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What is an irrevocable beneficiary in life insurance?
Did you know that there are different life insurance beneficiary designations? One type is an irrevocable beneficiary. With this designation, the irrevocable beneficiary's consent is required for the policy owner to make a beneficiary change. You might be wondering why someone would choose this option. In this article, we'll cover some of the reasons for naming an irrevocable beneficiary. Additionally, we'll cover other beneficiary types.
An overview of primary and contingent beneficiaries
To better understand what an irrevocable beneficiary designation is, it's important to understand the two main types of life insurance beneficiaries: primary and contingent beneficiaries.
A primary beneficiary is a person or entity named to receive (i.e., to be paid) the death benefit upon the life insured person’s death. A contingent beneficiary is a person or entity designated to receive the death benefit only if the primary beneficiary has died or refuses the death benefit. Again, the payment of the death benefit is dependent on the life insured person’s death.
You may name multiple people or entities (charities, trust funds, or organizations) as beneficiaries. To name multiple beneficiaries, you’ll simply need to specify how the benefit will be split amongst them.
Primary and contingent beneficiary designations are further specified as either revocable or irrevocable.
Revocable and irrevocable beneficiaries
Revocable beneficiary: When a beneficiary is a revocable beneficiary, this designation can be changed on the policy by the policy owner.
Irrevocable beneficiary: When a beneficiary is designated as irrevocable, the designation cannot be changed without the irrevocable beneficiary's signed consent.
How does an irrevocable beneficiary differ in Quebec versus the rest of Canada?
In most cases, an irrevocable beneficiary designation is similar from province to province. However, there is one major difference in Quebec. In Quebec, the insured person’s legal spouse is automatically considered an irrevocable beneficiary unless specifically designated as revocable in the policy. Whereas in the rest of Canada, the default is the revocable beneficiary designation.
A few irrevocable beneficiary designation scenarios
Let's look at a few scenarios where a policy owner may name an irrevocable beneficiary.
- Naming children as irrevocable beneficiaries to help ensure that they receive the life insurance death benefit in the event the policy owner passes away.
- In certain divorce or separation agreements, a policy owner may be legally required to name their former spouse as an irrevocable beneficiary. This could be done to secure any ongoing financial obligations, such as child or spousal support, in the event of the policy owner's death.
- In trust or estate planning, some policy owners may name an irrevocable beneficiary to ensure that their life insurance proceeds are distributed according to their original intent.
What steps are often involved when naming an irrevocable beneficiary?
- Obtain the relevant beneficiary forms from your insurer. Complete and submit the forms alongside your life insurance application. Note: In some cases, you can list your primary and contingent beneficiaries as part of your application; however, for other insurance providers an additional form may be needed for you to name a beneficiary on your policy.
- Submit a beneficiary change form (different insurers have their own version of this document) alongside your application if you want to name an irrevocable beneficiary and select the irrevocable beneficiary designation.
Remember, in Quebec, one's spouse is automatically deemed as an irrevocable beneficiary (unless specifically designated otherwise). - If you have more than one beneficiary, specify the percentage of the death benefit that each should receive.
- Next, complete and submit all your documents and wait for a confirmation.
Comparing revocable and irrevocable beneficiary types
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Revocable beneficiary |
Irrevocable beneficiary |
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|---|---|---|
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Beneficiary designations in Canada
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In most Canadian provinces, a beneficiary is designated as revocable by default. |
In Quebec, one's spouse is designated as irrevocable by default (unless specifically designated as revocable). Any other beneficiary is designated as revocable, like the rest of Canada. |
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Does the policy owner have sole authority to change the beneficiary?
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The policy owner can change the revocable beneficiary. |
The policy owner must have the written consent of the irrevocable beneficiary. |
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What is the advantage of either beneficiary designation for the policy owner?
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Provides control and flexibility for the policy owner. You (as the policy owner) have complete authority to make changes to beneficiary designations when all beneficiaries are listed as revocable. |
Offers more control for the beneficiary. The irrevocable beneficiary cannot be changed without their consent. |
Interested in learning more about life insurance beneficiaries?
Read our article on understanding life insurance and beneficiaries to gain a further understanding of the different types of life insurance beneficiaries and why naming a beneficiary is so important.
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The content on this page is for general information purposes only and does not constitute legal, financial or insurance advice. Speak to a TD Life Insurance licensed professional advisor regarding your specific situation. The information contained herein, is subject to change without notice.