How to Choose a Life Insurance Beneficiary

How to Choose a Life Insurance Beneficiary

After you’ve taken your time to build life insurance for a more sustainable future, you will have to consider how to choose a life insurance beneficiary.

You can have one or more persons on your list when choosing a life insurance beneficiary, and whomever you choose isn’t restricted to just your family or a specific location.

For your life insurance beneficiary, you only need to point out the primary thing that you would want to be sustained after your demise. This would make it easier to select the best person or group of people who can effectively carry it out as your beneficiary.

Certain principles and guidelines influence how you choose a life insurance beneficiary, which we’ll detail below to help you make informed choices.

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Who is a life insurance beneficiary?

Looking at how to choose a life insurance beneficiary, we must understand who this person is and how important they are.

Your beneficiary is a trusted person, maybe a family member, someone outside the family, or an entity that receives the death benefit payout of your life insurance policy after you pass away. Therefore, this beneficiary is whoever you designate to get the money from the life insurance when you die.

It may seem awkward to make plans for when you die, but it’s a very intentional process to keep your loved ones financially secure.

Your beneficiary does not need to be your spouse or relative; it can be anyone you, the policyholder, choose, but most likely, the person most affected by your demise.

Types of life insurance beneficiaries

Canada’s insurance industry paid over $113 billion in benefits in 2021, showing the effectiveness of owning one. Since the idea behind how to choose a life insurance beneficiary depends on the occurrence of death, here are the types of life insurance beneficiaries you should consider:

Primary beneficiary

This is the top priority and direct beneficiary of your life insurance deposit. This designated individual or entity is first in line to get the death benefit funds after you, the policyholder, pass away.

Frequently, the primary beneficiary could be an immediate family member like your parents, spouse, or children, or even business partners, trusts, or charities.

However, the critical advantage of naming a primary beneficiary is to avoid unnecessary delays in the transfer of funds to your preferred beneficiary when you’re no longer there.

You have to be very careful in your consideration while designating the right primary recipient to swiftly deliver benefits and fulfill the purpose of the life insurance coverage as intended.

Contingent beneficiary

In the event of an unexpected death, the need for a contingent beneficiary arises. A contingent beneficiary is someone whom you designate to receive your life insurance and proceeds if the primary beneficiary dies earlier than expected.

They are next in line for your death benefit payout if the primary beneficiary cannot receive it.

As a policyholder, you’re free to state who your contingent beneficiary should be when establishing the life insurance policy, just as you’d do for your primary beneficiary.

Contingent beneficiaries provide a backup option if the primary beneficiary passes away first or cannot accept the funds.

Common contingent beneficiaries are secondary family members like grandchildren, nieces and nephews, or siblings. Friends or business partners may also be chosen.

By being the policyholder, you can name multiple contingent beneficiaries and specify what percentage of the total benefit each one should receive.

This helps provide an alternate direction for the life insurance proceeds if the primary beneficiary is no longer living rather than having the money go elsewhere.

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Revocable beneficiary

This is a beneficiary that you can change at any time with no restrictions. With a revocable beneficiary, you control who will receive the death benefit payout from your life insurance policy.

You can change the revocable beneficiary at any time by contacting your insurance Policy Advisor and filling out new paperwork, whether online or physically.

The ability to revise revocable beneficiaries provides maximum flexibility for the policy owner. As life circumstances evolve, like getting married, divorced, or having children, you can adjust the beneficiary designation accordingly. Keeping beneficiaries up-to-date helps ensure the payout will go to the right person or entity.

Irrevocable beneficiary

An irrevocable beneficiary cannot be altered without consent and paperwork from that beneficiary. You give up control over who will receive the payout in the future. This protects the irrevocable beneficiary, as you cannot redirect the funds on their own.

Irrevocable beneficiaries create certainty for the named recipient. Even if the owner’s situation changes, like in a divorce, the irrevocable beneficiary remains locked in unless they agree to sign off.

However, unless a legal requirement exists in a specific circumstance, this loss of control makes irrevocable designations less common.

Who to name as a beneficiary

Speaking of how to choose a life insurance beneficiary, obtaining a life insurance policy could be for different reasons, like completing an academic study, a family project, or even expanding your business.

Determining who to name as a beneficiary has to align with your intentions so that you’re confident that your dream will be actualized after your demise.

A life insurance beneficiary can be almost anyone you choose. You have a right to that, as there are no restrictions. They include:

  • Family Members: You can have your spouse, kids, or even your parents as beneficiaries.
  • Friends and loved ones: Friends, partners, or other significant people in your life can be named as beneficiaries.
  • Trusts: Your trust fund can bear the name of your beneficiary. This is often done to manage the proceeds for minors or other estate planning purposes.
  • Charities or Non-profit Organizations: A charity or non-profit organization can be named as a beneficiary to receive the death benefit as a charitable donation.
  • Estates: Now that we’re breaking down the concept of choosing a life insurance beneficiary, selecting your estate is equally a good option. When you designate your estate as a beneficiary, it becomes part of your will. As such, financial decisions will be made to its terms.

You can equally appoint a minor when choosing a life insurance beneficiary. Still, in this case, special arrangements need to be made beforehand, such as selecting a trustee to manage the proceeds until the beneficiary reaches the age of majority.

Additionally, it’s expected that you keep beneficiary designations up-to-date since certain situations surrounding marital issues, mortality or birth can occur.

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Tips for how to choose a life insurance beneficiary

Understanding how to choose a life insurance beneficiary will allow you to examine the factors and situations surrounding making a solid choice.

When choosing a life insurance beneficiary in Canada, consider the following tips:

Understand the purpose of the policy

Discovering the primary purpose for setting up life insurance is the first step in understanding why and how to choose a life insurance policy. Do you want life insurance to provide financial support to your spouse or children, pay off debts, or leave a legacy to a charity?

Reevaluate relationships

Create time to reflect on your relationships with people around you and consider who would be most affected financially by your death. In this case, the basis of your consideration lies with more than just the level of financial stability your proposed beneficiary has.

You can consider their academics not falling apart after your demise or their tendency to carry others around them along when they have the funds in their care.

Be specific

Clearly name the beneficiaries of your insurance. Instead of generalizing your children in your insurance policy, list their full names. The liberty to have more than one beneficiary doesn’t mean you should generalize your beneficiaries.

Whether you end up having just one or more than one beneficiary, you’d have to state their name clearly and the percentage each gets.

Update beneficiary information regularly

Life changes such as marriages, divorces, births, and deaths can affect who you want as your beneficiary. Update your policy accordingly, and keep them informed as you do so.

Consider the age/Conditions of the beneficiary

If the beneficiary is a minor, consider setting up a trust or naming a guardian to manage the funds until the beneficiary reaches the age of majority.

Also, suppose your beneficiary happens to be disabled. In that case, consider setting up a trust in his name instead so that his federal or state benefits aren’t withdrawn.

Review the policy with a professional

Consult an insurance advisor easily through the PolicyMe platform to ensure the beneficiary designation aligns with your overall estate plan. Only share beneficiary information with those who need to know, like your lawyer or insurance advisor.

Understand the tax implications

In Canada, life insurance proceeds are generally tax-free for the beneficiary. However, if your estate is named as the beneficiary, the death benefit may be subject to estate taxes.

When your estate is a beneficiary, the money goes to your creditors, if you have any, or is subject to the terms of your will.

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How to change a life insurance beneficiary

Digging deeper into how to choose a life insurance beneficiary, you’ll agree that circumstances call for a change sometimes.

You can change the primary beneficiary if circumstances evolve, like after a marriage or divorce, or when there’s a behaviour change or more responsibilities are added to someone.

For example, your child loses their partner and needs help catering for the family or your trusted business partner, your beneficiary, leaves the company. Anything at all could prompt your interest in changing your beneficiary.

Changing a life insurance beneficiary in Canada generally involves the following steps:

  • Review policy documents: You have to understand the terms and conditions for changing beneficiaries, and that comes with going through your policy documents first. Policies surrounding an irrevocable beneficiary may have restrictions you should know of.
  • Revert back to your insurance company: You’re expected to reach out to your insurance company or PolicyAdvisor to be updated on the requirements for changing beneficiaries. Whether online or physically, you’d get guidance on what to do just as they did when you started the process.
  • Complete the Change of Beneficiary Form: Fill out the change of beneficiary form that the insurance company has provided. This will typically require the policy number, the current beneficiary’s information, and the new beneficiary’s information, including their full name, relationship to you, and contact details.
  • Submit your Updated Form: The insurance company receives your updated form as instructed. This may be done by mail, fax, or, in some cases, online.
  • Confirmation: You’ll get a confirmation notice from the insurance company after processing your adjustments. You must ensure that everything is as you’ve filled it.
  • Keep Records: Keep a copy of the change of beneficiary form and the confirmation for your records.
  • Inform the New Beneficiary: Consider informing the new beneficiary of their designation and any important details about the policy.
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How to pay your death benefit

The idea of how to choose a life insurance beneficiary is one of the reasons people wonder if the allocation of payments is equally controlled by you. The answer is yes, and until your life insurance policy lasts, you hold the deciding power over how its resources are distributed.

There are two significant ways that life insurance benefits can be paid out to beneficiaries, including per capita and per share, which determine the division of total proceeds across your designated beneficiaries.

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Per Capita/Per Head

  • The death benefit is divided and paid out equally to each named beneficiary. In this case, everyone here is entitled to equal shares.

For example, with a per-stirpes payout:

  • Your children would be paid first and equally.
  • But in a case where your child is deceased too, the children get the share (your grandchildren).
  • The deceased child’s share would not pass to their siblings but to their descendants.

Per Stirpes/Per Branches

  • Beneficiaries are paid in hierarchical order by family lines or branches. Closer generations take precedence over more distant generations.

In this case, everyone gets an equal individual share, regardless of generation. Per Stirpes distributions, follow the bloodline and keep assets in the family lineage.

Here’s a schedule of payment that any of the options above can follow:

  • Lump Sum Payment: This is where the death benefit is paid out all at once to the beneficiary.
  • Installment Payments: Rather than one lump sum, the benefit is paid out over time in several installments, usually over several years. This provides income versus one large lump payment.
  • Lifetime Income Option: The death benefit is used to purchase an annuity that provides guaranteed income for life for beneficiaries. This ensures a steady stream of income.
  • Interest Option: The insurance company holds the funds and pays interest to beneficiaries for a set period before disbursing the principal balance in a lump sum.

Therefore, when looking at how to choose a life insurance beneficiary and how to allocate payments when you have multiple options, weighing the pros and cons of each method is very important.

You can select which payout method works best for your beneficiaries’ situation. This decision depends on the benefit amount, the beneficiaries’ financial needs, and taxes.


Having life insurance is an essential aspect of financial planning, especially if you have dependents or significant debts, and our life insurance page is the best place to find the best deals.

Choosing the correct beneficiaries for your life insurance policy and completing the paperwork provides satisfaction, knowing your loved ones will be financially taken care of if you pass away prematurely.

Instead of your beneficiary venturing into obtaining mortgages or getting overburdened with tuition fees, a life insurance policy helps considerably in relieving that burden.

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FAQs about how to choose a life insurance beneficiary

Can more than one person be named my beneficiary?

Yes, you can have more than one beneficiary for your life insurance policy in Canada and clearly specify the percentage each receives. This is an excellent way to make sure that multiple loved ones or dependents are provided for in the event of your death.

Is my life insurance beneficiary the same as my will?

No, your life insurance beneficiary and your will are different. Your life insurance beneficiary is someone entitled to your death benefits for solid purposes. Your will, which you can easily create on our service page, is a legal document where you’ve listed how your entire property will be shared after your demise.

Is there any consequence with not choosing a beneficiary?

Not choosing a beneficiary allows your life insurance proceeds to be transferred to your estate. This means that it will be distributed randomly following the listings on your will. In essence, it's advisable to choose a life insurance beneficiary to enable your death benefit to get to the people you want to receive it.


November 14, 2023
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