Why you should choose a beneficiary

Canada Life - Sep 21, 2023
Choosing a beneficiary is an important part of your financial plan
Choosing a beneficiary

When you open an investment account, create a will or buy life insurance, you’ll be asked to name a beneficiary and possibly a secondary beneficiary. But naming a beneficiary shouldn’t be something you do once and never think about again. Also, it’s not something you should put off doing.  

What is a beneficiary? 

A beneficiary is a person or entity who receives benefits from property owned by others. For example, the person or organization you choose as the beneficiary of your life insurance will get your death benefit after you die. You’ll also be asked to name a beneficiary when you open accounts such as a registered retirement savings plan, a registered education savings plan or other registered investment accounts.

You may also be asked to choose a contingent or secondary beneficiary. In the case of a life insurance policy, this person or organization will receive a death benefit only if your primary beneficiary dies before you. Think of it as a back-up plan.  

Why name a beneficiary? 

Naming a beneficiary is an important part of your estate planning. If you don’t name a beneficiary, any money will go to your estate. Let’s say you don’t name a beneficiary for your life insurance policy. When you die, your estate will receive the death benefit. This could delay or prevent your loved ones from receiving your death benefit. In the case of investment accounts, not naming a beneficiary could have tax implications. Naming a beneficiary ensures the person or organization you choose receives your benefits when you die. 

Who should be a beneficiary? 

While there are different kinds of beneficiaries and rules for choosing beneficiaries may vary by product or province, generally, people choose family members as their beneficiaries. You could also choose to name a friend or even an organization. For example, some people choose to designate a charity as the beneficiary of a life insurance policy. I can help you determine your goals for your estate and help you decide who to name as your beneficiaries. 

Why review your beneficiaries regularly 

You should review your beneficiaries at least annually. As well, review your beneficiaries after any major life change such as a marriage, divorce or birth of a child. Let’s say you divorce your spouse and remarry, but you forget to update your RRSP beneficiary information. When you die, your ex-spouse will receive your RRSP benefits, not your current spouse. I can help you review your beneficiaries when we do your annual review of your financial plan. A lot can happen in a year and your needs and wishes could change.  

What’s next 

Who you name as your beneficiary is an important part of managing your finances. I can help you determine who to choose and help you make a schedule for regular review. Let’s chat.