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Life Insurance Basics

Life insurance proceeds

There are ways to specify how you want beneficiaries to inherit life insurance proceeds - per stirpes or per capita.

All things being equal, how do you divide life insurance proceeds among beneficiaries?

When you take out a new life insurance policy, you'll be asked to name a primary beneficiary. A primary beneficiary is a person or organization that will receive the proceeds from your life insurance after you die. If your agent has done his or her due diligence, you'll also be naming secondary and tertiary beneficiaries. In other words, listing who is first, second, and third in line to get the money.

But what if you have more than one primary beneficiary? For example, if you have more than one child (or grandchild) and would like for each of them to receive the proceeds of your life insurance policy, how do you leave it to all of them and have it divided according to your wishes? 

When it comes to naming beneficiaries in a life insurance policy, people are often unaware of the different ways of distributing the money. If you're looking to leave the children or grandchildren in your life with an equal slice of your life insurance proceeds, then your agent may ask you whether you want them to inherit “per stirpes” or “per capita.”

Per stirpes or per capita… what's the difference?

There are two ways of distributing life insurance proceeds - per stirpes and per capita. While both are a method for leaving the children in your life the cash from your life insurance policy, they work very differently.

Distributing per stirpes means the proceeds are to be divided by branch of the family, while per capita means it's to be divided by head.
Here's how it all works:

Karen has two adult children, John and Molly, names as beneficiaries on her life insurance policy. John has three children and Molly has one. In this example, let's suppose that John dies before his mother Karen does. Under per stirpes, half the money would go to John's three children, and the other half to Molly.

Using the same example but under per capita, the money would be divided equally among John's three children and his sister Molly, with each receiving 25 percent.

When it comes to choosing a way to distribute the proceeds of your life insurance policy to your beneficiaries, it's important that you select the method that matches your intentions. By working with a qualified insurance professional and/or an estate planning attorney, you can be sure that your life insurance proceeds are divided according to your wishes.  




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