Revocable and Irrevocable Beneficiaries to Life Insurance

Revocable and Irrevocable Beneficiaries to Life Insurance

When a policyowner names a beneficiary to a life insurance policy, by a default, that beneficiary designation is Revocable. This means that the policyowner can name a new beneficiary at any time, without the first beneficiary’s consent.

You could, however, also name an irrevocable beneficiary. Here the policyowner cannot change the beneficiary designation without the irrevocable beneficiary’s consent. One of the most common reasons for designating an irrevocable beneficiary is to satisfy child or spousal support orders following divorse or separation. The designation ensures that the child or the spouse will receive a death benefit if the policyowner dies and is no longer able to meet his or her support obligations. It also means that the policyowner cannot later secretly change the beneficiary to someone else.

In an Irrevocable Beneficiary’s case, his /or her permission is needed to:

  • change the policy back to a revocable status,
  • assign the policy to a third party,
  • surrender the policy.

However, the policyowner could still let the policy lapse by not paying premiums, unless the courts have ordered him or her to continue the premiums.

A word of caution to all policy owners and applicants: Please know the difference between a revocable and an irrevocable beneficiary.  ask your broker the explain the difference and apply the right type of title to your beneficiary and hence protect your loved ones really well.

 

We at YourInsuranceGuy.ca are experts in explaining the life insurance contract, beneficiary definitions etc etc. Please feel free to contact us at aman@yourinsuranceguy.ca or at 1 416 509 2540. Please visit us for a no obligation quote or advice.

 

 

Primary and Contingent Beneficiaries

A Primary Beneficiary is the first named beneficiary and will receive the policy death benefit from a life insurance contract if still alive when the life insured dies. However, sometimes the beneficiary dies first, or dies with the life insured. Consequently, it is prudent to name a Contingent Beneficiary as a secondary beneficiary to receive the death benefit if the named beneficiary predeceases the life insured. A spouse is often the named beneficiary of a policy and the children and grandchildren as “contingent beneficiaries.”

 

 

Life Insurance protects your estate from a tax liability

Life Insurance is a tax free benefit to the beneficiary and hence can provide liquidity to your estate and the tax free benefit could offset tax liabilities in the future. When the first spouse passes away, there is a tax free roll over of assets to the surviving spouse. However, when the second spouse passes away, there is a roll over to the next generation and that could result in a tax liability. Therefore, assets like stocks, bonds, investment real estate is subject to a capital gain tax where the gain from the initial cost base is only taxed by 50%…

 

 

Advantages of a named Beneficiary in a Life Insurance policy

  • The death benefit moves outside the deceased’s estate; therefore, it is not included in the value of the estate when calculating the probate fees….The death benefit moves quickly and directly to the beneficiary ( by law, within 30 days of proof of death), whereas estate funds could take six months to several years to be paid….

 

Life Insurance Contract : features and requirements

Requirements of a Standard Insurance Contract (Standard legal Contract)Need for a Valid Offer and Acceptance: The client initiates the insurance process by submitting the application. The insurance company decides whether it will offer the policy to the client and what premium will it require.  The client has the option of accepting or declining the offer.

 

Change of Beneficiary

The policy owner could change the beneficiary to the policy. There could be various reasons that could result in this decision to change the beneficiary. It is, however, important to note that the beneficiary to the policy is one who has an established insurable interest. In simpler terms, the beneficiary of the policy should be having a negative financial impact upon the death of the person insured…

 

Prepared by:  Aman Kapur

 

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