The Marriage Equality Act of 2015 gave same-sex married couples the same rights as other married couples, and that means you’ve got more options than ever before to secure your future.
In this post, we’ll take a look at some of the ways the Marriage Equality Act has transformed financial planning options for same-sex, married couples, and show you how you can find the best life insurance to protect your loved ones.
The best life insurance for most same-sex couples—or any couple—is term life insurance.
Of course, each family is different and has unique financial needs, but term life is affordable and can be purchased in multiples (or laddered) to provide comprehensive coverage that’s tailor-made to meet your needs at various points in you and your loved ones’ lives.
It’s a smart choice whether you’re just beginning your life together and are hoping to secure your financial future early on or you’re looking for a great way to protect your partner from a financial burden if you unexpectedly pass away as you both near retirement.
The Best Life Insurance to Protect Your Marriage Equality
After decades of persistent effort, same-sex marriages were granted full legal recognition in the United States a few years ago.
In Obergefell v. Hodges in June of 2015, the Supreme Court ruled that all states must recognize same-sex marriages. As a result of this ruling, all benefits that were available only to opposite-sex couples became available to same-sex married couples nationwide. This reflects the view of the majority of Americans—just over 60%—who believe that same-sex couples should have the right to marry.
Today, about 60% of cohabiting same-sex couples are married—a big jump from 38% before the Obergefell v. Hodges decision.
As the composition of the Supreme Court is certain to change within our lifetimes, it is possible that the Marriage Equality Act may come under review. However, purchasing a term life insurance policy insures that, regardless of your spouse’s rights under state, local, or federal law in the future, your coverage will take care of their needs. With the right insurance plan, you can ensure that your partner will have an equal opportunity for financial security as any other spouse.
We believe that everyone should have certainty like that, and are happy to help you find the right policy for you and your partner.
Before we dive into the specifics of life insurance, here is a review of the other financial benefits now available to same-sex couples:
As a result of being recognized as a spouse, individuals in same-sex marriages may now be eligible for healthcare insurance provided by their spouse’s employer.
Prior to the 2013 Windsor ruling, the value of healthcare benefits provided to a same-sex spouse was considered taxable income to the employee for federal income tax purposes. After the ruling, any same-sex couple who was married in a state that recognized same-sex marriage would then be treated as married for federal tax purposes. Then, after the 2015 Obergefell ruling, every state was required to recognize same-sex marriage.
So, no matter where you reside, same-sex married couples are now treated as married for both federal and state tax purposes.
The COBRA law also now applies to same-sex, married couples. This law provides employees and their families the right to remain temporarily covered under an employer’s health insurance plan at the group rate after termination of employment, provided the individual takes over payment of premiums.
Keep in mind, married couples are ineligible for premium assistance tax credits and cost-sharing subsidiaries under the Affordable Care Act if their combined income exceeds the qualifying threshold.
While one may have been qualified as a single individual, marriage may now push a person over that income bracket.
Steps to Take
Workplace Benefits: Healthcare
- Spousal healthcare. Check to see whether you or your spouse can receive better or less expensive healthcare benefits by joining the other’s workplace plan.
- Tax-favored healthcare accounts. Consider using Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), and Health Savings Accounts (HSAs) for qualified healthcare expenses of a same-sex spouse.
Financial Planning: Healthcare
- Individual healthcare. If applying for a policy through an exchange because your employer does not offer coverage, and your spouse’s employer does not offer coverage to workers’ spouses, calculate your eligibility for premium tax credits and subsidies based on your combined income.
- Medicare. If one spouse will not have the minimum of 40 quarters to qualify for coverage at age 65, recognize that Medicare coverage can become available based on the other spouse’s work history.
The new rulings affect both types of qualified retirement plans available in the workplace: defined benefit plans, such as pensions, and defined contribution plans, such as 401(k)s.
Same-sex spouses are now covered under the same survivor benefit rules for both plans that apply to opposite-sex spouses.
An example of one of these benefits is hardship withdrawals. Some defined contribution plans allow plan participants to take hardship withdrawals from their plans based on financial needs, such as medical or tuition bills or funeral expenses.
Same-sex spouses are also now eligible for Social Security spousal and survivor benefits. Individuals who do not have the minimum work history required for benefits on their own may now qualify based on their spouse’s record. In addition, when one spouse in a married couple dies, if that individual was receiving a higher benefit, the lower Social Security benefit drops off and the surviving spouse will continue receiving the higher of the two.
» Learn more: Social Security Benefits 101
Same-sex married couples now have the same benefits in regards to IRAs as opposite-sex couples. Benefits include the ability for a surviving spouse to roll the IRA assets of the deceased into his or her own IRA.
This would allow tax-deferred IRA wealth to continue to grow for the surviving spouse’s later retirement years.
Keep in mind, if the retirement plan is covered by ERISA, the participant’s spouse may automatically be the beneficiary that means that if a same-sex spouse wishes for the benefits to be transferred to a non-spousal beneficiary (such as a child) upon his or her death, he or she must now affirmatively make the election.
Also, if a plan participant is married and wishes to take out a loan from his or her retirement plan, the participant’s spouse must generally consent.
Steps to Take
Workplace Benefits: Retirement Plans
- Defined benefit pension plans. If you participate in a defined benefit pension plan at work, review your beneficiary designation to ensure it reflects your current intention. If you have named a non-spouse beneficiary, your spouse must provide written consent, as non-spouse beneficiary designations done without consent will be deemed invalid.
- Defined contribution plans (e.g., 401(k)s). Review your beneficiary designation to ensure it reflects your current intention. If you have named a non-spouse beneficiary, your spouse must provide written consent, as non-spouse beneficiary designations done without consent will be deemed invalid.
Financial Planning: Social Security and IRAs
- Social Security filing status. If you are ready to file for spousal or survivor benefits, look for ways to optimize your benefits as a married couple.
- Regular IRAs. If you have a regular IRA, consider updating your beneficiary to your spouse, if you have not already done so. If you wish to contribute to a regular IRA, determine whether you can make deductible contributions based on the combined income and workplace retirement plan availability of both spouses.
- Roth IRAs. If you have a Roth IRA, consider updating your beneficiary to your spouse, if you have not already done so. If you wish to contribute to a Roth IRA, determine whether you can make contributions based on the combined income of both spouses.
- Spousal IRAs. If you file a joint tax return, consider contributing to a spousal IRA. If neither spouse has a retirement plan at work, contributions will be tax deductible.
When one spouse in a married couple dies, if that individual was receiving a higher Social Security benefit, the lower Social Security benefit drops off and the surviving spouse will continue receiving the higher of the two.
Term Life Insurance and Retirement: The Best Life Insurance to Secure Your Spouse’s Retirement
Today, a comfortable retirement can be incredibly expensive.
If you’re planning to sail off into the sunset together when you hit your golden years, you may need a million or two stashed below deck (if you’re planning on staying retired once you’ve cashed that last paycheck).
According to some estimates, the average cost of retirement is just over $732k—per person. If you’ve had a high income through your career, then you may need much more than that to be comfortable.
Most experts suggest between 70% to 80% of your pre-retirement household income will suffice to maintain your present lifestyle.
If you should die before you retire, your spouse’s standard of living may be impacted by the loss of income, and this may in turn cause them to dip into the retirement fund to replace your earnings. Your term life insurance coverage can safeguard your spouse’s retirement fund by providing them with income to cover expenses and cover any remaining debts that may be attached to your estate.
As you can see, your term life insurance rates are well worth it when it comes to ensuring your partner is taken care of, no matter what may happen.
Term Life Insurance and Estate Planning
Not only do LGBT workers now have the option of purchasing voluntary life insurance on their spouse through a group policy, but purchasing individual life insurance got easier too. They can now own life insurance on one another without jumping through hoops to prove insurable interest.
» Compare: Term life insurance quotes
No matter which state they reside, same-sex married couples are now able to take advantage of the unlimited estate tax marital deduction at death to pass assets to a surviving spouse without incurring federal estate taxes.
Any transfer to their spouse is now no longer considered a taxable gift during life.
It also means that a same-sex spouse can transfer any unused federal estate tax exemption at death to the surviving spouse.
Steps to Take
Estate and gift planning
When creating an estate plan, consider that same-sex married couples (and both spouses are U.S. citizens) can now use the unlimited estate tax marital deduction to pass assets to a surviving spouse without incurring federal estate taxes.
When considering making gifts, recognize that gifts and property can be transferred to each other without paying federal income or gift taxes. Same-sex married couples will now also qualify for gift-splitting, meaning each spouse is treated as giving half the property gifted by the other.
For more in-depth information on how the recent law changes affected estate planning for LGBT couples, check out our blog here: Estate Planning for Same-Sex Couples: Protecting Your Future.
» Calculate: Life insurance needs calculator
Life Insurance and Estate Planning: The Best Life Insurance to Safeguard Your Spouse’s Inheritance
While your spouse can inherit your estate without federal estate tax, it (as we noted above) may still be subject to collections by consumer creditors.
For example, if you pass away with a balance on your private student loans (which aren’t automatically discharged upon death like federal student loans), your estate may still be held responsible for that debt.
Depending your outstanding debts, and other end-of-life costs, like funeral and burial expenses (sometimes more than $20k), your loved one may receive far less than you hoped to leave them. The best life insurance coverage amount for you and your spouse will be sufficient to accommodate these costs in addition to replacing lost income.
Same-sex married couples now can file both federal and state tax returns jointly. Tax rates for married couples are lower than if filing single or filing separately. If one spouse earns a much higher income than the other, filing jointly will average out the total household income which saves tax dollars.
Keep in mind, higher income married couples are more likely to be subject to the “marriage penalty” and filing jointly may push you into this bracket when you weren’t there separately.
Steps to Take
- Tax planning. Same-sex married couples can/must now file federal tax returns using the “married filing jointly” or “married filing separately” options.
- Dependent Care Flexible Spending Accounts. If you and your spouse both utilize these pre-tax benefit accounts, recognize that the maximum that can be deposited each year is reduced from $10,000 (for two single individuals) to $5,000 (for a married couple).
The Windsor and Obergefell decisions help level the playing field for same-sex married couples. With so many changes that have taken place, those who are impacted by Windsor and Obergefell may wish to seek the counsel of a financial advisor.
We can help with your life insurance needs. To get a term life insurance quote, there is no need to divulge your name, phone number, or e-mail address. You are free to window shop and research life insurance in peace. With Quotacy you can apply in your own time, on your own terms.
Financial Planning for LGBT Couples after U.S. v. Windsor and Obergefell v. Hodges, Prudential, James Mahaney, VP of Strategic Initiatives, June 2015
What the Same-Sex Marriage Ruling Means for Insurance Agents, Life Health Pro, July 2015
A Closer Look at Estate Planning for the LGBT Community, MetLife
Health Plans & Benefits, United States Department of Labor
Photo credit to: Stanley Dai
About the writer
Marketing Content and Social Media Manager
Natasha is a content manager and editor for Quotacy. She has worked in the life insurance industry since 2010, and making life insurance easier to understand with her writing since 2014. When not at work, you can find her throwing a tennis ball for her pit bull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.