Providing life insurance benefits to the surviving partner of a same-sex couple may be complicated by the legal concept of "insurable interest," the familial or economic interest required by law before one person can insure the life of another. Since homosexual partners are not related "by blood or law," neither can take out a policy on the life of the other unless some significant economic interest (joint ownership of property or a business partnership, for example) creates the necessary "insurable interest."
There is usually no problem in insuring one's own life and naming a lover as beneficiary. However, on occasion insurance companies have refused to issue a policy that names an "unrelated" person as the beneficiary. For this reason homosexual persons are often advised to name their estate as the beneficiary when they first obtain the policy. After the policy is issued, it can (and should) be changed to name the insured's lover or a friend as the beneficiary.
There may be tax benefits when the beneficiary of a life insurance policy is also its owner. It is possible to take out a life insurance policy with the right to transfer ownership to another person, who need not have an insurable interest. Once the policy is transferred, however, the insured loses all control over it. The new owner will be responsible for paying the premiums and can cash it in at any time.
Proceeds of a life insurance policy made payable to the insured's estate will be included in the insured's gross estate for purposes of the estate tax, and insurance paid into the estate is also subject to the claims of creditors. In addition, so long as the insured retains certain ownership rights in the policy (such as the right to change the beneficiary), the proceeds will be included in the taxable estate even if an individual beneficiary is named. To save on estate taxes some people put their life insurance in an irrevocable trust. But even for people who do not care about saving taxes, the life insurance policy should name an individual, not the estate, as the beneficiary.