Life Insurance After Death
- Revocable Nomination
A revocable nomination basically allows policy owners to nominate beneficiaries for their insurance policies. The policy owner will continue to retain full rights and ownership over the policy. Consequently, this means that policyholders could change or revoke a nomination at any time without the consent of the beneficiary It can be made to any legal entities or individuals. In this sense, the revocable nomination is more flexible as it allows you to choose an entity or individual that is not your spouse and/or children. This could be particularly useful if you wish to leave a sizeable sum to your other family members (such as parents or relatives). No consent is necessary if you wish to make changes to your nomination. Unlike the irrevocable nomination, you retain control of your life insurance despite the nomination. In that regard, you do not have to obtain consent from your nominees or the trustee. If you make a Will that addresses the life insurance, the nomination with the insurer will be revoked.Therefore, when making a will, you should cognizant of your nominations and avoid making reference to your life insurance as it might end up revoking your nomination and the payout would go to another person instead of your nominee. The payout from the life insurance may not be protected from creditors in the event of bankruptcy. This last point should be carefully considered if you are considering between an irrevocable nomination and a revocable nomination. Making an irrevocable nomination ensures that the policy does not belong to the policy owner (i.e. you) anymore and will be out of reach from your creditors in the event of bankruptcy.
- Irrevocable Nomination (Trust Nomination).
Similar to a revocable nomination, an irrevocable nomination allows policy owners to nominate beneficiaries for their insurance policies. However, upon making an irrevocable nomination, the policy owner will lose all rights to the ownership of the policy and all proceeds from the policy now belong to the beneficiaries you named. Furthermore, irrevocable nominations cannot be changed or removed by the policy owners. While the policy owner is still obliged to pay the premiums for the policy, all the benefits of the policy belong to the beneficiaries. There are several factors that you need to be aware of if you have made or plan to make an irrevocable nomination for your life insurance. You can only nominate your spouse and/or children. In that regard, if you wish to make a nomination to another individual other than your spouse or children, you would have to make that nomination a revocable nomination. Once it is made, the policy no longer belongs to the policy owner and cannot be given away under his/her Will. There can be no changes to be made to your nomination UNLESS the trustee gives consent or you obtain written consent from all your nominees. The payout from the life insurance will be protected from creditors in the event of bankruptcy.
- No Nomination
If no nomination is made to the life insurance policies, the payout passes into your estate to be distributed under your Will. Having no nominations to your life insurance may be preferable to the other types of nomination because:
- it reduces the complexity of the estate;
- it will be easier for you to keep track of your assets;
- there is no need to remember which party is nominated to receive payouts and from which policy they are being paid from; and
- no party will receive more than what they should be receiving under your wishes (thereby reducing the risk of “double counting”)
Note: Section 61 of the Insurance Act. Section 61 of the Insurance Act contains provisions that allow the licenced insurer (i.e. your life insurance insurer) to make one or more payments, in accordance with the applicable subsection from the death benefits under the policy, without the need to produce probate or any letters of administration. In that regard, it is possible for your beneficiaries to receive certain proportions of your life insurance after your death if the circumstances satisfy the relevant subsection from the death benefits under your policy.