Friday, August 05, 2011

We'll have a gay old time (Revisited)...

So this week's National Underwriter/Life & Health edition hits my desk, and the cover catches my attention:

"Born This Way: Could same-sex couples be the next big market opportunity?"

Okay, I'll bite (metaphorically speaking, of course).

Truth is, I've never really cared one way or the other about my clients' sexual orientation. On the few occasions that it's been brought up, it's always been the clients who do so. Off the top of my head, I can name just 2 cases where this information was discussed, and in neither case was it particularly relevant.

Still, the marketing possibilities are intriguing: if one takes the generally-accepted percentage of gay Americans as about 3%, well, that's a lot of potential clients. And with gay marriage a hot-button issue, and now legal in several states, that number seems to be growing.

In many regards, one supposes that gay couples (married or otherwise) face pretty much the same financial issues that their straight counterparts must address: life insurance and estate planning, retirement plans and health insurance. I've noticed for a while, for example, that most of the health insurance quote engines no longer automatically assume an "F" for the secondary when the primary is an "M." Of course, one presumes that two guys won't really worry too much about maternity coverage.

But where it gets really interesting is when we take a look at life insurance.

There are typically two ways that heterosexual couples buy life insurance: either two separate policies (with the other spouse as the beneficiary), or one policy with a primary and secondary insured. In the first case, John and Mary each buy a life insurance policy; John names Mary as his beneficiary, and Mary names John as hers. The second way would be for John to buy a life insurance policy, and then add Mary as a rider (of course, it could be the other way around, as well). The second way is typically less expensive (at least early on), but has some disadvantages (but that's another post). The point is, both methods are tried and true.

But let's suppose that instead of John and Mary, we're talking about Bruce and Tim. Traditionally, the only way that they could go the first route - naming each other as beneficiaries of separate policies - would have been as a business-related buy-sell agreement. There would have been no way for them to access the second method.

Now, though, with the onset of legalized gay marriage, the rules have changed, and it's not just in states which recognize them. I spoke with the underwriter at my primary life company, and asked how this would play out now in this Brave New World. Turns out, both the times and the opportunities have changed.

The key principle here is "insurable interest;" that is, whether or not one person would be financially harmed by the death of the other [ed: yes, this is an oversimplification, but it'll do]. Let's assume that Bruce and Tim live in a state that does not recognize same-sex marriage. Could they name each other as beneficiaries of their (separate) life insurance policies? Turns out, they probably can: the key is that insurable interest. If they can honestly claim to be life partners, or have bought a property together (for example), then the carrier is most likely going to issue those policies (assuming they pass underwriting).

In states that do recognize same-sex marriage, the second method becomes relevant, as well. My primary carrier no longer offers spouse riders at all, so I turned for help to the insurance department of a state which recognizes same-sex marriage. On condition of anonymity (really!), my source confirmed what I had already suspected: that state's law recognizes "marriage," period, and so a company which offered spousal riders to hetero-sexual married couples would have to extend the same courtesy to same-sex married couples.

Bob brought up another interesting point as regards this issue: the increased likelihood of running into an HIV-positive applicant. I'm side-stepping that issue for now, because it's really an underwriting question, not an insurable interest one.

Something else that the article failed to mention was long term care insurance: very often, these plans are written on married couples. Would a a healthy same-sex couple in, say, their 50's be declined? It would seem to be less and less likely, especially in same-sex marriage states.

So, is there really a great new untapped market out there? It seems logical that there is. Now, how to tap into that market is a whole 'nother question.
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