Do I need a per capita or per stirpes death benefit?

To determine if you need a per capita or a per stirpes death benefit, you need to evaluate who you’re purchasing a life insurance policy for and how the payout will be utilized.

Nupur Gambhir

Nupur Gambhir

Published July 10, 2020

KEY TAKEAWAYS

  • A per capita death benefit is the implied payout method and means that if one of three beneficiaries predeceases you, the other two beneficiaries will split the death benefit evenly

  • A per stirpes death benefit has to be designated in your policy and means that if one of the three beneficiaries predeceases you, their heirs will receive their portion of the death benefit

  • A per capita death benefit works best for most people, but there are rare circumstances when a per stirpes death benefit is necessary to financially protect your dependents

The most important part of your life insurance policy is the death benefit — it’s usually the reason you’re purchasing coverage in the first place. When you’re determining who will receive the payout, you may also have to consider how they will get it as well.

A lesser-known component of the death benefit is the ability to choose if your payout is per capita or per stirpes. Having the wrong designation can determine if your intended death benefit recipients are actually financially protected if you die unexpectedly. Most death benefit payouts are automatically per capita, but there is the rare circumstance where someone needs a per stirpes payout to ensure their loved ones’ financial security.

To understand if this is something you would need for your own life insurance policy, it’s important to learn how per capita and per stirpes work.

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What is a per capita death benefit?

There are two ways that your death benefit can be paid out: per capita or per stirpes. Both have very different implications for your life insurance policy and how your beneficiaries receive the death benefit.

A per capita death benefit payout is implied when you’re designating beneficiaries in your life insurance policy – and for most people, it’s the best way for their death benefit to be distributed. When a life insurance death benefit pays out per capita, it pays out the death benefit equally to all beneficiaries who are still alive when you die, unless you specified who should receive what percentage.

If you listed your three adult children as your life insurance beneficiaries to receive an equal part of the payout, then each would receive 33% when you die. But, if one of your children dies, then the death benefit would be split evenly between your two remaining children.

In this scenario, the children of the two payout recipients would likely get some of this death benefit, while the grandchildren of your deceased child wouldn’t get anything. This is where a per capita death benefit can have negative ramifications despite the best of intentions and a per stirpes death benefit would better suit your financial plans.

What is a per stirpes death benefit?

Most people don’t need a per stirpes death benefit payout — but for the few that do, electing a per capita payout can have significantly negative consequences. Per stirpes comes from the Latin “by roots”, and allows the death benefit to support different branches 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 is unable to accept their portion of the death benefit, it instead goes to their next of kin, usually their children, as opposed to the other listed beneficiaries. A per stirpes death benefit allows you to designate not only how much of the death benefit each of your beneficiaries receives but also ensures that if your beneficiary has predeceased you, their next of kin can accept the death benefit on their behalf.

Using the example from above, if you are leaving your three adult children an equal split of the death benefit to ensure that they and their children are financially secure after your death, a per stirpes payout would protect your grandchildren even if one of your children died.

How would it work? If all three beneficiaries were alive when you died, then they’d each receive 33% of the death benefit. But if one of your beneficiaries died, their children would then receive an equal split of their portion of the death benefit.

There can be other unique circumstances where a per stirpes death benefit would come into play, such as debt repayment or care for elderly parents. For example, if you are married with two kids, you likely would list your spouse as the beneficiary of your policy. But if you also owe your brother a loan of $200,000, you may also want to list your brother as a beneficiary to ensure he is financially protected for the loan if you die. In this case, if you didn’t choose a per stirpes death benefit payout and you and your spouse both die, your brother would get the entire death benefit and your children wouldn’t receive any.

But with a per stirpes death benefit, your children would receive the portion of the death benefit that you designated for your spouse. Here is how that would play out: if you took out a million-dollar policy, you could list your brother to receive 20% of the death benefit and your wife to receive 80% per stirpes. If you and your wife then passed away together, your children would receive 80% of the death benefit and it would be distributed amongst them evenly.

Why not just name your children as your beneficiary?

An easy solution would seemingly be to name 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 are of the age of the majority — which is 18 in most states, but 19 in Alabama and Nebraska. When a minor is the beneficiary of a life insurance policy, then the death benefit will actually go to a court-appointed legal guardian to hold onto until the child is of age.

Ideally, a child’s caretaker would get the death benefit to ensure their financial security. But if that caretaker dies, a per stirpes death benefit would ensure that your children still receive the death benefit when they turn 18, as opposed to not at all.

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 either in the application process or adjust them later on when your policy is in force, you simply state if your payout should be per capita or per stirpes.

Because a per capita death benefit is the implied payout, simply listing your beneficiaries is enough to ensure that they will receive the death benefit accordingly. But because a per stirpes death benefit is usually for unique circumstances, you’ll need to state it explicitly by placing the per stirpes designation next to your beneficiaries’ names. It would look something like this:

Your beneficiaries name. (Per stirpes).

The bottom line

Choosing between a per capita and per stirpes death benefit can make all the difference when you’re setting up life insurance coverage to protect the ones you love.

If you’re only naming one beneficiary in your life insurance policy, such as a spouse or a legal guardian for your children, you don’t need a per stirpes death benefit. (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.)

But if your death benefit payout isn’t as straightforward, then a per stirpes death benefit would make sure 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 should speak to a life insurance agent about setting up a per stirpes death benefit payout to ensure their financial health.

About the author

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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