For years, Black Americans lagged behind whites in the amount of money they held in life insurance, due, in part, to decades of race-based pricing in which Black people were charged more.
However, that is changing.
The 2021 Insurance Barometer Study, which tracks the perceptions, attitudes, and behavior of adult U.S. consumers, found that 56 percent of Black Americans purchased life insurance policies in 2021 — the highest rate among all racial groups.
“For decades, it was a standard practice at some insurance companies to charge Blacks more for products and offer them small face amount burial insurance that provided little value for the premium paid,” said Judy Hopkins, head of legal at New York City life insurance agency Haven Life. “These practices led to litigation and settlements that were resolved not long ago.”
A survey from Haven Life in 2020 found that 22 percent of Black people value life insurance as a way to pass along generational wealth, compared to 8 percent of white respondents.
Here are 13 key facts on Black Americans increasingly buying life insurance policies than other racial groups.
Black Americans were disproportionately affected by covid-19 in catching the virus, hospitalization, and deaths. This devastation prompted Black Americans to seek life insurance at higher rates than other racial groups, NBC News reported.
The death rate per 100,000 people was higher among Black Americans than any other group, according to the National Center for Health Statistics.
The pandemic “brought the idea of mortality to the forefront of people’s minds,” said Alison Salka, a senior vice president and director at financial services company LIMRA, told NBC News. “So generally, we found that because of the pandemic, almost a third of customers said they were more likely to buy life insurance because of it, but that number goes up for different demographic groups, like Black Americans.”
Black Americans began to recognize the value of life insurance on many levels, from burial coverage to covering debt.
“Our people don’t know enough about or see the value in life insurance,” said Erwin McGowan, an agent with State Farm insurance company, in an NBC News report. “That has to change. And that’s why I chose where I am — to help the people who need it most.”
Traditionally, Black Americans have looked at life insurance as a way to cover burial costs.
Historically, life insurance was often sold to African Americans as burial insurance — minor, cheaper policies covering the bare minimum. “Those door-to-door salesmen weren’t always truthful with them,” Jessica Smith, an insurance agent in Marietta, Georgia, told Nerd Wallet.
Black people are now buying more than the bare minimum in life insurance to cover burial coats.
There has been an influx of policies acquired by clients since the pandemic began, according to State Farm agent McGowan. Such policies, he said, represent “a level of security that, ‘I can at least bury my loved one with dignity and without worry.’ That’s the low end of what life insurance can do. There is so much more to help families. But the biggest problem in our communities is the lack of education around life insurance, especially around its cost.”
Beyond living expenses and savings, insurance is important “to protect your family if something happens to a wage-earner,” said Alison Salka, a senior vice president and director at LIMRA, the Life Insurance Marketing and Research Association.
A 2018 New York Life’s Life Insurance Gap survey found that 83 percent of Black Americans view life insurance as a key way to take care of their families.
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As of 2020, the average Black family’s net worth is less than 15 percent of the average white family’s, according to the Federal Reserve. Life insurance is being viewed as a way to pass on wealth, said Salka.
The New York Life study found that 37 percent of Black respondents said they intend to use their policies as a way to leave a legacy and 28 percent said they would use life insurance to transfer wealth.
African Americans tend to look at obtaining life insurance as a financial goal. While more likely to be underinsured, 80 percent of African American respondents in the New York Life study ranked having life insurance as a primary financial goal. By comparison, 63 percent of all adults in the overall population felt the same way.
African Americans tend to be more proactive in trying to solve financial stresses than whites, the study found.
“Although African Americans report more financial stress than the general population, they are consistently working to mitigate it by seeking guidance from trusted advisors to ensure their families’ futures are protected, and their broader retirement and wealth planning needs are met,” said Eric Jackson, corporate vice president and market manager at New York Life.
Sixty-eight percent of Black people in the New York Life study said they want their life insurance proceeds to pay for a child’s college education.
“In thinking about their financial futures, African Americans recognize the opportunity to use life insurance to protect their families and, at the same time, create wealth for the Black community at large,” said New York Life VP Jackson. “Our agents are consistently seeing attitudes about life insurance shift from primarily using proceeds to cover burial expenses to leveraging policies to grow small businesses, fund a college education, and leave a legacy for future generations.
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Life insurance puts a premium on peace of mind for many Black people.
Depending on the kind of life insurance you buy, it can come in handy when households are faced with unforeseen major expenses. Cash-value life insurance, also known as permanent life insurance, includes a death benefit in addition to cash value accumulation. Variable life, whole life, and universal life insurance all have built-in cash value. Term life does not.
“It could help pay immediate expenses and provide mortgage protection,” according to Western & Southern Financial Group, a Cincinnati, Ohio-based diversified group of financial services companies.
“The money can be used for everything from paying for college tuition, enhancing a retirement nest egg, tithing to a church, and funding charitable giving to create sustainable wealth and economic empowerment in Black America,” said Eugene Mitchell, corporate vice president and African American market manager at New York Life.
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Because so many people in the Black community look at life insurance merely as a tool to pay for burial costs, there has been a push by companies to educate ono the benefits of having a policy.
New York Life’s African American Market agents, for example, are trying boost financial literacy in the Black community and inform consumers that life insurance can be used for a variety of purposes.
“Life insurance is so much more than being about a quick fix (covering funeral costs),” Mitchell said. “It is about helping protect your assets, creating inheritance, and passing wealth to the next generation.
In the unfortunate death of a parent or small business owner, life insurance can keep life moving by covering mortgage payments, college costs, and other bills. It should be looked at for its replacement value, not just for final expenses.”
The cash value on a life insurance policy can act as savings with guarantees and tax advantages, Black Enterprise reported.
Policyholders can use the cash value as an investment-like savings account, Forbes reported.
Many Black agents are trying to get their communities to use insurance as an investment tool.
“You really can’t work your way to wealth, you have to invest your earnings somewhere,” New York Live VP Mitchell said. “It’s time to consider tools like life insurance as well as looking at places where we can find money to invest.”
He added, “We can insure our parents, ourselves and our children to build this within our own families. By getting our mindset and spending habits right, we can start setting up college savings plans and down payments for homes like others.”
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