Life insurance: irrevocable or revocable beneficiaries?

That’s it, you’re almost there: after doing your research, getting your quotes and comparing the different offers, you’re ready to apply for life insurance! Congratulations, it’s a step towards protecting your finances and your loved ones. At this point when you’re faced with the paperwork, it’s critical to answer carefully. Indeed, a life insurance policy is quite regulated, especially regarding beneficiaries. You must have heard of those cases with beneficiaries that cannot be changed, leaving the insured person in a delicate situation. To clarify everything, here are some ideas to help you with this part of your life insurance policy.

Beneficiaries

In general, when it comes to life insurance, the designated beneficiaries will be the people you choose to receive the contracted insurance coverage. A life insurance policy is a separate agreement, which is not affected by inheritance rules. Thus, the amount of your life insurance will be paid directly to the designated beneficiaries, bypassing your estate. This sum will be protected from creditors and debts to be paid by the estate.

In your policy, you will be asked to designate one or more beneficiaries, as well as their relationship with you : child, parent, spouse. It’s important to be as clear as possible in the appointment of those individuals to avoid any ambiguity.

Revocable or irrevocable?

A designated beneficiary in a life insurance contract is considered revocable unless clearly specified as otherwise. This means that you usually have the right to change any of your beneficiaries over time. However, exceptions complicate the task.

Legal spouse

In Quebec for example, a legal spouse is an exception to the rule. Under Quebec law, if a married or civil union spouse is among the beneficiaries, it becomes irrevocable unless otherwise stated. This provision of the law means that you must have the written consent of your legal spouse to be able to remove them from your life insurance policy (unless you specifically checked “revocable”).

It is important to note that in the province of Quebec divorce automatically cancels the designation of the spouse as beneficiary. In this situation, the agreement of a former spouse is no longer necessary to change the beneficiary.

Note that these rules only apply to a married or civil union spouse and not to a common-law partner. Thus, the beneficiary designation for a common-law spouse is presumed to be revokable and a separation does not change the status of the beneficiary.

Irrevocable beneficiary: how to change it?

Generally, irrevocable beneficiary designations not only require the agreement of the policy holder, but also of the beneficiary. So, when completing that life insurance application paperwork, is it better to designate a revocable or irrevocable beneficiary? Typically, it’s always strongly recommended to use a revocable beneficiary, regardless of the relationship with the person. This could prevent a difficult situation in the future. In case of doubt, professionals are available to answer your questions and ensure that you take the most informed decision based on your unique personal situation.