Beneficiary
A beneficiary is the person or entity designated to receive the proceeds or benefits from an insurance policy upon the policyholder’s death or when a covered event occurs. In life insurance, the beneficiary receives the death benefit as a tax-free lump sum. In accidental death and dismemberment (AD&D) insurance, the beneficiary receives payment if the insured person dies as the result of an accident. Beneficiaries can also be designated in certain health or travel plans that include accidental death benefits.
How It Works
A policyholder may name more than one beneficiary and decide how the benefits are distributed, and that beneficiary can be an individual, a trust, a charity, or an estate. Beneficiaries fall into two roles: a primary beneficiary is the first person or entity in line to receive the payout, while a contingent or secondary beneficiary receives the benefit only if the primary beneficiary is deceased or otherwise unable to receive it. A designation can also be revocable, meaning the policyholder can change it at any time, or irrevocable, meaning it cannot be removed or changed without that beneficiary's written consent. A beneficiary named in a life insurance policy is separate from a beneficiary named in a will, and the person named in the policy will receive the insurance proceeds by virtue of being named, even if the will names someone different. Naming a beneficiary other than your estate can let that person bypass probate and get quicker access to the insurance payout, while naming your estate may subject the benefit to a more time-consuming and costly legal process. In a Canadian extended health and dental benefit plan, the insurer enrols beneficiaries, answers their questions, and assesses claims to determine whether the claimant qualifies to receive benefits.
Example:
Suppose you hold a workplace group plan in Canada that bundles extended health and dental coverage with an accidental death benefit. For the health and dental portion, you are enrolled as a beneficiary and your covered family members can submit claims for services like cleanings or prescriptions. For the accidental death portion, you name your spouse as the primary beneficiary and your adult children as contingent beneficiaries, so the accidental death benefit goes to your spouse, and only to your children if your spouse is no longer living when the benefit is paid.
What to Watch For:
Keep your beneficiary information up to date after major life events such as marriage, divorce, or the birth of a child, and identify each beneficiary by full legal name to avoid confusion or disputes. Remember that an irrevocable beneficiary cannot be removed or changed without that beneficiary's written consent, so choose carefully. Keep in mind too that naming your estate rather than a specific person can subject the benefit to a more time-consuming and costly legal process.
