A revocable beneficiary means the policy owner can change the beneficiary designation. An irrevocable beneficiary may limit the owner’s ability to change the designation and engage in certain policy transactions. The choice can affect estate planning, loans, policy surrender and family-law obligations.
Our MyChoice team has reviewed this topic using the Financial Consumer Agency of Canada’s life insurance guide, Ontario’s Insurance Act, Ontario’s Office of the Children’s Lawyer guidance for minor beneficiaries, and the Canada Revenue Agency’s life-insurance donation policy.
What Is The Difference Between A Revocable And Irrevocable Beneficiary?
Revocable beneficiary: Usually, you do not need the beneficiary’s consent to change beneficiaries on your policy, and the beneficiary need not be informed of the change.
Irrevocable beneficiary: An irrevocable beneficiary has stronger rights with respect to a policy. For example, the policy’s owner cannot change the designation without the irrevocable beneficiary’s consent, nor can the policy owner make certain policy changes without the beneficiary’s consent.
Can the policy owner change the beneficiary?
Revocable beneficiary: Generally, this doesn’t require the revocable beneficiary’s consent.
Irrevocable beneficiary: In most circumstances, if a beneficiary has been designated as irrevocable, the designation generally cannot be changed while the beneficiary is living without necessary consent or a court-authorized route.
Can the Owner Surrender, Assign, Borrow Against, or Otherwise Deal With the Policy?
Revocable beneficiary: Usually, the policy owner can deal with the policy, subject to the terms of the contract and applicable law.
Irrevocable beneficiary: The beneficiary’s consent may be required because an irrevocable beneficiary has rights in the contract. The exact consequences vary by province and depend on the type of transaction.
Does the Beneficiary Know About Later Changes?
Revocable beneficiary: Generally, the policy owner can change a revocable beneficiary designation without notifying the beneficiary.
Irrevocable beneficiary: Changes that affect an irrevocable beneficiary designation or the beneficiary’s rights normally require the beneficiary’s written consent.
What Is the Main Trade-Off?
Revocable beneficiary: This option gives the policy owner more flexibility if family or financial circumstances change.
Irrevocable beneficiary: This option provides greater protection for the beneficiary but may limit the policy owner’s future options.
Outside of Quebec, beneficiaries are presumed to be revocable unless the designation expressly makes it irrevocable or another legal obligation applies. In Quebec, if you designate your spouse, whether married or in a civil union, as beneficiary in a policy or another non-testamentary document, your designation is presumed to be irrevocable unless it says otherwise. The rules are not necessarily the same for common-law (de facto) spouses.
Primary, Contingent, Revocable And Irrevocable Beneficiaries
Primary or contingent indicates who is first in line for the death benefit. Revocable or irrevocable indicates how restricted changes to beneficiary designations or policy provisions may be. These are separate decisions.
| Label | What it means | Can it also be revocable or irrevocable? |
|---|---|---|
| Primary beneficiary | Receives the designated share if eligible when the insured dies. | Yes. Primary does not mean irrevocable. |
| Contingent beneficiary | Receives the designated share if the applicable primary beneficiary cannot receive it under the designation and law. | Contingent does not automatically mean revocable. It can be contingent and still be either. |
| Multiple beneficiaries | If two or more beneficiaries are listed, each will get the percentage you have indicated. | Make sure all designations are completed clearly, and the percentage(s) must add up to 100%. |
| Estate, trust, charity or business | An entity receives the proceeds according to the wording of the designation, if it is valid. | The designation can have corporate, tax, trust, and/or estate ramifications for which separate advice should be obtained. |
Read More: See How a Contingent Life Insurance Beneficiary Works
What Does Irrevocable Beneficiary Mean?
An irrevocable beneficiary is a beneficiary who generally cannot be removed from the insurance policy without their written consent. This offers the beneficiary stronger rights, but it can also limit the policyholder’s ability to make changes.
In Ontario, an irrevocable designation must be filed with the insurer during the insured person’s lifetime. A beneficiary designation made in a will is not irrevocable.
An irrevocable beneficiary can be primary or contingent. Being named as the primary beneficiary does not automatically make someone irrevocable.
Which Policy Actions Can An Irrevocable Beneficiary Affect?
| Proposed action | Why you should confirm consent before acting |
|---|---|
| Change or remove the beneficiary | The insurer normally needs the written consent of any irrevocable beneficiary, and you should make sure you have their permission first. |
| Reduce the beneficiary’s percentage | Changing the allocation may affect the beneficiary’s protected interest. |
| Surrender or cancel a permanent policy | Ending the contract can eliminate the beneficiary’s interest and may require consent. Confirm whether consent is required before acting. |
| Take a policy loan or withdraw cash value | Some transactions may result in decreasing the value of the policy or the death benefit, and the designation, policy contract or provincial law can restrict the transaction. |
| Assign the policy or use it as loan collateral | A lender normally obtains a formal assignment of the policy as collateral. A previous irrevocable designation can limit the owner’s ability to assign. |
| Transfer ownership | Be aware that being the owner of an asset and being beneficiary are two different things. Transfers may be subject to the rights of an irrevocable beneficiary. |
When Should You Name A Revocable Vs Irrevocable Beneficiary?
If you are planning to make a beneficiary irrevocable, make sure you’ve considered what happens if they are a minor, become incapable, cannot be located, refuse to provide their consent, are affected by separation or divorce or die before you. The impact of any of these events depends on the policy terms and the law in the province.
An irrevocable beneficiary may be considered where enforceable obligations require protected coverage. Common examples are a separation agreement, court order or business contract. However, an irrevocable beneficiary is no substitute for a properly drafted agreement.
Choose a revocable beneficiary when circumstances may change and the plan may need to be amended.
What Happens If You Name A Minor Beneficiary?
Although you may name a child as a beneficiary of a life insurance policy, a minor normally cannot control the insurance proceeds.
In Ontario, an adult may be named as a trustee to receive and manage any insurance proceeds payable to the minor. Where no trustee has been named and the child receives more than $35,000, proceeds may be paid into court to be held and managed until the child reaches the age of majority. A lawyer can draft specific trust terms setting out what monies can be paid out and at what age.
Also, naming a minor as an irrevocable beneficiary may create problems, since the minor may not be legally able to consent to changes to the policy. Advice should be obtained before making a minor a beneficiary on an irrevocable basis.
Read More: See How Life Insurance Trusts Can Protect a Minor Beneficiary
Charities, Taxes And Collateral Assignments
Naming a registered charity as beneficiary does not, by itself, make every premium on your policy tax-deductible. The Canada Revenue Agency makes a distinction between a beneficiary designation and an absolute assignment of your policy in its donation rules. Confirm with the charity, and with your accountant, the structure before relying on a receipt or deduction.
Similarly, naming a lender as an irrevocable beneficiary of your policy may not give the lender the same legal protection as a formal collateral assignment. Discuss the proper documentation with your lender, insurer and legal adviser.
Read More: Compare a Will Beneficiary With an Insurance Beneficiary
Should I Regularly Review My Insurance Beneficiaries?
Yes, you should review your beneficiaries regularly, especially when your life changes.
This can include marriage, divorce, the birth or death of a family member, a move to another province, or even a change in your business.
A will does not automatically override a prior insurance beneficiary designation. Compare your beneficiary designations with your will, trust, corporate documents and any separation agreement. After a permitted change, ask the insurer to confirm it in writing.