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3 Benefits of Naming a Preferred Beneficiary

When I chose the topic of beneficiaries for this blog, I thought it was going to roll off the tip of my tongue, as with most other topics.  Surprisingly, I’ve had to go back to the beginning several times in order to rewrite my ideas; as the topic keeps taking tangents into all the technical and legal issues, which only complicate things. So for our purpose, let’s just look at “Preferred Beneficiaries”.

People want to name a beneficiary so that the person who is the beneficiary actually receives the money quickly and without any trouble. First off, you should understand the definition of a “preferred beneficiary.” If the beneficiary is your spouse, parent, child or grandchild, they are considered to be the "preferred beneficiary".  Naming a beneficiary who is not “preferred” opens the door for others to grab the money, which is what we try to avoid.

In an average family, the “preferred beneficiary” status does several things. First, after the claim is settled (generally 2 weeks after all paperwork is received) the proceeds are paid to the beneficiary. Any creditor such as a bank or credit card company is out of luck if they try to access your benefit. A creditor might still have access to assets in an estate, but not to proceeds of a life insurance policy with a preferred beneficiary.  

Another benefit to naming a preferred beneficiary is that the proceeds are payable directly to that person; preventing proceeds from running through the estate. This is beneficial because any proceeds which enter the estate first, can be trapped for months or years if problems arise. We often see estates which are disputed for business or personal reasons. As a result of a dispute, a hold is placed on everything until the issues are settled. Issues may even come from disgruntled family members, children from first marriages, or anyone else who feels they deserve something.

Lastly, a preferred beneficiary is kept confidential. If proceeds flow through the estate, all items eventually becomes public knowledge and anyone who is interested has access to “who got what”. A preferred beneficiary in a life insurance policy is part of a private transaction between the insurance company and the beneficiary; the details are released to no one. This privacy eliminates details of the transaction and keeps what was meant to be confidential as such.  

If you are in Nova Scotia and would like some insurance advice, please contact Corry Collins:
corry@maritimewealth.com
902-444-7000

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