Years of discrimination have led to a life insurance coverage gap between Black and white Americans.
It is difficult to understand the relationship between life insurance policies and the African American community. A recent study has shown that while Black Americans are more likely than whites to have life insurance, their coverage is often much lower.
Experts believe there are many reasons for the large coverage gap between Black Americans and white Americans. These include the way that life insurance was sold to the Black community, and the discriminatory practices that have prevented access to coverage.
Families may have a difficult time protecting their assets and passing them on to the next generation if they don’t have adequate life insurance. Although it is not always easy to determine how much life insurance you need, there are many ways to calculate the correct amount.
What is the gap in life insurance coverage?
According to Haven Life, an insurer, Black Americans have about one-third the coverage as their white counterparts. Haven Life’s 2020 study found that this is the case. Both groups were less than the recommended coverage level of 5-10 times their annual income, as outlined by Haven Life. Black respondents had life insurance equivalent to one year of income, while whites had almost three years.
Beneficiaries can be covered for living expenses and debts by having the right amount life insurance. This safety net may feel even more important given the COVID-19 pandemic.
However, historically, life insurance was sold to African Americans often as burial insurance. These policies were smaller and cheaper, but only covered the minimum. Jessica Smith, an agent in Marietta Georgia, says that the door-to-door salesmen were not always honest with clients and that they didn’t tell them about other options.
The reasons behind the coverage gap
Insurers began to classify Black people who had been slaves after the Civil War as higher-than-average mortality risks. This meant that they were either charged more or denied coverage. These practices continued into the 1960s with separate rates for Black and White applicants. Although some states have banned the use of race-based underwriting in certain cases, many insurers moved their business to other locations, which reduced access and further segregated the industry.
Malcolm Ethridge, CIC Wealth executive vice president and financial adviser, says that Black people have been “excluded” from conversations about protecting their assets and protecting loved ones for a long time.
Ethridge says that insurance companies also found creative ways not to pay claims. “So then there was this level of distrust between the Black community, the insurance industry, and the Black community.”
Many Americans have had to live with discriminatory policies for years. This has led to a reduction in access to education, housing, and medical care. All of these factors can impact the price of life insurance.
Ethridge states that applicants with a high school diploma who live in poverty may be eligible for the $2 million policy. However, those with a Ph.D. will likely pay more.
Premiums that are too high can make it difficult to obtain coverage. Wealth may also be more difficult to pass on.
The gap is a problem
Many Black communities have struggled to accumulate generational wealth due to the legacy of racism, segregation, and redlining. The Haven Life study revealed that Black Americans are more likely to view life insurance as a way of passing down wealth to the next generation than whites.
This can cause problems if a person is uninsured or dies. Ethridge states that assets that were to be passed down in this situation are often liquidated to cover expenses and less wealth is passed along.
The right coverage
Many of these reasons are the result of larger historical and social problems, making it difficult for policyholders themselves to close the gap. It can be difficult to recognize that you are underinsured.
If you’re not sure whether you have enough coverage, a financial advisor, insurance agent or online calculator can help you estimate how much life insurance you need.
Smith states, “We want to first figure out what the life insurance funds should do for them after they’re gone,” “Then, we need to figure out how much money they will require to achieve this goal.”
You may want to provide a substantial payout for your dependents if they are financially dependent on you. This will allow them to continue their support for many years after you pass away. You may also not be required to have coverage if there are no financial obligations or dependents.
In general, term life insurance is sufficient for most families. These policies are valid for only a set number of years and are typically less expensive than permanent life insurance.
