Same-Sex Married Couples Life Insurance Strategies
Sometime this year, the Supreme Court could very well change the whole same-sex marriage game, and rule that marriage equality is the law of the land. By then, it will have been about two years since they struck down the Defense of Marriage Act, which opened the door, and pretty much forced states to accept all married couples equally.
Other court rulings have opened up marriage in a total of 37 states, to the point that, according to recent figures, same-sex marriage is no longer just an oddity; the number of same sex couples who are officially hitched is approaching 400,000, and that number will likely skyrocket even more, once all restraints are removed.
Once that happens, there will be a significant expansion of rights for marriages that are already legally recognized at the federal level. This new legal recognition actually expands the number of retirement and wealth transfer options for legally married same-sex couples, including significantly more beneficial options when it comes to such things as life insurance.
Right now, there are no differences in underwriting when it comes to determining life insurance premiums between same-sex couples and heterosexual couples, but the same-sex couples tend to be younger and they also tend to buy low-cost term insurance, despite the fact that they are, on average, wealthier. Because they do tend to be wealthier than, say, traditional couples, if the system changes in their favor, it is likely they will set the insurance marketplace on its ear, because they will likely convert the term policies they now have to more permanent or cash-value policies.
One thing that has already changed came with IRS Revenue Ruling 2013-17, which gives legally married same-sex couples total access to the gift tax and estate tax marital deductions, which means they can now take advantage of the combined marital estate tax exemption, which is worth almost $11 million. That means, if their life insurance death benefits combined with the value of their other assets fall below that threshold, they can transfer money to each other without incurring a gift tax to pay life insurance policy premiums. They can also name their spouse as beneficiary, which triggers several other benefits, as well.
A lot of changes will be happening soon. Make sure you're prepared for the consequences, especially with your life insurance. Talk to your estate planner as soon as possible, to make sure you're getting every benefit due you.