When estate planning and shopping for life insurance policies, per stirpes and per capita are terms that describe how money and the death benefit are distributed to your beneficiaries. Per stirpes benefits are passed on to your beneficiaries’ heirs if they die before you, whereas per capita benefits are distributed equally among living beneficiaries.
Most death benefit payouts are automatically per capita, which works for most people. But, there are reasons you might need a per stirpes payout to ensure your loved ones’ financial security. We’ll walk through different scenarios for each type of distribution so you can make a better decision about how you designate your beneficiaries.
What is a per capita death benefit?
A per capita (Latin word meaning “by head”) death benefit payout is the default option when you designate beneficiaries in your life insurance policy. It’s sometimes referred to as pro rata (Latin for “in proportion”). It makes sense for people who want to designate their spouse, a trust, or a legal guardian as their beneficiaries. Unless you specify what percentage each beneficiary receives, the insurance proceeds pay equally to all named beneficiaries who are still alive when you die.
Examples of per capita distributions
Using the Pritchett family from “Modern Family” as an example, if Jay Pritchett has a $1 million life insurance policy, he could name his wife, Gloria Delgado-Pritchett, and his adult children, Claire Dunphy and Mitchell Pritchett, as per capita co-beneficiaries.
If Jay dies, a per capita death benefit would pay out equally to each beneficiary: one third to Gloria, one third to Claire, and one third to Mitchell:
$333,333 to Gloria
$333,333 to Claire
$333,333 to Mitchell
But if Jay and Gloria both die at the same time, then under a per capita designation, 50% of the death benefit would go to Claire and 50% would go to Mitchell:
$500,000 to Mitchell
$500,000 to Claire
$0 to Jay and Gloria’s minor children, Manny and Joe
If in a rare circumstance, Claire dies at the same time as Jay and Gloria, the funds would pay out 100% to Mitchell, the only remaining beneficiary:
$1 million to Mitchell
$0 to Jay and Gloria’s minor children, Manny and Joe
$0 to Claire's children, Haley, Alex, and Luke
In a future scenario, Jay could designate per capita benefits to Gloria, Mitchell, Claire, and his other (now adult) children, Manny and Joe. If Jay dies, then Gloria, Mitchell, Claire, Manny, and Joe would each receive 20% of the payout:
$200,000 to Gloria
$200,000 to Mitchell
$200,000 to Claire
$200,000 to Manny
$200,000 to Joe
However, if Claire predeceases Jay, then the payment would be split into fourths between Gloria, Mitchell, Manny, and Joe:
$250,000 to Gloria
$250,000 to Mitchell
$250,000 to Manny
$250,000 to Joe
$0 to Claire’s children, Haley, Alex, and Luke
What is a per stirpes death benefit?
Most people don’t need a per stirpes death benefit payout because they can provide for any descendants with the standard per capita payout. But for the few that do need per stirpes, electing a per capita payout can cause significant issues. Per stirpes comes from the Latin word meaning “by roots,” and allows the death benefit to support younger generations of your family, even if one of the beneficiaries is unable to accept the life insurance payout.
When a life insurance policy pays out per stirpes, if one of the beneficiaries predeceases you and is unable to accept their portion of the death benefit, it instead goes to their next of kin, usually their children, instead of being split between the other listed beneficiaries.
Examples of per stirpes distributions
Using the Pritchett family example again, say Jay leaves his wife, Gloria, and his two adult children, Mitchell and Claire, equal portions of the $1 million death benefit per stirpes, which would look identical to a per capita designation at first:
$333,333 to Gloria
$333,333 to Mitchell
$333,333 to Claire
If Gloria and Claire both die before Jay, a per stirpes payout would direct one third of Jay’s death benefit to Gloria and Jay's two children (Manny and Joe), one third to Claire’s three children (Haley, Alex, and Luke), and one third to Mitchell. As you can see, if a beneficiary predeceases the insured, the payouts for per capita vs. per stirpes begin to differ:
$333,333 to Gloria and Jay's children ($166,500 to Manny and $166,500 to Joe)
$333,333 to Claire’s children ($111,000 to Haley, $111,000 to Alex, and $111,000 to Luke)
$333,333 to Mitchell
There can be other unique circumstances where a per stirpes death benefit would be necessary, such as debt repayment or care for elderly parents. For example, if Jay owes his ex-wife, DeDe, a loan of $250,000, he may list DeDe as a co-beneficiary in addition to Gloria, Mitchell, and Claire to cover the unpaid loan:
$250,000 to Gloria
$250,000 to Mitchell
$250,000 to Claire
$250,000 to DeDe for the unpaid loan
In this case, if Jay didn’t choose a per stirpes death benefit payout and he and Gloria both died, DeDe, Mitchell, and Claire would get the entire death benefit per capita and his two children with Gloria wouldn’t receive any of it:
$333,333 to Mitchell
$333,333 to Claire
$333,333 to DeDe
$0 to Jay and Gloria’s children, Manny and Joe
A per stirpes death benefit ensures Jay and Gloria’s shared children would receive the portion of the death benefit designated for Gloria.
How do you designate a per capita or per stirpes payout?
Designating a per capita or per stirpes payout is fairly simple. When you appoint your policy’s beneficiaries, you simply state if your payout should be per stirpes because the default is per capita: Your beneficiary’s name (Per stirpes).
Why not just name your children as your beneficiary?
A seemingly easy solution would be naming your children (or grandchildren) as the beneficiaries of your life insurance policy — but this comes with its own set of complications.
If your child is a minor, they won’t legally be able to receive the death benefit until they reach the age of majority — which is 18 in most states, but 19 in Alabama and Nebraska, according to the Uniform Transfers to Minors Act (UTMA). [1] When a minor is the beneficiary of a life insurance policy, then the death benefit will automatically go to a court-appointed legal guardian until the child is of age.
Ideally, you would name your child’s other parent or a trust as a beneficiary. But if you can't set up a trust, a per stirpes death benefit guarantees that they eventually receive the death benefit when they reach the age of majority.
Generation-skipping transfer tax (GST)
One important tax complication to keep in mind when designating a per stirpes death benefit is the generation-skipping transfer tax (GST). Life insurance money left to grandchildren or even great-grandchildren can trigger this type of gift tax. [2] Work closely with your estate planning attorney or financial advisor when selecting this option for your grandchildren.
Per stirpes vs per capita: How to choose
Choosing between a per capita and per stirpes death benefit distribution can make all the difference when you’re setting up life insurance coverage to protect the ones you love.
Select a per capita distribution (the default option) if you’re only naming one beneficiary in your life insurance policy, such as a spouse or a trust for your children. Side note: You should always have contingent beneficiaries listed in case your primary beneficiary predeceases you — otherwise your death benefit could be paid out to your estate, which can have major ramifications for people who depend on you financially.
Select a per stirpes distribution if your death benefit payout isn’t as straightforward, like if you want to leave money to your grandchildren, so that all of your intended dependents receive a portion of the death benefit. If you have multiple primary beneficiaries — or if the death of one of your beneficiaries would gravely impact the financial wellbeing of your dependents — you may also consider a per stirpes payout plan.
Per stirpes vs. per capita death benefit distributions can be complicated and the differences can impact your future generations’ financial wellbeing. Speak to a Policygenius agent for free to discuss your options.
Frequently asked questions
What is a per stirpes death benefit?
A per stirpes death benefit designation allows a beneficiary’s heirs to receive their portion of the death benefit if the beneficiary dies, rather than splitting that portion of the payout between the living beneficiaries and leaving the deceased’s heirs with nothing.
What is a per capita death benefit?
A per capita payout is the default method for life insurance policies and pays out to each living beneficiary equally. If one beneficiary dies, the deceased’s percentage of the death benefit is split evenly between the surviving descendants.
Can you make your child a primary or contingent beneficiary?
You can name a child as a beneficiary, but we don’t recommend it if they’re minors. Children can’t legally receive life insurance proceeds until age 18 or 19, so naming more than one guardian as beneficiaries is the best way to protect your children financially.
