Primary vs Contingent Beneficiary: How They Differ in Ontario

If you hold a life insurance policy, you will be asked who should be paid first and who should be paid if that person cannot be. Those are the primary and contingent choices. They look simple on a form, but they decide who gets the money and whether it passes outside the estate.

This article explains the difference, when the backup applies and how designations work in Ontario.

Primary and contingent beneficiaries explained

The primary beneficiary is the person you name to receive the money first. The contingent beneficiary, also called the secondary beneficiary, is the backup who receives it only if the primary beneficiary has died before you. In Ontario, a contingent beneficiary named in the policy is a disposition of the share that the policy itself provides.

Under the Insurance Act, the insured can name themselves, their personal representative (estate) or a beneficiary to receive the insurance money, in the contract or by a separate declaration. Naming the insured's heirs, next of kin or estate counts as naming the personal representative, so the money is paid to the estate.

When the backup applies

If the contract or a declaration does not say who takes a predeceased beneficiary's share, the share goes to the surviving beneficiary. If several beneficiaries survive, they share it equally. If none survive, it goes to the insured or the insured's personal representative, which is the estate.

The last row matters. When insurance money is payable to the estate, 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. A designated beneficiary's insurance money is not part of the insured's estate and not subject to the insured's creditors.

Revocable and irrevocable designations

Most designations can be changed. The insured may alter or revoke a beneficiary designation at any time by a declaration, subject to the irrevocable rules. A declaration can be provided electronically, if it meets the requirements in the Authority rules.

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 the declaration must be filed with the insurer at its head or principal office in Canada while the life insured is alive. While that beneficiary is living, the insured cannot change or revoke the designation without the beneficiary's consent. An attempt to make a designation irrevocable in a will, or in a declaration that was not filed properly, is treated as an ordinary designation and remains revocable.

Some further points:

• A 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.
• An insurer may restrict or exclude in the contract the insured's right to name beneficiaries, subject to the Authority rules.
• The insured may assign, surrender or otherwise deal with the policy where the beneficiary is not named irrevocably, or where an irrevocable beneficiary who is 18 or older consents. Without that consent, the insured may still exercise contract rights prescribed by Authority rule, and 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 consent.

Naming a child or a person who needs protection

Naming a child as a primary or contingent beneficiary needs care. If no one can give a valid discharge for a minor's insurance money, the insurer must pay it into court to the minor's credit, within 30 days after receiving the required evidence. The insurer may instead pay a guardian of property appointed under the Children's Law Reform Act.

The insured may appoint a trustee for a beneficiary, either in the contract or by a declaration. If the designation sets no trust terms, the trustee may only hold and invest the money until the child turns 18. If you want a later age or other conditions, ask a lawyer how to set terms.

For RRSPs, RRIFs and pensions, a participant may name a person to receive the benefit on death, by signed instrument or by will. A designation in a will takes effect only if it relates expressly to a plan. A later designation revokes an earlier one to the extent they are inconsistent.

What to do next

• Pull your current policy and plan forms and check who is named as primary and contingent.
• Check whether any designation is irrevocable, and whether the filing was done.
• Update the designation after a marriage, separation, birth or death.
• If a child is named, consider whether a trustee should be named.
• Keep a copy of every declaration and ask the insurer to confirm it in writing.
• Ask a lawyer how an attorney's power to change a designation applies, because that question depends on the facts.

Frequently asked questions