Per Stirpes vs. Per Capita: What is the difference?

You probably don’t know these terms offhand, but if you’re looking to set up a last will and testament or living trust, they’ll become familiar in no time.

Per stirpes and per capita don’t affect your policy while it’s in force. Rather, these common life insurance terms have everything to do with your beneficiaries and how benefit funds are disbursed when the time comes. See our guide on how to choose a life insurance beneficiary.

Below, we’ll decode the rhetoric in the per stirpes vs. per capita brawl and help you determine which best suits your needs.

What’s the difference between per stirpes vs. per capita?

To break down the per stirpes vs. per capita meaning, think of the life insurance payout as a nightclub. If you have a per capita beneficiary, then it works by name only, in which case the bouncer at this particular club won’t let anyone inside unless their name appears on the beneficiary list.

If you buy per stirpes life insurance, then the bouncer can let a few people through based on who they’re with (usually descendants), ensuring that there isn’t just one person dancing the night away with all the money.

Per capita life insurance relies completely on each beneficiary surviving and isn’t generation-friendly. If you’re named but aren’t around to claim it, your share is engulfed into the whole, and the entire sum is split based on the number of named beneficiaries still at the table.

If you have a wife and a child, which were your only designations, you’re probably fine with this outcome when it comes to life insurance for families. Whoever remains gets it all. But in larger groups, it isn’t as simple.

Examples of Per Stirpes Designations

What is per stirpes beneficiary designation? Let’s walk through the same scenario playing out in different ways. This is the trick to life insurance — imagining all possible options and planning for as many as you can.

In this scenario, you have three grown children, David, Charles, and Anne. The boys haven’t settled down yet, but Anne has two children, Josh and Bella. Josh, like his uncles, is still rambunctious, but Bella, like her mother, settled down and has a baby of her own. 

So here you are with three children, two grandchildren, and one great-grandchild. You’re quite possibly the prime candidate for a per stirpes beneficiary designation, and here’s why:

• Scenario A: David, Charles, and Anne survive you. Your policy pays out one-third to each.
• Scenario B: Anne predeceased you. One-third goes to David, another to Charles, and Anne’s third will now be split in half, with a sixth of the initial payout going to Josh and Bella. Thus, Anne’s branch received her share.
• Scenario C: David and Anne have survived you, but Charles passed away. Because Charles had no offspring, there was no branch to be provided for, so Anne and David would each receive half the total payout.
• Scenario D: David, Anne, and Anne’s son Josh predeceased you. David had no children, so his branch is removed from the equation. Thus, the sum is split between Charles’s and Anne’s branches Bella, as the next representative of Anne’s branch, receives half the payout, Charles the other half.

The ultimate purpose of the per stirpes designation is to create a future-proof estate that doesn’t need amending in the event of new births or the untimely passing of beneficiaries. As a result, this designation is often used in estate planning for those with burgeoning families. 

If it sounds like per stirpes suits your situation better, be sure to make it clear to your attorney. Otherwise, you could find yourself digging through estate documents if a beneficiary passes first.

Examples of Per Capita Distributions

Let’s run through a few examples of per capita distributions to create a more comprehensive view of the per capita vs. per stirpes debate. 

We’ll take the same situation from above, but this time you’ve specified David, Charles, Anne, Josh, and Bella as equal beneficiaries to be paid a one-fifth share. This time we’ll take a peek at what happens if you designate distributions to “then living descendants, per capita.”

• Scenario A: All 5 survive you. They split the share equally at 20% per individual, with 60% of the total going to Anne and her children.
• Scenario B: Anne predeceased you. The remaining four beneficiaries receive equal distributions at 25% each, with 50% to Anne’s children.
• Scenario C: David predeceased you. The remaining four beneficiaries receive equal distributions at 25% each, meaning 75% of the sum has gone to Anne and her descendants due to designation.
• Scenario D: Anne and Josh predeceased you. Bella and her surviving uncles take 33.3% each. In this scenario, per capita and per stirpes would have paid out identically.

“Per capita” is Latin for “by head,” signifying the designation as by named individual. In such scenarios, all remaining named beneficiaries split the aggregate death benefit. No shares are created for representatives of any beneficiary who has passed away since the document was written and notarized. Sometimes, this option is chosen to wilfully avoid giving it to particular undesired individuals, as might happen under a per stirpes designation.

For example, when the would-be beneficiary is a minor, per capita can be the easier solution for those not intending to worry about pesky in-laws, ex-spouses, or unwanted guardians having access to funds. 

However, consider all possible outcomes and learn more about how to name a minor child as a life insurance beneficiary before making a decision.

How Per Capita Stirpes Designations Work

Latin for “by branch,” per stirpes designations allow you to name not just a single individual but an entire branch of your family as beneficiary. This policy preempts unforeseen situations, such as a beneficiary dying before a policyholder, and ensures the proper outcome still applies. 

For example, imagine that Joe has three sons, Bob, Rob, and Steve, and each brother also has three sons. However, if Joe names Bob, Rob, and Steve as beneficiaries without designating per stirpes distributions, then each of the three brothers must be alive at the time of Joe’s passing in order to receive his share of the payout.

So if Steve passes, Bob and Rob split the death benefit fifty-fifty. Steve’s three sons, in turn, don’t see a dime of Joe’s payout, even though this likely wasn’t Joe’s intention.

Now imagine the same scenario, only Joe does specify per stirpes designations. Now, if Steve passes before Joe, then the one-third share intended for Steve will find its way to his children, where it will be once again split three ways among his three sons. This allows Joe to still provide for his family’s needs as intended, even when the unexpected happens and Steve passes away first.

One important note is that per stirpes designations apply to children, not spouses. In the above scenario, even if Steve (as beneficiary) had a widow who survived him, all funds Joe (the decedent) left would pass directly to Steve’s children.

How to File a Life Insurance Claim with Per Stirpes vs. Per Capita

Remember, estate planning is no small matter. The time you spend making concise decisions now can save time and heartache in dire moments to come. Whether it’s tomorrow or twenty years from now, there will come a time when your beneficiaries file a life insurance claim which involves a per capita or per stirpes designation, and disbursements are made.

What best fits your design on what should happen? Compare per stirpes versus per capital life insurance claims below:

• A per capita policy gives you the most direct control over who can file a life insurance claim but at the cost of amending your policy with each major change.
• Per stirpes gives you the freedom to keep things simple, designating an apportionment by family tree and allowing beneficiaries and their descendants to file claims and receive benefits.

Realize that per stirpes life insurance designate a beneficiary’s spouse control of the inheritance should it pass to a minor child or descendant who can’t legally assume control of the funds.

Case Studies: Per Stirpes vs. Per Capita

Case Study 1: The Burgeoning Family

Mr. Anderson is a father of three grown children, David, Charles, and Anne. Anne has two children of her own, Josh and Bella. Mr. Anderson wants to ensure that his estate is future-proof and doesn’t require frequent amendments in the event of new births or the untimely passing of beneficiaries. Therefore, he chooses a per stirpes beneficiary designation for his life insurance policy.

In the unfortunate event of Mr. Anderson’s passing, the per stirpes designation ensures that the benefits are distributed down the family branches. David, Charles, and Anne each receive a share of the benefits. Additionally, Anne’s children, Josh and Bella, receive their mother’s share. This ensures that Mr. Anderson’s grandchildren are also provided for, even if their parents are no longer alive.

Case Study 2: Equal Distribution Among Named Beneficiaries

Ms. Roberts wants to ensure that her life insurance benefits are distributed equally among her designated beneficiaries. She has three children, Sarah, Michael, and Emily, and she wants each of them to receive an equal share. To achieve this, she opts for a per capita distribution with equal shares for each named beneficiary.

If any of Ms. Roberts’ children were to predecease her, their share would not pass on to their own beneficiaries. Instead, the remaining living beneficiaries, Sarah and Michael, would receive equal shares of the benefits. This ensures a fair distribution among the designated individuals, regardless of the number of beneficiaries or their relationship to the insured.

Case Study 3: Per Stirpes for Branch Protection

Mr. Thompson has three sons, Bob, Rob, and Steve, and each son also has three children. He wants to ensure that his estate is distributed according to his intentions, even if one of his sons were to pass away before him. To achieve this, Mr. Thompson chooses a per stirpes designation for his life insurance policy.

In the event that Steve were to pass away before Mr. Thompson, the per stirpes designation ensures that Steve’s share of the benefits would be passed on to his children. This allows Mr. Thompson to provide for his family as intended, even in unforeseen circumstances.

It’s important to note that per stirpes designations apply to children, not spouses, meaning that even if Steve had a surviving widow, the funds would pass directly to Steve’s children.

What is per stirpes vs. per capita? In Conclusion

Is per stirpes better than per capita? That depends on you, your family, and your preferences. Life insurance is the most lucrative of options to transfer wealth from one party to another and how you proceed should vary based on the needs of your family. Speak with your agent and/or your attorney to pick the policy that’s right for you.