Life Insurance Beneficiary Rules in Ontario: What the Law Says

A life insurance policy usually names someone to receive the money when the person insured dies. Families often ask whether that name beats the will, whether the money goes through probate, and whether the policyholder can change their mind later.

In Ontario, most of these questions are answered by the Insurance Act. This article walks through who can be named, how a designation is made and changed, and what it means for the estate. Your own policy wording matters, so treat this as a general map.

Who can be named, and how

The person insured can name themselves, their personal representative (the estate) or a beneficiary to receive the insurance money. The designation can be made in the contract itself or by a separate declaration.

A beneficiary declaration can also be provided electronically, despite anything in the Succession Law Reform Act, as long as it meets the requirements in the Authority rules.

An insurer may restrict or exclude, in the contract, the insured's right to name beneficiaries, subject to the Authority rules. If your policy seems to limit who you can name, read the contract wording closely.

Wording matters. If the insured names their "heirs", "next of kin" or "estate", that counts as naming the insured's personal representative, so the money is paid to the estate.

Revocable and irrevocable designations

Unless it is made irrevocable, a designation can be changed. The insured may alter or revoke a beneficiary designation at any time by a declaration, subject to the rules on irrevocable designations.

An irrevocable designation is different. A beneficiary can be named irrevocably only in the contract, or in a declaration that is not part of a will, and that declaration must be filed with the insurer at its head or principal office in Canada while the life insured is alive.

Once a beneficiary is named irrevocably, the money is not under the insured's control while that beneficiary is living.

Dealing with a policy that has an irrevocable beneficiary

The insured may assign, surrender or otherwise deal with the policy where the beneficiary is not named irrevocably, or where an irrevocable beneficiary has reached age 18 and consents.

• If an irrevocable beneficiary has not consented, the insured may still exercise any rights under the contract that are prescribed by Authority rule.
• Anyone who acquires an interest in the policy takes it subject to the irrevocable beneficiary's rights, unless a consent or court order provides otherwise.
• If the irrevocable beneficiary is a minor or lacks capacity, the insured may apply to court for an order allowing them to deal with the policy without that beneficiary's consent.

Does the money bypass the estate?

Where a beneficiary is designated, the insurance money is not part of the insured's estate and is not subject to the claims of the insured's creditors. While the designation is in effect, the insured's rights in the money and the contract are exempt from execution or seizure.

That protection depends on a designation actually being in place. When the money is payable to the insured's personal representative, it becomes part of the estate and is dealt with under the will or intestacy rules, together with estate debts. The creditor shield applies only where a beneficiary is designated, and estate administration tax is charged on the value of the estate when probate is issued.

There is one important exception. When a court sets dependant support, life insurance on the deceased's life that the deceased owned is added back to the net estate, so a designated insurance beneficiary can be reached by a support order.

On the tax side, the CRA lists most life insurance payouts after someone's death among amounts you do not report as income.

Wills, predeceased beneficiaries and enforcing payment

• A beneficiary designation in a will has no effect against a designation made later than the will. If a will containing a designation is later revoked, the designation is also revoked.
• If a beneficiary dies first and the contract or a declaration does not say who takes the share, it goes to the surviving beneficiary, or is shared equally if several survive. If none survive, it goes to the insured or the estate.
• A contingent (secondary) beneficiary named in the policy is a disposition of the share that the policy itself provides.
• A beneficiary may enforce payment in their own name, but the insurer can raise any defence it could have raised against the insured.

What to do next

• Get a copy of each policy and any declarations or beneficiary forms on file.
• Check whether any designation is irrevocable and whether it was filed with the insurer.
• Confirm that a named beneficiary is alive and that the wording (such as "estate") does what you intend.
• If a will mentions insurance, compare its date with the latest designation.
• Ask a lawyer before relying on a will to change a designation, or if a dispute or support claim is possible.

Frequently asked questions