Life insurance can be an effective way to provide a surviving spouse with the funds to help make up for lost income. That money might be important, too, for paying for other financial commitments, such as children’s educations or paying off a mortgage.

For LGBTQ couples, married or not, there are several elements of the life insurance discussion that warrant special attention. 

1. Group policy caveats

Many U.S. employers offer employees the opportunity to buy life insurance on their spouse through a group policy. This is good news for legally married couples for extra peace of mind. Also, some employers extend group policies to domestic partnerships. Your employer’s human resources department should be able to give you details.

2. Federal estate tax exclusion and unlimited marital deduction

Due to the unlimited marital deduction, legally married couples can transfer an unlimited amount of assets between each other during their lifetime or upon death.

In addition, these couples have access to a total of $25,840,000 in combined federal estate tax exclusions ($12,920,000 per spouse in 2023) if they wish to transfer assets either outright or in trust for children or other beneficiaries. Since most couples’ assets, including a life insurance policy death benefit, would be less than that threshold, federal estate taxes may not be a concern. You should check with your tax advisor about your situation.

The unlimited marital deduction benefits, however, are not available to civil unions or domestic partnerships, and state estate and gift tax rules may still be a consideration.

3. Insurable interest

LGBTQ couples without a legal marriage certificate may still be able to get life insurance with their partners as beneficiaries if they can demonstrate an “insurable interest.” Insurable interest rules vary by state, but in many instances, if a couple owns a home together, that may be enough to prove insurable interest.

4. Business continuity

If the members of a couple are also business partners, life insurance should also be considered as a business succession and continuity planning tool. In this instance, life insurance could be used for a buy-sell agreement or simply to provide the liquidity needed to continue the business when a key person has died.

For example: If business partner A dies and business partner B has a policy on the life of partner A, the policy gives cash to partner B to pay the heirs of partner A for A’s percentage of the business.

5. Irrevocable life insurance trusts

Unmarried LGBTQ couples may be able to use a strategy employed by married LGBTQ couples called an irrevocable life insurance trust. The insurable interest rules still apply. Ask your financial advisor how this type of trust might fit within your estate plan.

Not sure where to start?

There are many different kinds of life insurance, and the details can be complex, especially as tax laws change. So be sure to speak with your tax, legal, and financial advisors about your unique financial needs and challenges.

Our firm does not offer tax or legal advice.

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This article was written by Wells Fargo Advisors Financial Network and provided courtesy of Marc Alexander, CFP ®, CIMA ® President, in Atlanta, at (404) 419-8111.