How to Talk About Life Insurance with Your Family

Talking to your family about life insurance now helps to ensure the legacy you wish to leave them will be carried out in the future. It’s an important conversation that will enable you to support your loved ones financially, even after you’re gone.

As the baby boomer generation in Canada makes plans to distribute their wealth among their children, grandchildren, and other individuals and organizations they care about, it’s estimated that $1 trillion will be transferred to their heirs over the decade between 2016 and 2026. Life insurance is one option Canadians use to transfer this wealth, according to their wishes. Many policyholders, however, aren’t sure how to talk about their life insurance policy with their loved ones.

Providing information and instructions to your beneficiaries about your life insurance policy in advance will make it easier for them to understand your intentions and carry out your wishes for your estate and your legacy.

Key takeways

• Your life insurance beneficiary or beneficiaries will need to access key information to make a claim against your life insurance policy and claim the death benefit.

• Conversations about death and money are hard to navigate, but the benefits of addressing these topics are worth it.

• Your loved ones may be uncomfortable with the topic and unfamiliar with insurance industry terms. It’s a good idea to come to these talks prepared with key information and explanations.

How to talk to your family about life insurance

Many people view their finances (including life insurance and estate information) as private subjects not to be discussed openly, even with loved ones. About four in 10 Canadians over the age of 55 say they’re not comfortable having open conversations with their families, but there are benefits to sharing your estate plans (including tax protection and maximizing the value of your loved ones’ inheritance).

Begin by keeping the conversation simple and straightforward. Maintain a focus on the topic at hand, sharing the necessary details such as which provider you’ve chosen for your policy and the name of your insurance and/or financial advisor.

Avoid getting “lost in the weeds” with information that could feel like too much. For example, it’s important for your beneficiaries to know that a life insurance policy payout isn’t taxed, but it isn’t as critical for them to understand the current dividend scale interest rate tied to the policy.

Here are some ways to start the conversation with your family:

• Reference an article you’ve read about the importance of open communication in estate planning.

• Kick off the conversation with a question. For example: “Do you have investment or savings goals in mind for the money I’ve set aside for you in my will?”

• Start with an explanation of why it’s important to you to know your family will be taken care of in the future and then list the steps you’ve taken to ensure they are.

• Reference current events (for example, the COVID-19 pandemic) and explain how they’ve motivated you to thoroughly organize your estate.

Enter this discussion with an abundance of patience and sensitivity, and prepare ahead of time, so you have the information (such as policy numbers) at your fingertips. Be ready not only to speak, but also to listen.

Talk about the beneficiary or beneficiaries of the life insurance policy

This may be the first conversation some of your loved ones have had about your estate planning and life insurance policies, and so you may need to explain some of the central terms and how they fit into the larger picture.

For example, what is a life insurance beneficiary or beneficiaries? In relation to life insurance, a beneficiary is the person (or people, organization, or charity ) chosen to receive the policy death benefit. People often choose to have more than one beneficiary, and there are a few different types of beneficiaries as well. A primary beneficiary is the first in line to receive the death benefit; however, you might also want to name a contingent or secondary beneficiary (especially if your primary beneficiary is just one person). In the event that your primary beneficiary passes away before you do, the death benefit will be paid out to the contingent beneficiary or beneficiaries.

Talking to your family about who your beneficiaries are (whether that’s your spouse/partner, your children and grandchildren, or a charity that’s meaningful to you) will help them to understand your plans, reasoning, and intentions for this part of your estate.

Having a conversation today will greatly reduce the possibility of unpleasant or confusing surprises in the future.

What happens to your life insurance policy after you die?

If you’ve named a life insurance beneficiary or beneficiaries and equipped them with the information they need, the process of making a claim on your life insurance policy should be straightforward when you pass away. Once the claim is made, the process of paying out the death benefit can begin.

To make a claim, your beneficiary will need:

• Your policy number

• A copy of your death certificate

• A completed claim form

The time it takes for a life insurance policy death benefit to be paid out can vary. In Canada, beneficiaries can typically wait between 30 and 60 days, but under certain circumstances, payouts could take less or more time.

Advise your family on who is helping you with your estate

In addition to your insurance advisor (who can step in to assist your beneficiaries in making their claim), you may have other estate planning professionals helping to guide you. Their name, role, and contact details should be shared with your beneficiaries.

Other professionals to include are:

• Your lawyer, who will know and understand the content of your will, including your estate plan and other legal details.

• Your financial advisor, who may be able to support your beneficiary or beneficiaries in deciding where and how to invest the death benefit they receive.

• Your accountant, who can inform your beneficiary or beneficiaries of the tax implications and cost of transferring your estate.

If you have any additional professionals who are currently working with you to help manage your estate, it’s wise to include their information as well.

Share a copy of your life insurance policy

Conversations about estate planning can be tricky to navigate. They involve a lot of emotion and a lot of information—the kind that may be unfamiliar to you and your loved ones. A reference document containing key contact information and instructions regarding your estate will be a valuable reference tool to leave for them. Your beneficiaries will also need a copy of your life insurance policy on hand when it’s time to make their claim, and it may also be helpful for your family to have a copy to review at their own pace, when they feel ready.

An RBC Insurance Advisor can help you protect your loved ones with the right life insurance coverage. Connect with us today to learn how.

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