The topic of insurance does not generate much enthusiasm in most of us. If it weren’t mandatory, many wouldn’t pay for car insurance (I usually waive it on car rentals). And if you buy a home, property insurance is required before you can get a mortgage.
The essence of insurance is to manage risk by sharing it among many policyholders instead of absorbing all that risk yourself. The general rule of thumb is to insure a risk for which there is a substantial chance—for example, the heightened risks of disability, injury or even death in such jobs as policing or mining. Along with probability is the financial impact of a catastrophic event: If Grandma passes away at 92, it might have a huge emotional impact but it’s far less likely to have a financial impact (assuming Grandma was not a family’s main breadwinner).
We’ve explored the money issues related to such life events as marriage and starting a family. Those events often spur concerns—rightfully so—about insurance needs. The various types of policies to explore cover disability, critical illness (cancer, heart attack, stroke) and life insurance. These are not mandatory; the choice is left to the individual. As such, it’s important to make an informed decision based on your unique situation and the difference it will make in your family’s life.
Let’s focus on life insurance—its general benefits and the special role it can play for families within the LGBT community.
THE WHY OF IT ALL First off, it’s not that YOU need life insurance, the question is how much will your loved ones need if something happens to you. Disability and critical-illness insurance are for oneself, and life insurance is for those around you. When you compare all the risks that we insure—car accident, fire, etc.—we can all agree that the probability of death is 100 percent for everyone. The probability of that risk is equal for all of us, but the difference will be the financial impact on our family at our passing.
It’s vital to consider hefty liability for such things as mortgages and/or dependents. After all, your income and that of your partner may both have been needed to qualify for a mortgage, so it’s possible one income may not be enough to cover the mortgage and all other expenses. My recommendation is to get an assessment done by an insurance agent to help you determine just how much life insurance you need.
RETIREMENT PLANNING Not long ago, same-sex couples faced an extra set of challenges in financial planning for retirement. Since the laws did not recognize their unions in the same way as it did heterosexual couples, gays and lesbians were not entitled to survivor benefits from government and private pensions. To compensate, a popular option was to secure enough life insurance to provide for one’s partner. In 2000, passage of Bill C-23 expanded the definition of a “common law relationship” to include same-sex couples, granting those couples survivor access to government pensions. Private pensions, however, may have their own definition of a “spouse.” I recommend contacting your pension administrator to clarify and confirm just how they define a spouse and whether your partner qualifies for a survivor benefit. If that’s not the case, you may want to lobby to have that changed and also consider whether a retirement nest egg ought to be included in your life-insurance assessment.
CONCLUDING THOUGHT It’s important not to assume that your loved ones will have enough resources for a comfortable life should you predecease them. It’s not too soon to make a full assessment of your life-insurance needs, taking into account the survivor benefit—or lack thereof—of any pension plan you may have.
Al Ramsay is TD Bank Group’s regional manager, LGBTA Business Development. Follow him on Twitter, @AlRamsay_TD.
Financial Planner, TD Wealth, Orlando Lopez contributed to this column. He can be reached at email@example.com.