneficiary is deceased and there is no substitute, the proceeds from the policy will be paid to your estate.
If I designate my spouse as my beneficiary, what happens if we get divorced?
In Quebec, divorce or the dissolution of a civil union automatically render any spousal designation of beneficiary null and void. If you wish to maintain a former spouse as beneficiary, therefore, you must make a new designation.
In this regard, it's interesting to note that legal separation does not affect the designation of a spouse as beneficiary. (This rule does not apply to common-law couples, however, as they are not legally married or partners in a civil union).
Is my policy creditor-proof?
Some beneficiary designations may protect your policy against creditors:
- your spouse (by marriage or civil union), or your ascendants or descendants (even as revocable beneficiaries)
- anyone you designate as an irrevocable beneficiary
This means that, with certain exceptions, creditors do not have any rights whatsoever with respect to the policy.