Secondary Beneficiary: What It Means on Ontario Policies and Plans

Many insurance and plan forms ask for a primary beneficiary and a secondary beneficiary. If you have seen the second term and wondered whether it means the same as "contingent", you are not alone. The words vary between companies.

This article explains what a secondary beneficiary generally is, when that person is paid, and what happens if no one is named or no one survives. Always read your own policy or plan, because the wording of the contract is what counts.

What "secondary beneficiary" usually means

A primary beneficiary is the person first in line to receive the money. A secondary beneficiary is the back-up. In everyday use, secondary and contingent mean the same thing: a person who is paid only if the primary beneficiary cannot be. Some forms use one word, some the other, and some add further levels such as a tertiary beneficiary.

The Insurance Act treats a contingent (secondary) beneficiary named in the policy as a disposition of the share that the policy itself provides. In plain terms, naming a back-up is a way of telling the insurer where the money should go instead of leaving the answer to default rules.

When a secondary beneficiary takes effect

A secondary beneficiary takes effect when the primary beneficiary is not there to take the share. The clearest case is a primary beneficiary who dies before the insured. If the contract or a declaration does not say who takes a predeceased beneficiary's share, the share goes to the surviving beneficiary, and if several survive they share it equally. If none survive, it goes to the insured or the insured's personal representative, which is the estate.

Because of this, a named secondary beneficiary is what keeps the money from falling back into the estate. Other situations, such as a primary beneficiary who declines the money or cannot be located, depend on the policy wording and the facts, and a lawyer can confirm how they would be treated.

Naming the estate, and why it matters

The person insured can name themselves, their personal representative (estate) or a beneficiary to receive the money. Naming the insured's "heirs", "next of kin" or "estate" counts as naming the personal representative, so the money is paid to the estate.

That difference is important. 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. When the money is payable to the personal representative, it becomes part of the estate and is dealt with under the will or intestacy rules, together with estate debts. The estate administration tax is charged on the value of the estate when probate is issued.

Changing or adding a secondary beneficiary

Subject to the rules for irrevocable designations, the insured may alter or revoke a beneficiary designation at any time by a declaration. A declaration can be provided electronically if it meets the requirements in the Authority rules. An insurer may restrict or exclude in the contract the insured's right to name beneficiaries.

• If the primary beneficiary is named irrevocably, the insured cannot change or revoke that designation without the beneficiary's consent while that beneficiary is living.
• 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.
• For plans such as an RRSP, RRIF or pension, a later designation revokes an earlier one to the extent they are inconsistent.

If the secondary beneficiary is a child

The insured may appoint a trustee for a beneficiary, either in the contract or by a declaration. Without that, a minor's money may have to go through court. 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.

According to the Office of the Children's Lawyer, if no trustee is named, a child's share over $35,000 is paid into court and managed by the Accountant of the Superior Court of Justice until the child turns 18. A share of $35,000 or less can be paid to the parent the child lives with, or to the person with lawful custody.

What to do next

• Find your policy or plan form and see which words it uses for the back-up beneficiary.
• Confirm that every named person is still the right choice and that names are spelled correctly.
• Decide whether a trustee should be named for any child.
• Check whether any beneficiary is named irrevocably.
• Ask a lawyer if the wording is unclear or family circumstances have changed.

Frequently asked questions