13 Things To Know About The History Of Race And Structural Racism In Life Insurance Policies

13 Things To Know About The History Of Race And Structural Racism In Life Insurance Policies

Life Insurance

An older Black woman uses her phone and laptop to do taxes. (Deposit Photos) Stock photo on Life insurance contract. (Pexels)

Life insurance is an American institution that Black families have utilized for centuries to secure financial stability for descendants. Many have touted the benefits for Black Americans in having life insurance as a way to build wealth.

However, like most longstanding American institutions, the life insurance industry is not exempt from the structural racism embedded in its history. The Philadelphia Inquirer did an extensive report on how racism and discrimination have impacted the insurance industry.

Here are 13 things to know about the history of race and structural racism in life insurance policies.

1. Black families still have significantly smaller policies than their white counterparts.

According to the report by The Inquirer, Black Americans are more likely than whites to use life insurance to cover their final expenses. However, white families still have significantly larger policies.

Funeral home entrepreneur Tawana Ford Sabbath told The Inquirer many of her Black clients have “small policies … that people paid on forever.”

2. Life insurance companies once insured slave ships and the lives of the enslaved.

The first life insurance company was founded in 1809, with others following suit. At this time, slavery was still very much at its height and life insurance companies capitalized on it.

The Inquirer reported, “these financial institutions quietly profited both directly and indirectly off slave-produced commodities and, sometimes, even the lives of the enslaved themselves in the underwriting of the cargo ships that carried shackled African people to the auction blocks.”

In Louisville, Kentucky, one company advertised “Insurance on Negroes” while another said it was “fully prepared to insure the lives of slaves.”

3. Insurance providers eventually stopped insuring enslaved people because it was too costly.

Since slave owners and society overall were so brutal to enslaved people, many were often killed prematurely, making it difficult for life insurance companies to keep up with the demand of paying out the policies.

“One company, New York Life (then Nautilus Life Insurance Co.), ended up paying out nearly as much in death claims as it received in annual payments,” The Inquirer reported.

4. As the industry shifted to covering working-class people, life insurance companies charged Black workers higher premiums and lower coverage.

Due to Black Americans having a higher mortality rate than their white counterparts, life insurance companies justified raising premiums and dropping coverage on Black families. Prudential and MetLife are among those who engaged in this practice.

The latter expressed remorse in a statement to The Inquirer, saying MetLife “deeply regrets any unequal treatment of customers that occurred in our early history.”

5. A Prudential office banned covering Black people in the late 1800s.

Leon Blanchard, who led Prudential’s Philadelphia office, mandated his agents not to take more than 20 percent of premiums from Black people in July 1881. He then decided to ban covering Black people altogether, according to The Inquirer.

“We do acknowledge past history,” Salene Hitchcock-Gear, president of Prudential Individual Life Insurance, told The Inquirer. “We use it, I would say, as motivation … to have a real insight into how we can do good in the community and do well with the products and services we have. But we fully acknowledge what occurred in the past. There’s no two ways about it. It’s terrible.”

One way Prudential is living up to Hitchcock-Gear’s words in the present is its collaboration with the Pinky Cole and Derrick Hayes foundations to help insure 25,000 Black men.

6. A Black lawmaker in the 1800s took on life insurance companies for racism and won.

Julius Caesar Chappelle, a Black Massachusetts state legislator, introduced the first bill to ban insurance companies from using race to determine premiums and coverage in 1884. 

Born enslaved in South Carolina in 1852, Julius Caesar Chappelle gained his freedom at age 13 when President Abraham Lincoln abolished slavery. He moved to Florida with his family before eventually heading north to settle in Boston, the Massachusetts State Library reported.

Chappelle called for an investigation into racism in the life insurance industry and introduced his bill to fight against it.

7. Life insurance companies vehemently opposed Chappelle’s legislation.

Insurance companies were not happy about Chappelle’s bill. A trade publication called the “Weekly Underwriter” wrote in objection to it.

“It is possible that in time the American negros will become healthy as the whites, but it is not so now, and until it becomes so it will be difficult to abolish the color line in life insurance without depriving the so-called ‘colored man’ of the benefits of life insurance,” the Underwriter said. “If any such discrimination is made it is made upon sufficient grounds.”

Chappelle’s bill still passed, but today there are still only 17 states with an explicit ban on using race as a factor in selling life insurance.

8. Life insurance companies continued discrimination against Black Americans in the 19th century.

Though Chappelle had successfully banned racism in setting life insurance rates in his state and others followed, companies still used tactics to discriminate.

According to the Inquirer, some companies refused to pay commissions to agents for policies sold to Black Americans. Others rewarded agents for selling substandard policies to Black Americans and punished them for selling standard ones. They got paid in full for the former and only half for the latter.

Substandard policies are those with higher premiums and lower coverage, while standard ones are on par with those sold to white people with lower premiums and higher coverage.

9. Many Black Americans paid more for their premiums on “nickel policies” than the insurance paid out upon their deaths.

There are many examples of Black people faithfully paying their insurance premiums only to get meager payouts when they die. They call these “nickel policies,” which are heavily marketed to the Black community.

Arlene Blackston remembers her grandmother paid $5 per month for years, only to have $5,000 paid out upon her death in 1992. It barely covered the burial. “There was nothing left over,” Blackston recalled.

The story is a common one.

Elizabeth Otis died at age 91, having paid 7,000 in premiums for her two policies, only to have $6,750 paid out, Ford Sabbath recalled of a family her funeral home serviced.

“The family had to pay pretty much the same amount as the insurance companies paid [for the funeral],” Ford Sabbath said.

10. The racist behind redlining used his life insurance background as a blueprint to draft the discriminatory federal housing policy.

Frederick Babcock was an underwriting expert who took a 90-day leave to draft the Federal Housing Administration’s racist underwriting manual that made it legal to discriminate against Black people in the housing market, the Inquirer reported.

He was rewarded with a cushy position at the FHA as the lead of the underwriting division. The manual was based on the insurance industry’s practices.

11. Black people’s premiums were sometimes 30 percent higher than their white counterparts.

In 2020, the National Association of Insurance Commissioners (NAIC) released a report titled “Milestones in Racial Discrimination within the Insurance Sector.” It details many of the harms imposed upon Black people by insurers since the industry’s inception.

The NAIC found during Babcock’s time Black Americans could pay premiums up to 30 percent higher than their white counterparts.

12. It wasn’t until the 1950s there was a significant movement to fight racism in life insurance.

Under pressure from labor unions and civil rights activists, there was finally federal progress in fighting racism in life insurance. The Civil Rights Act of 1964 officially banned race-based insurance policies.

13. Despite efforts and progress, racism still likely exists in the life insurance industry today, but experts said it is harder to measure it.

Though laws against racism in life insurance exist, enforcing them is not always easy. 

Benjamin Wiggins is the author of “Calculating Race: Racial Discrimination in Risk Assessment.” He said Black people are still disadvantaged by the “two-tiered” life insurance system.

“I don’t think we can know for certain whether racial discrimination still exists or not in life insurance,” Wiggins told The Inquirer. “But I can’t imagine that it doesn’t. I can’t imagine that the effects don’t linger. It’s nearly impossible to say because there’s so many proprietary protections.”

report released in Jan. 2022 by the University of Michigan Law school echoed Wiggins’ sentiments. “The life insurance industry has a long history of racial discrimination, but the current status of such discrimination is unclear,” the report stated.

PHOTOS: An older Black woman uses her phone and laptop to do taxes. (Deposit Photos) Stock photo on Life insurance contract. (Pexels)