Domestic Partners and Insurance Planning
While no one wants to pay for insurance, generally we accept that we require some degree of protection. We must have certain types of insurance (such as homeowner’s or automobile), and through our employer or individually we may own disability or life insurance policies. When purchasing these types of insurance, many domestic partners neglect planning for issues faced primarily by unmarried couples.
Auto/Home Insurance: Occasionally, a couple will keep their individual home or automobile insurance policies after they move in together. The reasons for keeping older policies in tact could include procrastination, a relationship with the insurance agent, and separate ownership of assets. While some of these arguments may make sense (procrastination excluded), the benefits of having shared policies outweigh the desire to maintain separation.
Two of the benefits for purchasing joint policies include issues arising from claims and the potential to receive discounts. You may decide to keep one name on your homeowner’s policy because only one of you owns the home. If, however, you need to file a claim, the insurance company may challenge the ownership of assets inside the home. Without sufficient proof of ownership, the insurance company may decline your claim and they will almost definitely deny any claim placed by the uninsured partner. The same may also apply for your auto insurance. If the person involved in an accident is not listed on your insurance policy and they determine that he/she should be listed, complications may arise with your auto claim.
In my opinion, the best reason for getting shared policies: discounts. The more policies you have with one company, the more likely they are to reduce your premiums. If that is not reason enough, then I do not know what would be. If you have separate policies, I suggest that you meet with your insurance agent to discuss the issues that could arise and the benefits of having joint policies.
Disability Insurance: Most companies provide their employees with some form of basic disability insurance. If an employee becomes ill or injured for a prolonged period of time, the insurance will pay the employee for a predetermined amount of time. Typically these policies pay a reduced percentage (40-60%) of your normal income to help encourage you to get well and return to work.
Many people discount their need for disability coverage. Frequently people believe that they will not become disabled, that they can significantly reduce their expenses, or that their partner’s income will help to offset their shortage. However, relying on your partner’s income could be a mistake.
Domestic partners take a more significant risk than their married counterparts when their income shortfall hinges on their partner’s wages. Like most couples, you probably spend the majority of the income you receive. Taking a substantial pay cut could take a much greater toll on your household expenses than you would imagine. Additionally, if you rely on your partner’s income and your relationship takes a turn for the worst, you might find yourself left out in the cold. It is unlikely that your partner would provide you with the income you need if your relationship ends. Because a divorce process for domestic partners does not exist, your partner will not have to pay you alimony. In order to protect yourself, you should consult your financial advisor to determine your disability need, and, if necessary, increase your coverage at work, apply for an individual policy, and/or augment your cash reserves.
Life Insurance: When reviewing your life insurance need, remember to include survivor income needs. Many domestic partners focus their life insurance need on debt (such as their mortgage). As your relationship evolves you may want to provide some income replacement for your partner to help support him/her prior to and during retirement. This is especially true if one of you earns considerably more than the other.
In a previous article on pension planning, I noted the need to protect pension income. Some pension plans do not provide for nonspousal beneficiaries. A gay or lesbian couple planning on receiving pension income may see this asset vanish upon the covered partner’s death- even if this occurs prior to retirement. For this reason, you may want to focus on building the investment assets for the partner without a pension plan and/or purchasing life insurance on the covered partner to protect that asset.
Hopefully the laws will change in the near future to allow gay and lesbian couples to marry. In the meantime, continue to take advantage of those areas in which not being married is actually a benefit and protect yourself from those areas in which the current system creates obstacles.
This Information is for educational purposes only. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.
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