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6 Must-Dos When Naming a Beneficiary

By: Benefits by Design | Tuesday July 14, 2020

Updated : Friday August 7, 2020

The definition for a beneficiary is simple — an individual, chosen by you, who will receive a monetary payment upon your death. It sounds morbid, we know, but designating a beneficiary is one of the most important steps when enrolling in a group benefits plan and there’s a lot to consider.

Not every group plan will require you to name one, but if your plan includes Life Insurance (most do), your Life Insurance company requires eligible plan members to designate a beneficiary. Benefits are paid to those named individuals in the event of a covered plan member’s death. 

Who Can be a Beneficiary?

Common beneficiaries are spouses, common-law partners, children, and other dependents, but you can also name another family member, such as a brother or sister, a friend, or even a charity! You are also able to name more than one beneficiary, however, the split between them must equal 100%. 

So, for example, a Life Insurance policy of $50,000 could be broken down like so:

Spouse: 80% = $40,000

Child 1: 10% = $5,000

Child 2: 10% = $5,000

If you are designating a child who is a minor or with special needs, you must also designate a trustee until they reach the age of majority (more on that below).

Can a Dependent be Named a Beneficiary?

Yes! In fact, they’re among the most common beneficiaries. However, keep in mind that if you designate a beneficiary who is under the age of majority, they will be unable to access the money until they come of age. You will need to appoint a Trustee in this case.

Why Do I Need to Designate a Beneficiary?

6 Must-Dos When Naming a Beneficiary

Naming a beneficiary is among one of the most important things you’ll do when enrolling in most group insurance plans. Here are 6 things you should consider before doing so.

#1. Choose Your Beneficiary (or Beneficiaries) Carefully

Your beneficiary is the person who will receive any Life Insurance payout and so you should carefully consider who you would want the money to go to when you’re gone. Consider those who depend on you financially — could your spouse handle the mortgage payment without your income? — or those whom you’d like to take care of.

If you have any questions about choosing a beneficiary, you should speak to your financial or legal advisor.

#2. Naming a Trustee for Minor Children or Children with Special Needs

Children under the age of majority cannot receive control of any money left to them in an insurance policy. 

You can name a trustee to hold the proceeds in trust until the children are of legal age. Make sure to choose a trustee that is responsible, and above all, that you trust to fulfill your wishes. 

#3. Know the Difference Between Revocable and Irrevocable Beneficiaries

Depending on your province of residence, the distinction between the two can be significant.

#4. Keep Your Beneficiaries Up to Date

Life happens! As things change, you need to make sure that your named beneficiaries still reflect your wishes. A few of the common reasons for updating beneficiaries include:

As an example, if you divorce and then remarry, you may want to update your beneficiary to remove your previous spouse and add in the new one (if that is your wish!), as without this change, benefits will be paid to your first spouse instead.

To update a beneficiary, you must complete a change form and submit a copy to your Plan Administrator. Your Plan Administrator then passes along the changes to the Life Insurance carrier. 

This change request will supersede any beneficiaries you may have designated previously.

#5. Keep Your Signed Form

Like your will, passport, and other essential documents, it’s a good idea to store your signed form safely since it proves the status of your beneficiaries. For instance, if you updated your beneficiaries but did not submit your form, there could be a conflict in who receives the payout as the Insurer will have different information on file.

#6. Be Specific

When naming beneficiaries, it’s very important to write their full name and information. Listing “my children” can lead to problems, particularly in cases of a blended family, since many provinces don’t formally recognize step-children as “children”.