African Americans and Life Insurance – A Rocky History

As with many things in the United States that should not be, the selling and buying of life insurance to the black American community has often been poisoned with racism–or, perceptions of racism. Even such known white anti-slavery advocates as Thomas Jefferson were deeply concerned that even if blacks got their eventual freedom and full citizenship in the United States, they would perhaps never be able to fully integrate with the wider society. When there are accusations of racism that are false, or when there are stereotypes permitted in business or the legal system, this full integration is not permitted. We usually don’t think of the life insurance business as some sort of racial battleground. But it can be made into one. But there are racial considerations that have historically played a role in this industry. Black Americans and life insurance agents of all races need to be aware of them. Black Americans’ life insurance used to be sold door to door back in the 1920s and 1930s as “burial insurance policies”.The business assumption was that was all that most of the black Americans could afford or would even care about, since they were financially unsophisticated. Now, the life insurance industry is all about spreading around risk. As these burial policies were marketed to mostly low-income blacks, the underwriters were aware that black Americans were, according to records, more susceptible to violence, less likely to hold steady jobs, given to having a lot of children, and had shorter life expectancies. Life insurance companies very often called black applicants “substandard”. This meant to them that black Americans were less likely to keep up the premiums and more likely to force the company to pay out a death benefit when they were still in their younger years. So, black Americans’ life insurance premiums per $1000 of coverage were much higher than their white counterparts’. Blacks were simply seen as greater risks than whites. But, 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. Legal action in more recent times was brought against many life insurance companies that were underwriting black 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. That the life insurance companies were intending racist discrimination is dubious. But, it’s also entirely possible that their underwriting practices then were inaccurate, yet they did not do anything to correct this.The legal system has now made it 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. In fact, underwriters are not permitted to even know an applicant’s race anymore.But, in spite of a now very intense legal defense of African Americans’ rights with regards to the buying of life insurance, and despite 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. Why would that be?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. Unfortunately, some [blacks'] life insurance policies are so similar, that you would think they were lined up in the room to buy it. Some insurance agents 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. It is all about education in the [black American] community.”So, African Americans need to understand the vital importance of life insurance to their full financial program. The days of mere “burial insurance” and ridiculous premiums are dead and gone. If you’re a black American with a family and financial assets to protect but no life insurance, talk to an agent as soon as possible. If you feel more comfortable talking with a black agent, find one and talk to them.