Buying Life Insurance Coverage for Same Sex Couples

With the presidential elections on the horizon, domestic partnerships and homosexual marriage have been a popular subject of news lately.  There are many questions about whether or not one can purchase life insurance coverage and name their same sex partner as a beneficiary.

With regards to life insurance coverage, the operative term when it comes to naming a same sex partner as a beneficiary is known as “insurable interest.”   The idea of insurable interest with life insurance coverage is that a person or organization can buy life insurance coverage on the life of another person if the person or organization purchasing the life insurance coverage values the the insured more than the amount of the policy.  Basically, this is a long winded way of saying that if the beneficiary will suffer financial loss in the event of the proposed insured’s death, then insurable interest exists.  The caveat is that with life insurance coverage there generally must be a business or family relationship for insurable interest to exist.

In order for insurable interest to exist in a business environment, an owner or employee must have special knowledge or skills that pose a significant risk to the company if that owner or employee dies.  Credit card companies can be be the beneficiary of a cardholders policy based on the financial risk they would incur if the cardholder died.  Outside of the business environment, traditionally, there needs to be a direct blood relationship between the proposed insured and the beneficiary.  Commonly accepted “relationships” include spouse, parent, grandparent, child, or grandchild.  Distant relatives such as cousins, uncles and aunts, step-parents, and the like, cannot buy life insurance coverage on the lives of others based solely on these relationships.  So that brings up the question, what about in the case of a same sex couple or domestic partnership?

The underwriting process can be very subjective.  Although it is not uncommon for underwriters to find an insurable interest with a heterosexual couple who live together, it is rare for them to approve life insurance coverage with a homosexual couple in the same situation.  Therefore, homosexual couples are commonly advised to name their estate as the beneficiary when they apply for insurance and later change the beneficiary.  The insurable interest issue only exists during the underwriting process prior to approval of the policy.  Once the policy is approved, it is very simple to change the beneficiary to the person of their choice.  Changing the beneficiary designation after approval of the policy is a commonly accepted practice, and is a logical strategy to obtain life insurance coverage for heterosexual couples.  Enjoy life!

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