Many LGBTQ individuals may be fully exploring what it means to be able to build their lives around those they love. Strong legal protections in the last 15 years have ushered in more than just external changes. Now that LGBTQ couples are seen as equal in the eyes of the law, they can build their lives around their love, join finances, and do more traditional things, like buying life insurance.
According to a recent LIMRA study, with 20 million LGBTQ American adults in the United States, just 38 percent surveyed say they have life insurance coverage, representing 7.6 million adults. In comparison, half of all Americans own life insurance. Half of LBGTQ American survey participants believe they need (or need more) coverage, representing nearly 10 million adults.
This makes the LGBTQ community one of the most underinsured communities in terms of life insurance. However, it’s a key piece of financial and estate planning that any adult should consider.
Reasons for the LGBTQ Community to Consider Life Insurance
Life insurance is often a critical component of an overall financial plan. Today, LGBTQ people live in a world hard to imagine just a couple of decades ago. Life insurance can help protect hard-won gains and provide living benefits. According to the LIMRA study, 45% of LGBTQ American respondents say they plan to buy life insurance coverage in 2022, which is six points higher than the general population. Here are some reasons LGBTQ individuals should consider a life insurance policy:
1. Policyholders Can Provide Financial Security For Their Partner
Helping to replace lost income is just one of the reasons why having a life insurance policy can be important. The beneficiary can use these funds to replace their partner’s income and pay off their debts. Plus, death benefits are generally tax-free. This helps avoid estate taxes, l passing more wealth to beneficiaries.
Life insurance helps protect a family’s financial future. Even if someone has savings, it’s unlikely that it would be enough to cover their family’s expenses for several years or even decades if something happens to them unexpectedly. There are multiple types of life insurance to consider: term life, whole life, or final expense.
a. Term Life Insurance
Term life insurance lasts 10 to 30 years, depending on the policyholder’s choice. The policyholder risks outliving the policy, but premiums are typically much cheaper than permanent life insurance.
b. Whole Life Insurance
Whole life insurance is a form of permanent life insurance, so premiums are higher, but it covers the policyholder for a lifetime if they keep up on their premiums. The premiums and death benefits are fixed in a whole life insurance policy. The cash value component grows at a fixed rate, helping build wealth over time.
c. Final Expense Insurance
Final expense insurance is a small whole-life policy that covers end-of-life expenses, like funerals and medical care. The death benefit is much smaller than a whole life insurance policy, but premiums are also much lower, and there’s no medical exam. These policies come with a cash value component, too.
2. Policyholders Can Help Beneficiaries Cover End-of-Life Costs
Life insurance death benefits can provide the policyholder’s partner significant financial security. Dealing with financial stress can add to the emotional stress the policyholder’s family experiences when they pass. The policyholder’s family could use some of the death benefits from the life insurance policy to help pay for the funeral home, medical bills, or anything they need.
3. Policyholders Can Build Wealth
Permanent life insurance is a broad form of life insurance that lasts a lifetime and comes with a cash value savings component for wealth-building. Part of each premium goes into this cash value component, which grows tax-deferred at a specific rate depending on the type of permanent life insurance policy. Policyholders can borrow against this cash value or withdraw from it when it grows large enough. If they surrender their policy, they get the cash value minus surrender charges.
4. It Can Help Loved Ones Pay Off Debt
Life insurance can help loved ones pay for any debt the policyholder leaves behind, including credit card debt, business debt, personal or educational loans, and mortgage debt. At a time when loved ones are already dealing with loss, life insurance can help ease some of the financial burdens they may experience after the policyholder’s passing.
5. It Can Help Pay for Future Education Expenses
For those with children, life insurance can help their family pay for future childcare and education expenses, especially for college. Even if someone has already started contributing to a 529 college savings plan, the death benefit from a life insurance policy can provide additional money to help cover their children’s education if they were to die.
LGBTQ Individuals Should Consider Life Insurance
Life insurance can help LGBTQ individuals build wealth, create financial security for their partners, and help their beneficiaries cover the policyholder’s end-of-life costs. Picking a policy type, however, comes down to the policyholder’s needs and goals. Term life insurance can be best for prospective policyholders who want to minimize policy costs and are okay with potentially outliving the policy.
Fidelity Life can help individuals find a term life insurance policy that fits their needs, including their budget. Consumers can get a quote online or apply and purchase with the help of a licensed agent.
Name: Michael Bertini
Job Title: Consultant