When naming life insurance beneficiaries, policy owners must decide how death benefits are distributed if a beneficiary dies before the insured. Two common designation methods are percentage (per capita) and per stirpes. Understanding the difference helps ensure benefits pass according to long-term intentions, especially when children or multiple generations are involved.
What Percentage (Per Capita) Designations Mean
A percentage designation, often called per capita, divides the death benefit based on stated percentages among surviving beneficiaries.
If a beneficiary predeceases the insured:
- That beneficiary’s share is typically redistributed among surviving beneficiaries at the same level
- The deceased beneficiary’s heirs do not automatically receive that share
This method focuses on living beneficiaries only.
Example of Percentage Distribution
If three children are named at 33⅓ percent each and one child dies before the insured:
- The remaining two children typically split the benefit equally
- Each would receive 50 percent
The deceased child’s children would not receive anything unless separately named.
What Per Stirpes Designations Mean
Per stirpes means “by branch.” Under this designation, if a beneficiary dies before the insured:
- That beneficiary’s share passes to their descendants
- The original share is preserved within that family line
Per stirpes ensures benefits flow down generational lines.
Example of Per Stirpes Distribution
If three children are named per stirpes and one child dies before the insured:
- The deceased child’s share passes to their children
- The remaining children still receive their original shares
This structure protects inheritance for grandchildren.
When Percentage Designations Make Sense
Percentage (per capita) designations may be appropriate when:
- All beneficiaries are adults
- Generational distribution is not a concern
- Equal support among surviving beneficiaries is desired
This approach is simpler but less flexible for family lines.
When Per Stirpes Designations Are Preferred
Per stirpes is often used when:
- Children are beneficiaries
- Generational continuity is important
- Inheritance protection for descendants is desired
It is commonly used in family and estate planning.
Policy and State Law Considerations
Not all insurers handle per stirpes designations the same way. Some:
- Require specific wording
- Limit per stirpes options
- Defer to state law definitions
Clear documentation is essential.
Common Mistakes With Distribution Methods
Mistakes include:
- Assuming per stirpes applies automatically
- Failing to specify the method
- Not updating designations after family changes
Unclear designations can lead to unintended outcomes.
Reviewing Distribution Choices Over Time
Changes such as births, deaths, or remarriage may affect whether percentage or per stirpes designations remain appropriate. Regular reviews ensure alignment with current intentions.
Key Takeaways
Percentage (per capita) beneficiary designations distribute benefits among surviving beneficiaries, while per stirpes designations preserve each beneficiary’s share for their descendants. Choosing the right method ensures life insurance proceeds are distributed according to long-term family and inheritance goals.
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