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Q

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

A

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

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 your insurance 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. If you have multiple beneficiaries and one predeceases you, you can decide if that part of your death benefit is split equally between the remaining beneficiaries (per capita) or goes to the deceased beneficiary’s heirs (per stirpes). Having the wrong designation can determine if your intended death benefit recipients are financially protected when you die.

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.

KEY TAKEAWAYS

  • Per capita benefits are equally distributed to all living beneficiaries, whereas per stirpes payouts are distributed to living beneficiaries and any deceased beneficiaries’ heirs

  • Life insurance policies pay out per capita by default, so if one beneficiary dies, the surviving beneficiaries split that portion of the death benefit

  • A per capita death benefit works for most people, but sometimes per stirpes is necessary to protect your dependents

What is a per capita death benefit?

A per capita death benefit payout is the default when you designate beneficiaries in your life insurance policy, and it works well for most people, who usually 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 beneficiaries who are still alive when you die.

If you have young children and name your spouse and a legal guardian as beneficiaries but you and your spouse die, then the legal guardian would receive the full death benefit and use it to care for your children. That’s enough protection for most people. Should a rare circumstance mean the guardian passes away at the same time, the funds would pay to your estate and go through probate, but most likely pass to another guardian of your children. In this situation a per stirpes payout would give 50% of the benefit to your children, but they wouldn’t be able to access it until they’re adults.

But if for example, you list your three adult children as beneficiaries to financially support your grandchildren and one child predeceases you, the descendants of your surviving children would receive support, while the children of your deceased child wouldn’t get anything. This is where a per capita death benefit may not be the best option 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 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 “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, instead of being split between the other listed beneficiaries.

Using the example above, if you are leaving your three adult children equal portions of the death benefit and one child dies, a per stirpes payout would direct one third of your benefit to your grandchildren by that child.

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There can be other unique circumstances where a per stirpes death benefit would be needed, 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 list your brother as a beneficiary to cover 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 of it.

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.

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

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. When a minor is the beneficiary of a life insurance policy, then the death benefit will actually go to a court-appointed legal guardian until the child is of age.

Ideally, your child’s caretaker will be your beneficiary and use the death benefit to support your child. But if that caretaker dies and you named additional beneficiaries that can’t care for your children, a per stirpes death benefit guarantees that they eventually receive the death benefit when they turn 18.

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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 will guarantee 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.

Per stirpes vs. per capita death benefit FAQ:

What is a per stirpes death benefit?

Per stirpes death benefits allow 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 beneficiary equally. If one beneficiary dies, the deceased’s percentage of the death benefit is split evenly between the surviving beneficiaries.

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.