When applying for a life insurance policy, you may hear a number of legal terms that you’re unfamiliar with. One of these is ‘per stirpes’, which is used to indicate how your death benefit should be redistributed if a beneficiary passes away before the insured. Here’s a look at what this term means and how it affects your life insurance policy.
What Does Per Stirpes Mean?
The best way to explain the term ‘per stirpes’ is by using an example. The term generally only applies when your beneficiary also has children. Say you have two children, and the oldest child also has three children of her own. Your two children are listed as beneficiaries on your life insurance policy. However, your oldest child passes away before you do. In your life insurance policy, you can specify that their children (your grandchildren) will receive the death benefit per stirpes. Essentially, the term means that grandchildren can receive the death benefit if the child is no longer alive. You cannot use per stirpes to designate beneficiaries that are not your grandchildren.
The term ‘per stirpes’ means ‘by root’, and has long been used as a way to specify that assets should be passed down the family tree. The term is also used in wills and trusts. Another common term used in life insurance, wills, and trusts is ‘per capita’. These two terms are often confused, and while they are similar, they do not mean exactly the same thing. The term ‘per capita’ means that the money should be split equally among the listed heirs. If you have four children then you would like to split the money between, your insurance policy would list them and then state that the benefit is ‘per capita’. If one of your children dies, their children would receive their share of the money.
The difference between per stirpes and per capita is that per stirpes does not indicate equal shares of the money. It just means that a share can be passed down to grandchildren. Using the term per capita is the easiest way to ensure that money is split equally among heirs, but per stirpes is the right option if you prefer that one child’s family gets an unequal split.
How to Choose Beneficiaries For Your Life Insurance Policy
Deciding on a beneficiary for your life insurance policy can be tricky, as there are so many factors to consider. Here’s what to keep in mind when making this difficult decision.
- Consider the specific expenses that need to be taken care of after your death. If you only need to pay for funeral expenses, then you’ll want to leave the money to the person you trust most to plan your funeral, whether that be a friend or family member. This may also be the executor of your estate, but it doesn’t have to be. If you are using your life insurance policy to support the family after they pass away, consider who’s going to need the income most, whether that be a spouse, child, or someone else. If that person cannot manage money on their own, make sure there is someone in place to help them. For example, if your children are under the age of 18, you will need to designate a trustee for the money until they reach legal adulthood.
- You should also make sure there are designations for what happens to your death benefit if your beneficiary passes away. This is where the term ‘per stirpes’ is important on your life insurance policy. Many companies will also give you the option to designate other backup beneficiaries. In this case, you may want to choose a sibling, cousin, or close friend who knows your situation well and will be able to make an informed decision about what to do with your policy.
- Update your life insurance policy regularly to ensure that your beneficiaries stay current. Many people make an insurance policy and then leave it for decades without updating it, which can make for an uncomfortable situation after you pass away. For example, if you’re married when you take out the insurance policy, but later get a divorce, you’ll want to switch your beneficiary designation. This could also apply if you have a falling out with a family member or friend that you had previously listed.
Per stirpes is one of many important legal terms that life insurance companies use for their life insurance policies. If you’re confused about any of the terms used in your policy, talk to your insurance agent for clarification, or ask a legal expert. They can also help you decide who to use as your life insurance beneficiaries if you aren’t sure. It’s very important to understand the terms used in life insurance before you make a purchase, so you know exactly what you’re getting.