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.
» Compare: Term life insurance quotes
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:
Healthcare
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.
Retirement Planning
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.
See what you’d pay for life insurance
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.
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.
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.
» Compare: Term life insurance quotes
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.
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.
» Calculate: Life insurance needs calculator
Considerations for Unmarried, Domestic Partners
If you are unmarried, there are different factors to consider. Unmarried couples, whether same-sex or not, do not have the same rights as married couples. There is additional planning you need to consider if you are in an unmarried relationship.
Domestic partners—unmarried, but live together—are not automatically given survivor rights under Social Security, pension benefits, or other tax benefits that apply to married people. However, this doesn’t mean you don’t financially rely one on another. Like married couples, you want to protect each other’s standard of living were one of you to die unexpectedly.
» Learn more: Can I Get Life Insurance on My Significant Other?
You need to create a valid will. Dying intestate (without a will) means the court system has to determine who gets your assets and who becomes legal guardian of minor children. Intestacy state laws are not likely to give your domestic partner any consideration.
Nora and Katherine are in a same-sex domestic partnership. Nora owns a home that she purchased before meeting Katherine. Katherine pays half of the mortgage cost directly to Nora, but her name is not on the title. Five years into their relationship they adopted two children.
Unfortunately, Nora succumbs to cervical cancer and dies. Nora did not have a will. Probate court evaluates the state’s intestacy laws and determines that Nora’s parents are to be legal guardians of the two children and take ownership of Nora’s assets, including the house.
Katherine is not considered next of kin according to the state and therefore has no rights. She can hire an attorney and go to court to challenge the administration of the estate. However, this takes time, costs money, and will be full of heartbreak. Both parties in a domestic partnership need to write a will.
Unmarried couples also do not get the benefit of unlimited marital deductions. So, even if you do have a will and leave all your assets to your partner then your estate will be subject to federal and state estate taxes on any property value over the exemption amount. Currently in 2019, the federal exemption amount is $11.4 million but drops to $5 million in 2025. Each state has different laws regarding tax exemptions. Here in Minnesota the state exemption amount is $2.7 million.
Even life insurance can be included in the estate valuation if you own the life insurance policy on yourself. If Nora owned a $1,000,000 term life insurance policy on herself and listed Katherine as the beneficiary, this amount would be included in her estate. And while it is under the federal estate tax exemption amount, all of Nora’s other assets are also added to this amount. These assets can include any real estate, pensions, savings and retirement accounts.
One option would be for Katherine to own the life insurance policy on Nora, with Katherine still designated as beneficiary. This would keep the death benefit proceeds out of Nora’s taxable estate.
Katherine would need to prove she has an insurable interest on Nora’s life. Married couples have presumed insurable interest and aren’t required to “prove” it. Since Katherine and Nora are unmarried, the insurance company will want proof. In this example, the fact that they adopted children together and probably have utility bills in each other’s names would be enough for proof of insurable interest.
For domestic partners, creating an irrevocable life insurance trust to own the life insurance policy is another great option to consider. The life insurance death benefit will be passed onto your partner income tax free and it will not be includable in your taxable estate.
Financial Checkup Time: Four Questions to Assess Your Financial Health
A financial health checkup may take a little time, but you’ll be all the better for it.
Do we have our family’s paperwork (physical copies) in a safe, accessible place in our home?
In the Digital Age, you may rarely handle paper, but it’s wise to have your most important documents at the ready if an unexpected event requires you to provide proof of term life insurance, for example. Or, you can opt to scan documents to store online in an encrypted, password-protected document vault.
Do we have a list of our monthly payments and other expenses, tiered according to priority?
It’s a smart move to not only make sure that your most important bills are paid first, but that those expenses that you don’t really need are paid month-to-month or easy to shut off, rather than billed automatically over the year.
That way, if you need to make changes to your monthly expenses, you won’t be bound to a long-term contract.
Are our credit reports accurately portraying our financial health?
Most people check their credit reports before applying for a loan, but it’s essential that you keep tabs on how your patterns of bill payments—and credit inquiries—impact your FICO score, too. Multiple credit card applications are commonly known to impact your score, but paying off credit too quickly can also weaken your credit report.
Do we have a realistic long-term spending plan?
Just like you know the importance of having added security like term life insurance, you are probably well aware of the importance of a healthy savings and that inattention to spending can destroy your plans in short order.
What you might not know, though, is that creating a long-term spending plan is just as important.
Monitor your spending for a month and then look at the impact on your year-long savings goals. Don’t attempt to stop all of your overspending at once. Try to halve, or even quarter, your excess the next month and keep decreasing it from there step-by-step each month.
Finding the Best Life Insurance: 5 Questions to Discuss With Your Partner
When you’ve decided to take the steps to secure your family’s financial future with term life insurance, it’s wise to think about important changes that may impact your coverage needs.
Here are a few things to discuss:
Will we adopt children in the future?
LGBT couples are four times as likely to adopt than opposite sex couples.
If you are thinking about adopting down the line, it’s a good idea to take the legal fees and other costs associated with adoption into account, in addition to the future financial needs of your child, when determining how much coverage makes sense.
If you plan to adopt overseas, you’ll have some extra expenses—such as travel, fees for your domestic attorneys and foreign lawyers— that should be included as well.
If you’re serious about having a family, learn about the best life insurance for parents.
Will one or both of us start a business in the future?
Statistics are on your side when it comes to your startup earning a tidy sum.
According to Fortune Magazine, LGBT-owned small businesses earn nearly three times that of non-LGBT-owned businesses. But, regardless of the financial health of your (current or future) company, it’s still prudent to purchase a policy (or policies) to protect your family’s income if your business’s earnings cannot cover its debt should you pass away.
Learn about term life insurance for business owners.
Do either of us have significant debt?
A study by Prudential, one of our best life insurance companies, a few years back revealed that LGBT couples earn more, save more, and generally owe less debt than heterosexual couples.
Even if you fit into that stat and your credit score and healthy savings account makes lenders tremble with desire, it’s smart to be aware of the potential impact of rising interests rates on your debt load in the future, as well as which consumer debts may become due upon your passing.
Learn about how term life insurance can help protect your loved one from debt.
What are our financial pain points?
One of the most important steps towards better financial health is assessing where it hurts when changes in your cost of living or unexpected expenses arise.
Are you forced to pull from your savings or do you have an ample emergency fund? Are you saving less than you projected because of an uptick in household costs?
It wise to look at the root causes of the issue as well as immediate reasons for the strain on your wallet. If you need help doing this, learn about long-term financial planning and how to select a financial planner.
What can we really live without?
One reason that those expenses pile up: your daily coffee during the work week could cost you nearly $600 per year (and that’s for a plain small coffee!). That could easily cover a day at a celebrity-grade spa for you and your beloved.
Even if you consider Netflix and Starbucks to be basic necessities, there may be other add-ons in your budget that you really wouldn’t miss.
The best way to slim down your extra expenses is to simply mark them down and allocate a reasonable amount to each regularly repeating line item. For example—buying a tall coffee three days per week instead of five may save you a few hundred dollars per year.
While we may not be able to help you curb your caffeine habit, we can certainly help with your life insurance needs. Click over to our free quotes tool to find the best life insurance for you and your spouse.
You’ll have your quotes in seconds, and you can complete your application in under five minutes. At Quotacy, we understand the unique challenges that you may face, and we’re here to help you and your spouse build a secure financial future.
References:
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
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