Life Insurance: Denying Black People A Basic Right

Discrimination has been a key factor in the denial of life insurance to Black people. Historically, life insurance was marketed to African Americans as burial insurance, with smaller, cheaper policies that barely covered the essentials. After the Civil War, insurers began to classify Black people as higher mortality risks, resulting in higher premiums or outright denial of coverage. These discriminatory practices have persisted, with separate rates for Black and white applicants even in the 1960s. While some states banned race-based underwriting, insurers often circumvented these laws, perpetuating racial disparities in insurance coverage. This legacy of structural racism has impeded Black Americans' access to insurance, including health insurance, and has contributed to the challenges faced by Black insurance professionals.

Post-Civil War, Black people were classified as higher mortality risks

During this time, some insurance companies provided fewer benefits at a higher cost to Black people. When faced with criticism and pushback about these race-based practices, some companies chose to avoid selling to Black people altogether rather than changing their discriminatory practices. As a result, Black people were excluded from the conversation about protecting their assets and loved ones, leading to a coverage gap that persists today.

The racial wealth gap also plays a role in the life insurance disparity. With a median net worth of $17,600 for Black families compared to $171,000 for white families, life insurance is seen as a means to close this gap. However, Black respondents substantially overestimate the cost of life insurance, believing it to be 30% higher than what white respondents estimate. This perception may contribute to the underinsurance among Black individuals.

Additionally, homeownership rates differ significantly between Black and white Americans, with 71.9% of white Americans owning homes compared to only 41.8% of Black Americans. As homeownership is viewed as a key component of building wealth, this disparity further widens the racial wealth gap and influences the perception of life insurance as a tool for building generational wealth among Black individuals.

While race-based underwriting has been banned in some states, insurers often moved their business elsewhere, reducing access to coverage and maintaining segregation in the industry. These historical practices have had lasting consequences, and addressing them is crucial to promoting racial equality in financial services.

Black people were charged more or denied coverage

After the Civil War, insurers classified Black people as higher mortality risks, leading to higher charges or outright denial of coverage. This discriminatory practice, which stretched into the 1960s, involved separate rate tables for Black and white applicants. While some states banned race-based underwriting, insurers often circumvented these laws by relocating, perpetuating segregation in the industry and limiting Black individuals' access to coverage.

The racial wealth gap also contributes to the disparity in life insurance coverage. White families have a median net worth of $171,000, compared to $17,600 for Black families. This gap influences the perception of life insurance among Black individuals, who view it as a means to close the wealth gap and build generational wealth. However, the cost of life insurance is often overestimated by Black respondents, believing it to be 30% higher than what White respondents pay.

Furthermore, the way life insurance was historically sold to the Black community has impacted their access to adequate coverage. Life insurance was often marketed to African Americans as burial insurance, with cheaper policies that provided minimal coverage. Door-to-door salesmen engaged in deceptive practices, failing to inform clients about alternative options. As a result, Black individuals were excluded from the conversation about protecting their assets and loved ones, leading to a lack of financial protection for their families.

While the use of race as a factor in setting benefits and premiums ended after the Civil Rights Movement, the legacy of discriminatory practices persists. Black policyholders have received settlements in racial discrimination lawsuits, but the long-term consequences of restricted access to financial services remain. This has resulted in a coverage gap, with Black Americans typically having one-third of the coverage of White Americans, according to a 2020 study.

Racial disparities in insurance denial persist despite policy changes

Racial disparities in insurance denial have persisted despite policy changes aimed at addressing the issue. While there have been gains in coverage across most racial and ethnic groups in recent years, disparities in insurance denial between Blacks and Whites remain.

Historically, life insurance was often sold to African Americans as burial insurance, with smaller, cheaper policies that covered the bare minimum. After the Civil War, insurers began classifying Black people as higher mortality risks, resulting in higher charges or denial of coverage. These practices continued into the 1960s, with separate sets of rates for Black and White applicants. While some states banned race-based underwriting, many insurers simply took their business elsewhere, reducing access to coverage for Black individuals.

Research from Haven Life, a life insurance agency, reveals that Black individuals are more likely to have life insurance but are far more underinsured than their White counterparts. The survey found that 81% of Black respondents had life insurance, compared to 70% of White respondents. However, the median coverage amount for Black individuals was $50,000, while White individuals reported a median coverage amount of $150,000. This disparity is significant, especially considering that both groups had less than the recommended coverage amount of five to ten times their annual income.

Additionally, racial disparities in insurance denial persist in the healthcare sector. A study examining racial/ethnic differences in health and life insurance denial due to cancer found significantly higher odds of insurance denial for Blacks compared to Whites. Cancer survivors reported racial/ethnic disparities in health and life insurance denial due to their cancer diagnoses, which can exacerbate financial vulnerabilities and racial/ethnic cancer disparities.

While policies such as the Affordable Care Act (ACA) have helped increase coverage and reduce uninsured rates across racial and ethnic groups, racial disparities in insurance denial persist. These disparities have complex causes, including historical discrimination, the way insurance was sold to the Black community, and differences in financial literacy and wealth accumulation between racial groups. Addressing these disparities requires ongoing efforts to reduce racial discrimination, increase financial literacy, and promote equitable access to insurance coverage.

Black people are more likely to own life insurance than whites

However, the same survey also revealed that Black individuals are far more underinsured than their white counterparts. While 64% of white respondents said that paying off debts like a mortgage was the primary reason for buying life insurance, only 37% of Black respondents gave the same answer. This may be because Black Americans are less likely to own homes, with 41.8% of Black Americans owning homes compared to 71.9% of white Americans.

Black respondents also overestimated the cost of life insurance by 30%, believing it to be $65 per month compared to the $50 estimated by white respondents. Despite this, 41% of Black respondents said they plan to buy life insurance, compared to just 19% of white respondents.

Historically, racial and ethnic disparities in insurance coverage have persisted, with Black Americans more likely to be uninsured than their white counterparts. Between 2010 and 2016, there were large gains in coverage across racial and ethnic groups under the Affordable Care Act (ACA), but disparities remained. From 2016 to 2019, there were small but statistically significant increases in the uninsured rates among Black and white people under 65, with rates rising from 10.7% to 11.4% for Blacks and from 7.1% to 7.8% for whites.

More recently, from 2019 to 2023, uninsured rates declined across all racial and ethnic groups, with the number of people under 65 with insurance increasing by 3.6 million. During this period, the uninsured rate for Black people under 65 fell from 11.4% to 9.7%, while the rate for whites dropped from 7.8% to 6.5%. Despite these gains, Black people remained 1.5 times more likely to be uninsured than whites as of 2023.

Black individuals are far more underinsured than whites

The history of racial disparity in the United States has had a significant impact on the life insurance industry, with Black individuals facing discrimination and limited access to coverage. This has resulted in a coverage gap between Black and white Americans, where Black individuals are more likely to be underinsured compared to their white counterparts.

Following the Civil War, insurers began classifying Black people, particularly former slaves, as higher mortality risks, leading to higher charges or outright denial of coverage. These discriminatory practices persisted into the 1960s, with separate rate tables for Black and white applicants. While some states banned race-based underwriting, many insurers simply moved their business elsewhere, reducing access to coverage for Black individuals.

The racial wealth gap also plays a role in the disparity. White families have a significantly higher median net worth compared to Black families, which affects the ability to afford adequate life insurance coverage. Additionally, the lower rate of homeownership among Black Americans contributes to this gap, as homeownership is considered a key aspect of building wealth.

According to a 2020 survey by Haven Life, 81% of Black respondents had life insurance, compared to 70% of white respondents. However, the median coverage amount for Black individuals was $50,000, while white individuals reported a median coverage of $150,000. This disparity in coverage amounts is significant, as adequate life insurance coverage is typically recommended to be 5 to 10 times a person's annual income.

The reasons for the disparity in coverage amounts are complex and rooted in historical discrimination. Life insurance was often sold to African Americans as burial insurance, with cheaper policies that provided minimal coverage. Additionally, discriminatory practices impeded access to information and options, resulting in Black individuals being excluded from financial planning conversations.

While there have been gains in coverage across racial and ethnic groups, particularly with the implementation of policies like the Affordable Care Act (ACA), the disparity in life insurance coverage between Black and white individuals persists. Addressing this issue requires recognizing the historical context, increasing representation in the industry, and expanding access to educational tools and resources to empower Black individuals in making informed decisions about their financial protection.

Frequently asked questions