Blacks Should Look at Life Insurance as way to Generate and Transfer Wealth

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Kevin Seraaj, J.D., M.Div.

Insurance is a lot like advertising– it’s not tangible, not palpable, and the benefit isn’t immediate. For many of us paying for something we can’t see, taste, smell or feel is problematic, and all too often we prefer to say “no.”

Thirty years ago, when this newspaper was in its infancy, I approached an acquaintance who owned several restaurants about running some of his ads with us. He took out his checkbook and asked me for the price of one ad. I declined, then asked him if he thought he’d have ever eaten a quarter pounder wth cheese if he’d only seen one McDonald’s ad.

I understand our historical reluctance to gravitate toward the insurance industry. Like most institutions in America, the history of insurance is steeped in racial discrimination and inequity. It was standard practice at many insurance companies to charge Blacks more for voluntary insurance products like life and health, and to push small face amount burial insurance that provided little value for the premiums paid.

Yesterday, Breeze, named the best disability insurance company of 2021 by Consumers Advocate, released its first annual “State of Voluntary Insurance” report, analyzing the percentages of Americans owning each type of voluntary insurance and the average monthly premium for each.  The Breeze data can be viewed by state, race, gender, and generation.

According to the Breeze study, only 68% of Black respondents own health insurance, compared to 81% of Latino respondents, 82% of Asian respondents, and 84% of White respondents. And when it comes to life insurance, the median value of insurance policies held by Black Americans is just $50,000, compared to a median coverage amount of $150,000 among whites.

Up until roughly the year 2000, life insurance in the Black community was a burial expense policy. There was a “just enough insurance to bury me” mindset prevalent among blacks that prevented many from seeing the larger picture– the possibility of creating and transferring generational wealth.

According to a study by the Haven Life Insurance company, Black households have a median income that’s 61% of white households, and white families have a net worth ten times higher than that of Black families. These numbers are considerably different from those in the “Ever-Growing Gap” report by the Corporation For Economic Development and the Institute for Policy Studies done in 2016, where median wealth for Hispanics and Blacks was said to be “about 90 percent lower than for whites nationwide.” But using either set of numbers, there is still a more than substantial racial wealth gap. As we previously reported, it will take blacks a long time to generate the wealth presently held by whites.

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There is some good news, however. Blacks today– Gen-Xers and Millenials– seem to view life insurance differently from the older Baby Boomer crowd (60% for Boomers compared to 63% for Xers and 66% for Millenials). Instead of insuring themselves just to cover their burial expenses, younger Blacks now see life insurance as a way to generate and pass on wealth. The September 2020 Haven Life survey found that nearly a fourth (22%) of Blacks today “see life insurance as a way to pass along generational wealth, compared to only 8% of white respondents.”

Today, only Latinos take out life insurance at higher rates than Blacks. (See chart below). So Blacks have come a long way from the “I just want enough life insurance to bury me” mindset. But we still have a ways to go if we want to close the racial wealth gap.

Do you currently own a life insurance policy?

GroupYesNoAverage Monthly Premium
All Respondents64%36%$143.84
A Breeze survey chart

Young non-smoking people aged 25 – 30 should consider purchasing life insurance now, when premium prices will be low.

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According to Haven Life, a 35-year-old man who’s in excellent health and a non-smoker would pay around $23 a month for a 20-year, $500,000 policy. At age 45, that man would pay about $56 a month for the same coverage.

For a 35-year-old woman seeking a 20-year, $500,000 policy, the cost would be around $20 a month if she’s in excellent health, Haven Life says. The same woman in average health would pay about $44 a month for the same coverage.

For the cost of a relatively low monthly payment over the course of one’s life substantial wealth– not just burial expense money– can be transferred upon death to the next generation and contribute significantly to the wealth-building process.

Each of us planning for our own children end up planning for the entire village. My considered opinion: get started today!