Starting a family (or retirement or busy family life): Understanding Per Stirpes and Per Capita

SBLI of Massachusetts

January 12, 2011

When you name a friend or family member as a beneficiary of your life insurance policy, you do so with the intention of that individual getting a percentage of the death benefit you have allotted to them. Unfortunately, some beneficiaries do not outlive insured individuals and, without having contingent beneficiaries named, this can leave your death benefit in the hands of your estate, which may mean it is not allocated as you would have wished.

You can use Per Stirpes and Per Capita beneficiary designations in order to exert additional control over your death benefit proceeds even after the death of one of your beneficiaries.

Per Stirpes: Per stirpes literally means, “by branch.” When used to distinguish your life insurance beneficiary designation, per stirpes allows the heirs of any deceased beneficiaries to inherit that beneficiary’s portion of the death benefit and split it amongst themselves.

Per Capita: Per capita’s literal translation is, “per each head.” With a per capita beneficiary designation, the named beneficiaries who are still living will each receive their allotted share of the death benefit. Once those shares are paid out, the remaining funds will be equally divided amongst all of the heirs of those beneficiaries who are deceased.

Example: Let’s say you have named four individuals as your beneficiaries (A, B, C and D), and each of these individuals is meant to inherit 25% of your $1,000,000 death benefit.

Individual A passes away before you and leaves 1 child.

Individual B passes away before you and leaves 3 children.

In a per stirpes arrangement, Individuals C and D—who are still living, original beneficiaries—will each receive their 25% of the death benefit ($250,000 each). The single child of individual A will receive his/her 25% ($250,000) and the three children of individual B will receive and split their 25%. Dividing that $250,000 amongst the three children means that each will end up with about $83,333.

In a per capita arrangement, Individuals C and D will still each receive their 25% ($250,000 each) but the 3 children of individual B and the one child of individual A will split the remaining 50% or $500,000. This will give each of the four children $125,000 which means the child of individual A receives less than he or she would under per stirpes and the children of individual B receive more.