Is there a life insurance race gap?

For the better part of this year, protests have taken place across America to take a stand against the killings of unarmed Black people. The conversations around racial injustice have also included other areas of disparity, such as economic inequality. Research shows Black American 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, pointing to a substantial racial wealth gap in our country. But at Haven Life, we found ourselves wanting to know: does this gap translate to life insurance coverage as well?

As part of Life Insurance Awareness Month, we set out to understand how Black and white individuals view life insurance and how that perception might play into the racial wealth gap. The national survey polled adults between 18 and 60 who identified as Black or white, with the median age being 34 years old.

The study found that Black Americans are more likely to think of life insurance as a way to pass on generational wealth. It also found that Black respondents with life insurance have substantially less coverage than white respondents do.

Black respondents are more likely to have life insurance

Both Black respondents (62%) and white respondents (61%) believe their death would have a “substantial” impact on their family’s financial future. But Black respondents are slightly more likely to buy a life insurance policy — 8 in 10 Black people said they have life insurance through work or individually, compared to 7 in 10 white people who said the same.

Black respondents have one-third the amount of coverage

In this study, both Black and white respondents had similar median incomes, but the coverage for Black respondents was significantly lower.

The median income for Black survey takers was $50,162 and $54,823 for white survey takers. However, white respondents had a median coverage of $150,000, while Black respondents reported having just $50,000 in coverage.

Experts say a good rule of thumb is to have five to ten times your annual income in a life insurance policy. Based on that, both groups are underinsured. But Black Americans surveyed have just one-third the coverage of white respondents, which is substantially less than recommended. Ultimately, more research is needed to draw a definitive conclusion on why that gap exists.

That said, looking at the history of racial disparity in life insurance might provide some clues as to why a disparity could exist. Starting in the late 19th century, some insurance companies provided fewer benefits at a higher cost to Black people. When the companies encountered pushback about race-based practices, some chose to avoid selling to Black people altogether.

Using race as a factor when setting benefits and premiums ended in the years following the Civil Rights Movement, and some Black policyholders were awarded settlements in the early 2000s after filing racial discrimination lawsuits. But restricting access to a financial service could still have present-day consequences, leading to racial disparity across our nation. A TIAA Institute study on financial literacy found that the nuances of how insurance works and how to calculate risk are topics African-Americans are less knowledgeable about, which can lead to being underinsured, overinsured, or overpaying for coverage.

Black respondents view life insurance as a way to build generational wealth

The study found that 64% of white respondents believe the purpose of buying life insurance is to protect their families from unpaid debt, such as a mortgage. That’s compared to 37% of Black respondents who said the same.

Black respondents (22%) were almost three times more likely than white respondents (8%) to think life insurance is needed for “building generational wealth.” One possible reason for this difference in life insurance perspectives could be the racial wealth gap, with white families having a median net worth of $171,000 compared to $17,600 for Black families. For Black respondents, buying life insurance might be one means of closing that gap.

Additionally, home ownership is a hallmark of the American Dream and viewed as one of the keys to building wealth. But research shows Black Americans are less likely to own homes — the Urban Institute recently reported that 71.9% of white Americans own homes, compared to just 41.8% of Black Americans. The Urban Institute also notes that, on average, the first home a Black American buys is valued at $127,000 compared to $139,000 for white Americans, and they are more likely to buy homes later in life. Because there are roadblocks on the journey to amassing wealth, some could look to life insurance as a way to leave a nest egg for the next generation.

Both Black and white respondents overestimate the cost of life insurance

It makes sense that if you do not have life insurance, you might not know what it actually costs. And it turns out that, of those who do not have any type of life insurance coverage, Black respondents believe the average cost of insurance is 30% higher ($65 per month) than white participants do ($50 per month).

Despite the high perceived cost, 41% of Black respondents say they “plan to buy life insurance” compared to 19% of white respondents who said the same. When they do, they’ll experience the good kind of sticker shock, because as it happens, a healthy 34-year-old woman can buy a 20-year, $250,000 term life insurance policy for as little as $16 per month.

As the survey indicates, there is in fact a life insurance gap for Black and white Americans. The amount of coverage for Black respondents lags behind that of white respondents and being underinsured leaves Black families with less of a financial cushion after a loved one passes.

How do we as an industry responsibly and effectively help Black Americans secure the right amount of financial protection? First, representation among minority groups matters, which is why at Haven Life, we are committed to building a diverse team that serves the industry from a varied set of perspectives. We also must use our platforms and marketing channels to expand access to educational tools and content to help end racial discrimination in our country. While we don’t have all the answers yet and recognize that a lot of work needs to be done to reduce the life insurance race gap, we are dedicated to being part of the solution.

Survey methodology: Haven Life conducted a quantitative survey between August 17 – 26, 2020 and collected N=653 completed responses. Respondents were required to be between 18-60 years old and identify as either Black only (N=264) or white only (N=389). The median respondent’s age was 34.