Life insurance beneficiaries - per capita vs. per stirpes: Is It really that clear?

Abstract

Life insurance is a non-probate contract that allows for a gratuitous transfer of funds to designated beneficiaries who receive the payment at the death of the insured. Given the importance of life insurance to replace income or to create an inheritance for heirs, ambiguity regarding beneficiary advice can cause catastrophic results and unintended consequences, ultimately resulting in a failure to meet objectives. Source material available to financial services professionals and consumers is vague and easy to misinterpret, specifically the per capita beneficiary option. To provide consumer protection, we recommend that a consumer guide comparing various per capita options, as well as other beneficiary options, be distributed to potential policyowners at the time of application. The guide should include illustrative charts of how proceeds will be distributed. We also recommend that the beneficiary designation forms include clear and explicit definitions of various beneficiary options available to the insurance policy.