Primary vs Contingent Beneficiary on Life Insurance in Ontario

Life insurance forms often ask for a primary beneficiary and a contingent one. If you are filling one out, or if a family member has died and you are not sure who gets paid, the difference matters a great deal.

This article explains the two terms in plain words, what the Ontario Insurance Act says about who can be named, and how to set up both choices so your wishes are clear.

What the two terms mean

A primary beneficiary is the person or people you name to receive the insurance money first. A contingent beneficiary, sometimes called a secondary beneficiary, is the back-up. The idea is that the contingent person receives the money if the primary beneficiary cannot, for example because they died before you.

Exactly how a back-up designation works depends on the wording of the policy and the designation itself. Read the insurer's form carefully, and ask a lawyer if the wording is unclear.

Under the Insurance Act, an insured may designate themselves, their personal representative or a beneficiary to receive insurance money, either in the contract or by a declaration.

Who is paid if the primary beneficiary has died

If the primary beneficiary has died, who is paid depends on the wording of the policy and the designation, so it is worth confirming with the insurer or a lawyer. If no one is left who can be paid, the answer also depends on the policy and the designation. A designation of "heirs" or "estate" is deemed to designate the insured's personal representative.

If no one is named who can receive the money, what happens next depends on the policy and the designation, so it is worth confirming with a lawyer. A lawyer can review the policy and the designation documents with you and explain the options.

If it is unclear who should be paid, there may be a dispute. An insurer that admits liability may apply to court to pay the money into court in specified cases. These include adverse claimants, an entitled person whose whereabouts are unknown, or no one who can give a valid discharge. The application can be made after more than 30 days from when the money became payable.

Situations that can complicate a designation

• A primary beneficiary who dies after you but before the money is paid. What happens then depends on the wording of the policy and the designation, so it is worth confirming with a lawyer.
• A beneficiary who caused your death. Ontario courts apply a public policy rule that a criminal should not profit from their crime, so a person who kills their spouse cannot obtain that spouse's life insurance proceeds.
• A finding of not criminally responsible because of mental disorder. That person is not barred by the public policy rule from receiving insurance proceeds.
• An innocent beneficiary. It is not against public policy for an innocent beneficiary to receive proceeds when the insured dies accidentally while committing a crime, though the rule still bars the wrongdoer and anyone claiming through them.
• Names that are misspelled or unclear. These can cause delay and dispute, so use full legal names.

How these rules apply depends on the facts, and a lawyer can confirm your situation.

How to name both beneficiaries clearly

A clear designation avoids delay and conflict. Some practical points:

• Use each person's full legal name and state their relationship to you.
• If you name several primary beneficiaries, state each share, such as equal shares or specific percentages.
• Name a contingent beneficiary and say what should happen if there are several.
• Decide whether you want the money paid to a person or to your estate; naming "estate" is deemed to designate your personal representative.
• Check whether the designation is revocable or irrevocable, since that affects whether you can change it later.
• Keep a copy and tell the people named where to find the policy.

Retirement and savings accounts follow their own rules. For example, a TFSA can name a successor holder, who immediately becomes the new holder and owner, or a designated beneficiary, who instead receives the account's value.

What to do next

If you are the policyholder, review your designations after major life events such as marriage, separation, birth or death in the family. Make changes in the way the insurer requires, and keep the confirmation.

If you are a family member trying to claim, gather the policy, the death certificate and any designation documents, and contact the insurer. If the insurer is unsure who to pay, or relatives disagree, speak to a lawyer before signing anything.

Frequently asked questions