Buying life insurance as an African American
Unfortunately, African Americans have historically been treated unfairly when it comes to purchasing life insurance and there has been much racial bias.
In the past, life insurance companies used the derogatory term of "substandard" to describe black applicants. They believed that African Americans were less likely to pay their premiums and more likely to force the company to pay out a death benefit when they were still in their younger years. As a result, African Americans' life insurance premiums per $1000 of coverage were much higher than their white counterparts'. African Americans were simply seen as greater risks to life insurance companies than whites. Sometimes the premiums for the policies were so high that if the policy was kept for its full term the premiums exceeded the death benefit. Although the life insurance underwriters had some legitimate concerns, many of the companies' had pricing practices that came to be seen as extreme and biased.
There are racial considerations that have played a part in this industry and African Americans and life insurance agents of all races need to be aware of them. Eighty years ago, African Americans' life insurance used to be sold by door to door salesman as "burial insurance policies". The business assumption was that African American were not finically savy and these were what they could afford or care about. The underwriters operated under the assumptions during this time period that African Americans were more susceptible to violence, less likely to hold steady jobs, given to having a lot of children, and had shorter life expectancies.
Legal action in more recent times was brought against many life insurance companies that were underwriting African Americans back then. "This is institutional racism and discrimination. It's a perpetuation of the ideas and attitudes of slavery, and somebody needs to be punished for that. I'm not sure the settlement amount for the number of policyholders is sufficient," said black civil attorney Johnny Cochran before his death. Thankfully, the legal system currently disctates that it is a violation of federal laws for any life insurance company to use race as part of the criteria for underwriting, evaluation of risk, or pricing of an individual's life insurance policy. Furthermore, underwriters are not allowed to even know an applicant's race.
Despite the very intense legal defense of African Americans' rights with regards to the buying of life insurance, and a powerful targeted marketing effort in the 1960s and 1970s to get black Americans to buy life insurance for mortgage protection, nearly 80% of adult black Americans still don't have life insurance at all.
According to black financial advisor with Secure Heights Financial, Inc. Dereck L. Smith JR, LUTCF, "There still seems to be a lack of financial planning and insurance knowledge within our community as a whole. Some insurance agents erroneously try to sell ‘one size fits all’ plans to [blacks] instead of educating them and addressing their personal needs. Purchasing life insurance should be based on your particular goals, keeping your family obligations in mind. " He suggested that we need to continue to educate the African American community with respect to their financial planning so that they can make informed decisions.
So, African Americans need to understand the vital importance of life insurance to their full financial future. The days of mere "burial insurance" and outrageous premiums are a thing of the past. African Americans with a family and financial assets to protect should talk to an agent or look online to find a policy that best meets their needs.