What Happens If You Have No Beneficiary?

Having no designated beneficiary on a life insurance policy is rare but not unheard of. In some instances, it is due to an oversight by the policyholder, while in other extremely rare circumstances, it could be by choice.

So, what happens if you have no beneficiary on your Canadian life insurance policy and you die? 

The simple answer: If you have no beneficiary listed, any death benefit proceeds are paid to your estate. If you have no will either, the proceeds will be distributed according to provincial intestacy laws.

There are plenty of reasons why you wouldn’t want this to happen. 

Let’s understand why naming a beneficiary is so important and the real-world consequences of not doing so.  

What is a Life Insurance Beneficiary?

Many Canadians still believe that only dependents or loved ones can be listed as beneficiaries on a life insurance policy. 

This isn’t true. 

A life insurance beneficiary can be a person (wife, kids, parents, business partner, friend) or an entity (charity, business, trust). 

Most life insurance policies also allow you to change revocable beneficiaries whenever you like, and you can usually name just about anyone or any organization as long as they have “insurable interest” in your life.

With so many options, it is hard to see why a policyholder wouldn’t name any beneficiary. But this can happen, usually because:

• A policyholder never gets around to naming a beneficiary on the policy or account.
• The beneficiary passes away, and there’s no contingent (backup) beneficiary listed.
• The policyholder lacks possible heirs or doesn’t deem an heir worthy
• You deliberately choose not to name a direct beneficiary

Why Choose Not to Have a Beneficiary

In almost all cases, having no direct beneficiary is highly discouraged. However, there are certain reasons why a policyholder might choose not to have a beneficiary:

• You want death benefits to be paid out to a trust rather than individuals.
• You want proceeds to first go to your estate to pay off debt, taxes, or funeral expenses, before being distributed to heirs.
• You want to avoid the legal complexities of naming a minor (such as naming a trustee) as you wait for your heir’s legal maturity (18 or 19 years of age, depending on the province).
• You deem beneficiaries financially irresponsible and fear mismanagement of funds.

Why Having “No Beneficiary” Isn’t In Your Best Interest?

Having no beneficiary on a life insurance policy, whether it beterm or permanent life insurance, can have important consequences.

Without a direct beneficiary, proceeds from the death benefit are transferred to your estate by default. 

When the estate becomes the beneficiary, the death benefit becomes part of the estate. Funds are now distributed according to your will, or if a will doesn’t exist, according to intestacy laws.

These funds then go through a lengthy and costly probate process, managed by a liquidator or executor, to pay off any outstanding debt, taxes, and funeral expenses. Only then are any remaining assets distributed to heirs.

Why is this not ideal? 

For several reasons:

• Funds are now subject to expensive probate fees and other legal costs, which in Nova Scotia can exceed $100,000.
• The process is lengthy and is often subject to delays. This can put financial pressure on dependents.
• Funds are distributed according to provincial intestacy laws, which leaves distribution out of your control.
• Proceeds from the death benefit may face tax consequences, whereas death benefits are tax-free for beneficiaries.
• As the benefits go through probate, they become public record. This allows potential creditors to make claims against it.

By simply naming a beneficiary, you can avoid all of these complications. 

Ensuring you have direct beneficiaries and contingent (backup) beneficiaries can help you avoid probate fees, estate taxes, creditor claims, and lengthy delays that can stretch on for years.    

Is This Also True for RRSP, RRIF, and TFSA?

In a word, yes. The same beneficiary rules apply to RRSPs, RRIFs, and TFSAs. 

RRSP amounts are paid to designated beneficiaries, and if no beneficiary exists, to the annuitant’s estate. The same is true for RRIF and TFSA.

How To Avoid Common Mistakes?

Life insurance isn’t a “buy once and forget about it” asset. Life insurance policies are designed to be flexible and adaptable to life events. It is, thus, important to update your policy regularly as this can help avoid many of the common mistakes we usually see. 

These include:

• Naming only one beneficiary and skipping the contingent beneficiary.
• Forgetting to update beneficiary designations that don’t match your current life. Marriage, separation, kids, business changes.
• Assuming your will dictates everything. Many products follow the designation on file, and if there’s none, they often default to the estate, bypassing your will.
• Naming a minor without a trustee or administrator. In this case, the province or territory may hold the death benefit in trust until the beneficiary reaches the age of majority.

As long as you remember to update your life insurance policy every few years, or after major life events, you will likely never have your policy in a position where it has no beneficiary.

A Checklist To Ensure You Have All Bases Covered

• Review beneficiaries listed on life insurance, group life, RRSPs, RRIFs, and TFSAs.
• Make sure you have contingencies on every policy and account, wherever it’s allowed.
• Confirm where the designation lives. Is it on the contract? With your employer plan? Or in your will? 
• Maintain a clean record. Policy numbers, issuer contacts, and a list of what’s in force.
• Re-check after major life events. Marriage, separation, new child, new mortgage, business changes.

Do I Need Life Insurance If I Have No Beneficiary?

Life insurance is still a must, even if you don’t currently have a beneficiary. Life changes, and you never know what lies in store. 

However, if you have no dependents, no debt, and sufficient assets to pay for funeral expenses, you may not necessarily need life insurance.

If you are single and on the fence, we would recommend consulting with a trusted insurance broker. They can better guide you on whether a life insurance policy makes sense, given your current situation and future needs. 

Why Consulting with an Insurance Broker Makes Sense?

Insurance brokers, such as Pat McIver, at McIver Insurance Inc., specialize in life insurance policies that are tailored to your unique needs. 

Our team works with you to ensure beneficiary designations are correctly in place and explains what would happen if proceeds go to the estate. We also guide you on how to reduce delays where possible and, for complex cases, coordinate with your lawyer and accountant to ensure your insurance plan holds up in the real world.

Book a free no-obligation meeting or call now at 1-902-220-3279. Let’s protect what matters most to you!

FAQs

Q1) If I don’t name a beneficiary, do the proceeds always go to the estate?

In most cases, yes, especially for life insurance. If no beneficiary is listed, insurers will assume the estate as beneficiary by default. The same also applies to RRSPs, RRIFs, and TFSAs. Estate payout is a common default when no beneficiary is designated.

Q2) What if someone dies intestate in Nova Scotia?

If someone dies intestate (without a will), Nova Scotia’s Intestate Succession Act sets out how the estate is distributed, including the surviving spouse’s preferential share and how the remainder is split among children.

Q3) Is life insurance taxed in Canada?

Death benefit paid out to beneficiaries is tax-free. However, if proceeds are paid to the estate, they may be subject to tax. 

Q4) What if no heirs can be located after the probate process?

Unclaimed estates and trusts are held by the province until rightful heirs or beneficiaries can be confirmed.

Q5) How often should I review beneficiaries?

Every few years or at the very minimum, after major life events.