Insurance: Time for a beneficiary designation checkup

When was the last time you reviewed your beneficiary designations? You’ve no doubt made careful plans to ensure that your loved ones will be taken care of. However, your life circumstances may have changed and it’s important to ensure that your beneficiary designations are current. Here are some considerations to help you with your beneficiary checkup. 

Beneficiary basics
A beneficiary is someone whom you have designated to be the recipient of insurance policy proceeds upon your death. Make sure your beneficiary desig­nation reflects your current wishes. 

If you name a beneficiary, the proceeds will be paid outside your estate, directly to the beneficiary. Payment will be relatively prompt, minimal paperwork will be required, and the funds will not be subject to probate fees. 

If you do not name a beneficiary, the proceeds will be paid to your estate. Your estate’s executor must apply to probate (or prove) your will in court and the funds will be subject to probate fees. BC’s Probate Fee Act lays out the probate fee structure that currently approaches approximately 1.4% of the value of an average policy. Al­ternatively, you may choose to leave your money to a trust, but be sure to seek legal and tax advice before pursuing this option. 

Beneficiaries aren’t for life insurance alone. Review all insurance policies, accounts, and investment vehicles for which you have designated beneficiaries. Your beneficiary designation is separate for each and supersedes any general directive set out in your will, unless your will specifically identifies the policy in question. 

Another advantage to designating beneficiaries in the province of British Columbia is that when you elect an immediate family member (spouse, child, grandchild, or parent) it protects the proceeds of your insurance policy from creditors. 

Types of beneficiary designations 
•    Irrevocable beneficiary. An irrevocable beneficiary designation can be changed, but requires the beneficiary’s signed consent. 
•    Contingent beneficiary. You may wish to designate a primary beneficiary and a contingent beneficiary. The contingent beneficiary would be the recipient of your policy proceeds if your primary beneficiary is deceased. In the tragic case of you and your primary beneficiary dying at the same time, such as in an accident, insurance law deems that your beneficiary is deceased before you and proceeds will be paid directly to your contingent beneficiary. If no contingent beneficiary is named, the payment will be made to your estate. 
•    Multiple beneficiaries. You can elect several beneficiaries and provide direction on what percentage of proceeds is to be paid to each. Consider seeking tax advice on how to apportion proceeds to your beneficiaries for maximum tax advantage. If you have a large estate, you may find that designating more than one beneficiary is advantageous. 
•    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. Include in­structions stipulating at what age, percentage, and circumstance the funds are to be transferred to the child. If no trustee is designated, the funds will be paid into the courts. 
•    Charity beneficiaries. If you select one or more charities as your beneficiary, your life insurance proceeds will be paid accordingly. Professional tax advice can determine if your charity designation renders your premiums tax deductible. 

About BCMA insurance
The BCMA is proud to provide its members and their spouses with competitively priced, comprehensive in­surance products. For details on BCMA life insurance and rates, see www.bcma.org/member-services/insurance-life. To help you assess how much coverage you need, you can reference our Life Insurance Calculator at www.bcma.org/life-insurance-needs-calculator.

To make an appointment for a free insurance consultation with a licens­ed, noncommissioned BCMA insurance advisor, contact Paula Rooney by e-mail at prooney@bcma.bc.ca or phone at 604 638-2872 or toll free 1 800 665-2262, ext. 2872.

The information provided in this article is not legal or financial advice; you should consult your lawyer or accountant regarding matters of your estate. The beneficiary designation information presented here is referenced from the Canadian Life and Health Insurance Association Inc., at www.clhia.ca. 
—Sinden Luciuk
Manager, Insurance