Life insurance was created to cover the costs of funeral expenses, income, and other financial needs when a loved one passes away.
A research study conducted by Life Insurance and Market Research Association: Consumer Trends in March of 2017 reflected six out of ten Black households would likely buy life insurance for themselves over the next 12 months.
Surprisingly, African-Americans tend to buy life insurance more frequently than the general population; it is one of the ways these families can amass generational wealth without other inheritance to leave their children or grandchildren.
Three years before the Great Recession of 2008, the median Black household had a net worth of $12,124. This is small net worth for any race living in America but an improvement from previous decades for African-Americans.
Unfortunately, predatory lending practices that led to the Great Recession resulted in many Black homeowners losing their properties and becoming renters, while Black wealth in America declined drastically. The American Civil Liberties Union reported that upper-class Black households were two-times more likely to refinance their homes than White upper-class households during this period.
With all that went on during the economic downturn, the insurance industry as a whole continued to thrive and owed little to no debt. This may be partly due to the many Blacks who made it a priority to continue making timely payments for their insurance even though there were pressures from other immediate needs during this period.
Whatever type of life insurance a person may have had during this time, potentially determined whether a family could afford their insurance payments or were forced to look for other options, since the cost of term- and whole-life insurance are structured differently.
Typically, term life insurance is the easier and more affordable route, as it provides coverage for a specific amount of time. Most term policies last 20 to 30 years, but if a loved one dies after the term has finished, all the premiums paid during the years the policy was in effect are lost.
Kyle Wachuku, a senior at California State University San Bernardino majoring in Economics, spoke briefly about term life insurance. He stated that term life insurance can help to build generational wealth for African-Americans; however, these policies decrease in value over time.
Permanent life insurance—whole, universal and variable policies—covers individuals for a lifetime. In addition, these policies include an internal cash value feature.
Though the premiums for whole life insurance are usually more expensive compared to term, whole life policies do not expire and will last the entire lifetime. Typically, it is set up as a savings account with a fixed rate and the death benefit is guaranteed. In addition, money may be saved along the way and put toward different investments.
“African-Americans should focus on building our own economy by starting our own businesses and coming together as a community with the money we save,” said Wachuku.
Though more than half of the collective wealth of African American families was stripped away during the Great Recession, it is never too late to make decisions that will impact the future.
Some believe a step in the right direction for many would be to invest in a low-cost term life insurance policy and then consider investments in stocks, bonds and/or mutual funds, rather than purchasing a more complex and costly whole life insurance policy. The most lucrative commissions come from selling whole life insurance policies which can be complicated and confusing. Many coercive insurance agents purportedly try to fatten their own pockets by being more concerned about commissions than recommending the best products for their clients. Also, in the event a client taps into their whole life policy to access funds, that money must be paid back—this now becomes a loan against the policy.
To learn more about life insurance options review the Life Insurance Guide available online at the California Department of Insurance http://www.insurance.ca.gov/01-consumers/105-type/95-guides/07-life/life-ins-guide.cfm Yera Nanan