When signing up for a life insurance policy, you’re likely to encounter some words and phrases that are completely new to you. One term you may see is ‘per capita’. This phrase is often used in an economic and social context to mean ‘per person’. This definition still applies to life insurance, but the use is much more specific. Here’s what you should know about this life insurance term.
How Is ‘Per Capita’ Used in Life Insurance?
In a life insurance policy, the term ‘per capita’ is typically used as part of a per capita distribution plan. This term is used to indicate how your life insurance will be distributed to your beneficiaries. This term is typically used when you have multiple beneficiaries or are wanting to distribute your money evenly among family members.
When you have a per capita distribution, you will choose a group of people to split the insurance money equally. Most people use the per capita distribution to split the death benefit evenly among their children. However, you could also split it evenly among all of your descendants, including grandchildren. You can even opt to give equal shares to people outside of your family. This means that if one beneficiary dies before you do, their share of the money will be equally distributed among the rest of the group.
What Is the Alternative to a Per Capita Distribution?
You are not required to use a per capita distribution on your life insurance plan. One alternative is to use a per stirpes distribution. Per stirpes means that the money will be passed down generationally to your descendants. For example, if you have three children and one of them passes away before you do, their portion will be given to any children they have instead of being split among their two siblings. This may be a better option for your family depending on your individual situation.
Keep in mind that you also do not need to distribute money to your family or to multiple parties. You can choose whoever you want to be your beneficiary, and you can choose to leave your entire death benefit to one person if that is your preference. However, if this is the case it’s best to choose a secondary beneficiary, just in case that person passes away before you do.
How Should I Choose My Beneficiaries?
Choosing beneficiaries for your life insurance policy can be a very daunting task. Family politics can be difficult to navigate, and you’ll want to ensure that your loved ones get the financial support they need if you do pass away. There are many factors to consider when selecting the beneficiaries for your life insurance policy.
Consider who will need the money the most in the event of your death. Keep in mind that your family will need to pay for your funeral as well as any outstanding debt you may have. You’ll want to ensure that a portion of your money goes to someone who can be responsible for organizing these things – typically a spouse or an adult child.
You should also consider the ongoing needs of your family. If you are the main breadwinner, your life insurance money should go towards supporting your dependents. This will give them time to process the loss and get back on their feet without having to also worry about financial struggles. Some people may need more support than others – for example, if you have a disabled child, you might choose to leave a larger portion of the policy to them.
If you are leaving money to a child who is under 18 or a dependent who cannot manage the money themselves, you will need to set up a trustee. The trustee will handle the money until the child is old enough to legally access it themselves. Some people choose to leave their life insurance policies to charities if they are already financially stable.
Keep in mind that you can always change your beneficiaries if your personal situation changes. For example, if your spouse was a beneficiary but you choose to get divorced, then you can alter your life insurance policy so that they no longer receive the money. Set a reminder in your calendar to re-evaluate your life insurance policy every year or so – you’ll want to make sure it is the best reflection of your wishes. Life can change quickly, so regular re-evaluation is very important.
Final Word on Per Capita
Life insurance is a crucial investment, especially for people who are getting older. While it may not always be pleasant to think about, it’s important to make sure your family will be taken care of in the event of your death. Understanding how life insurance policies work and the language they use can help you make better decisions for you and your family.