Life Insurance for Same-Sex Couples

Life insurance can be part of a solid financial strategy for any couple, and that includes LGBTQ+ and same-sex partners and spouses. Bankrate’s team of insurance experts reviewed the available research on life insurance for same-sex couples and took a close look at the particular needs that this community might have to negotiate to find the best policy for their needs. In this guide, we discuss life insurance basics and look at additional concerns and circumstances that may arise when same-sex couples are looking for coverage that suits their needs.

How does life insurance work for same-sex couples?

Life insurance for any family typically has the same goal: to offer a financial safety net, tailored to your needs and wishes, should one of the partners die. When you begin your search for coverage, it can be useful to understand the basics of buying a life insurance policy.

The buying process

1. Determine coverage needs: Initially, evaluating how much coverage you might need is important. This usually involves assessing debts, income replacement and any future financial obligations you foresee.
2. Shop for rates: Next, shopping around for rates can help you find a policy that fits any budget. Different insurers may offer varying premiums based on your health and other risk factors, so comparing these could help you find the most suitable option.
3. Application process: Once you’ve selected a provider, the next step is to apply. This typically involves filling out an application that includes questions about your health, lifestyle and financial status.
4. Medical exam: Depending on the policy, a life insurance medical exam may be required. This exam could affect your rates based on your health status.
5. Approval process: After all information is submitted, the insurer will review your application and decide whether to approve or deny your policy, usually based on the risk you pose as an insured individual.

Policy ownership and beneficiaries

As a same-sex couple, you have the option to buy a policy on yourself and name your partner as the beneficiary — the person who will receive the policy’s benefit if you pass away. Alternatively, you could purchase policies on each other. Here’s a quick breakdown:

• Policy owner: The person who owns the policy and is responsible for premium payments.
• Insured person: The individual whose life is covered by the policy.
• Beneficiary: The designated person(s) or entity (trusts, estates, charities, etc.) that would receive the death benefit from the policy.

If you aren’t married and you want to buy a policy on your partner, the insurance company may require proof of insurable interest.

What is insurable interest?

Proving an insurable interest is often necessary when you want to buy life insurance on someone other than yourself. Insurable interest means that the policy owner would suffer a financial loss or hardship if the insured person passes away. Insurers want proof of this to ensure there are no incentives to bring harm to the insured individual. Examples of proof of insurable interest may include joint bank account statements or mortgage agreements.

What is the best type of LGBTQ+ life insurance?

Choosing the right life insurance policy is a decision that depends heavily on individual needs and financial situations. For same-sex couples, this decision can be particularly poignant, ensuring that both partners are adequately protected. While there’s no one-size-fits-all answer, understanding the fundamental differences between the types of policies available can help guide you toward the best choice for your circumstances.

Term life insurance

Term life insurance remains a favored option for its straightforwardness and affordability. Contrary to popular belief, the cost of term life insurance is often less than many expect. The 2024 Insurance Barometer Study by LIMRA and Life Happens revealed that around 72 percent of respondents overestimated the cost of a basic term life policy. The same study found that the LGBTQ+ community is more likely to distrust insurance companies, which underscores the importance of obtaining accurate, reliable and trustworthy quotes.

Term life policies are designed to offer coverage over a predetermined period — commonly 10, 20 or 30 years. This makes them a popular choice for addressing time-bound financial obligations such as mortgages or educational expenses. Furthermore, these policies could be beneficial for couples at the beginning of their careers or those who might need a financial safety net that aligns with their years of highest debt or dependency. Term life insurance fits the needs of most people.

One key advantage of term life insurance is its potential convertibility. Many term policies come with the option to convert into a permanent policy without additional medical exams, offering a pathway to longer-term coverage should your needs or circumstances change. This feature provides flexibility and peace of mind, ensuring that you can adapt your coverage as your life evolves.

Permanent life insurance

Permanent life insurance provides a robust solution for long-term financial security. It is designed to provide lifelong coverage (policies typically mature between ages 95–121) as long as premiums are maintained. This type of insurance is characterized by higher premiums compared to term life insurance, but it compensates with significant added benefits, such as the accumulation of cash value — featured in many types of permanent coverage. This cash value grows over time and can be borrowed against, offering a financial resource that can be utilized during the policyholder’s lifetime.

There are several different types of permanent life insurance:

• Whole life insurance: The most straightforward type of permanent life insurance, whole life offers a fixed premium and a guaranteed cash value accumulation, along with a death benefit that doesn’t decrease. This predictability makes it a popular choice for those who value stability in their financial planning.
• Universal life insurance: Offering more flexibility than whole life, universal life insurance allows policyholders to adjust their premiums and death benefits within certain limits. This type can be ideal for those whose financial situations may change over time, as it allows for adjustments based on current needs and circumstances.
• Variable life insurance: This type allows policyholders to invest the policy’s cash value in various accounts that can grow based on market performance. While it offers the potential for higher returns, it also comes with increased risk, making it suitable for those who are more investment-savvy and can tolerate market fluctuations.
• Indexed universal life insurance: A variation of universal life, this policy ties cash value growth to a market index, such as the S&P 500. It offers the potential for growth while providing a safety net against losses, typically ensuring a minimum interest rate. These policies are complex and can include interest rate caps and participation caps on earnings.

What can life insurance do?

Life insurance for same-sex couples is more than just a safety net; it’s a versatile tool that can play a significant role in financial planning. Here are some of the key strategies it can support:

• Income replacement: Typically, life insurance can provide a financial buffer for your partner or family if you’re no longer there to contribute to the household income. This can help maintain their standard of living.
• Cover debts: It often helps in managing debts by providing funds to pay off mortgages, loans and credit card balances, ensuring that the surviving partner isn’t burdened by these financial obligations.
• Living benefits: Some policies might allow you to access funds before death in cases of terminal or critical illness, which can be crucial for covering medical expenses or other urgent financial needs.
• Protecting your legacy: Life insurance can ensure that your financial goals and wishes are realized, supporting educational funds for children or ongoing support for a partner, thus preserving your legacy.
• Supplemental retirement income: Policies with a cash value component may offer the option to borrow against this value or withdraw cash value, providing an additional source of income during retirement. Keep in mind that this is still a life insurance policy and not an investment or retirement account.
• End-of-life/final expenses: Life insurance can typically cover funeral costs, medical bills and other end-of-life expenses, reducing the financial stress on loved ones during a difficult time.

Who can be a life insurance beneficiary?

Choosing a beneficiary for your life insurance policy can impact how your assets are handled after your passing. Here’s a breakdown of who can be named as a beneficiary and the different types available:

• Individuals and entities: Typically, you can name anyone you choose as a beneficiary, including family members, friends or a life partner, as long as there is an insurable interest. Beyond individuals, entities such as trusts, charities or even businesses can also be designated to receive the benefits of your policy.
• Primary and contingent beneficiaries:
  • Primary beneficiary: This is the main person or entity designated to receive the death benefit of your life insurance policy. If the primary beneficiary is alive and willing to accept the benefit upon your death, they will receive the specified amount.
  • Contingent beneficiary: Sometimes called a secondary beneficiary, this person or entity is next in line to receive the benefits if the primary beneficiary is unable to do so, typically due to their own death or incapacity at the time of your passing.
• Multiple beneficiaries: You can name more than one beneficiary to share the death benefit. You might choose to allocate specific percentages to each beneficiary, ensuring that multiple loved ones or causes are supported according to your wishes.

The contractual nature of a life insurance policy ensures it remains effective regardless of any changes in legislation that might otherwise affect the rights of LGBTQ+ individuals. This stability is vital in areas where legal protections for LGBTQ+ rights are not guaranteed or are at risk of being rolled back.

Moreover, life insurance benefits typically bypass the probate process (legal review), allowing beneficiaries to receive payouts more quickly and without the complications that often arise when estates go through probate. This is particularly beneficial in situations where family members may contest the wills of deceased LGBTQ+ individuals. Life insurance claims are notably hard to contest, providing a reliable way to ensure that partners and beneficiaries are protected financially, even if other aspects of an estate are disputed.

Legal precedents, such as those established in Glenn v. Brumby and Smith v. City of Salem, reinforce the role of life insurance in providing non-discriminatory benefits. These cases have helped to clarify that discrimination based on gender stereotypes (such as those often faced by transgender individuals) is illegal. This principle supports the idea that life insurance claims should be processed fairly and without bias against beneficiaries based on their gender identity or sexual orientation.

The incontestability clause in life insurance policies further enhances this protection. After a certain period, typically two years, this clause prevents insurers from denying claims based on earlier misrepresentations or omissions in the policy application unless fraud is proven. This feature is helpful for LGBTQ+ policyholders who may have had to navigate sensitive issues related to their identity when applying for insurance, ensuring that their coverage cannot be easily contested or revoked.

Together, these elements make life insurance a powerful tool for members of the LGBTQ+ community, ensuring that their financial and legal interests are protected through life’s uncertainties.

What are key life insurance considerations for same-sex couples?

When same-sex couples consider life insurance, they need to look closely at their long-term financial goals and the potential future expenses that might arise. Planning for life insurance involves estimating the financial needs of the surviving partner, such as everyday living expenses, debt repayment or future plans like children’s education or retirement. Securing life insurance earlier in life can be beneficial, as age and health are significant factors in determining premium costs, with younger and healthier individuals typically receiving more favorable rates.

In choosing the right life insurance policy, same-sex couples should compare offerings from multiple insurers to find the best rates and terms that match their needs. Important factors include the scope of coverage, the insurance company’s credibility and the level of customer support, especially within the LGBTQ+ community. Consulting with an independent broker can aid in navigating these choices, as brokers can provide tailored advice and streamline the process of policy comparison and selection, ensuring the couple obtains adequate protection for their unique circumstances.

Navigating life insurance for transgender and non-binary applicants

Transgender and non-binary individuals face unique challenges that can influence both the application process and the terms of coverage. Understanding these potential difficulties can help secure a policy that aligns with their needs.

• Gender identification: Life insurance applications often require choosing a male or female gender, which can complicate matters for non-binary or transgender individuals whose gender identity doesn’t align with binary options. This selection can affect premium calculations traditionally based on life expectancy data linked to gender. In cases like this, a cover letter from your insurance agent can be helpful in explaining your unique circumstances.
• Medical and gender-affirming history: Insurers may scrutinize medical histories, including gender-affirming treatments such as hormone therapies or surgeries. While such treatments should not lead to discrimination, they are considered by insurers when assessing health risks and policy pricing.
• Documentation requirements: Applicants might need to provide additional documentation, like amended birth certificates or detailed medical records, to align their application details with their gender identity. It’s helpful to discuss these requirements with an insurance agent experienced in LGBTQ+ issues to ensure all paperwork reflects the applicant’s current situation.

Life insurance serves as an essential pillar in the financial planning of same-sex couples, offering a reliable safety net against various economic challenges and uncertainties. To safeguard shared dreams and aspirations with confidence, take time to explore your LGBTQ+ insurance options and compare quotes from different insurers.

Frequently asked questions

• Are same-sex couples eligible for joint life insurance policies?
  

  Joint life insurance policies are those that allow both partners to be covered by a single plan. These policies may be either term or whole life insurance, and they are available for same-sex couples just as they are for opposite-sex partners. In some cases, called second-to-die policies, the death benefit payout does not occur until both partners have passed away. Others may feature a death benefit that pays out after the first person dies. These policies are available from many insurers, but you will need to talk to an agent to find out the individual restrictions or features of each.

• Should both spouses have life insurance?
  

  It’s generally a good idea for both spouses in a same-sex marriage to have life insurance, especially if both contribute financially to the household or if there are dependents involved. Having both partners insured can help ensure that the surviving spouse will have financial support to cover living expenses, debts or future financial needs. The decision should be based on each couple’s specific financial situation and future plans.

• How much life insurance should a couple have?
  

  The amount of life insurance a couple should have can vary widely based on their unique circumstances, including their financial obligations, lifestyle and future goals. A common guideline is to have a policy that covers 10–15 times the annual income of the insured, but couples should also consider their debts, such as mortgages or personal loans, future educational expenses for children and any other financial responsibilities that might impact the surviving partner.

  Financial preparedness advocate and educator Tony Steuer, CLU, LA, CPFFE, states, “If you know the amount of income that needs to be replaced, assuming that this is a permanent level income, you can perform a reverse calculation by dividing the income stream needed by a conservative, reasonable rate of return if you were to invest the entire proceeds and leave the principal intact (such as a 5 percent annual rate of return). For example, if your need is for an annual before-tax income stream of $50,000, then divide by 5 percent ($50,000/.05), resulting in a death benefit of $1,000,000.”

  Consulting with a financial advisor or an insurance broker can help couples assess their needs more accurately and choose a coverage amount that aligns with their long-term financial strategy.