3 reasons more people of color need to invest in life insurance

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• Many black and Hispanic buyers are underinsured because of cost
• Companies like MassMutual are starting initiatives to increase diversity in hiring and sales
• Life insurance can increase financial stability and build generational wealth

Life insurance is a crucial tool to protect your financial assets. With the tax-advantaged investing component of a permanent life insurance policy, life insurance is the gift that keeps giving. So it's not surprising that people of color are starting to see the long-term benefits of life insurance. Policyholders can use plans for retirement and other personal financial planning. It can also change the outlook for future generations by building generational wealth. Growing knowledge could explain why, according to a recent study by LIMRA, members of the black community purchase life insurance 4% more often than the general population.

More people of color are jumping into life insurance. However, there's still work to do in teaching the importance of having adequate coverage and taking advantage of the wealth-building properties of life insurance. Unfortunately, whether it's a windfall or slow growth, life insurance without financial planning may not lead to the long-term improvements we hope for.

"Some may have received more financial education and preparation than others," says Chlora Lindley-Myers, Director of the Missouri Department of Commerce and Insurance and co-chair of the Special (EX) Committee on Race and Insurance at the National Association of Insurance Commissioners. "Indeed, in households of color, we have not seen the benefits of generational wealth. However, this makes life insurance all the more critical as it allows the policy's provisions to provide that extra measure of security for those we leave behind.

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Understanding the racial gap in life insurance

According to LIMRA's 2021 Barometer study, 56% of Black Americans own a life insurance policy, which is higher than the general population. Similarly, 51% of Hispanic adults reported buying life insurance. Yet, while an achievement in its own right, 46% of Black Americans and 47% of Hispanic adults still feel they don't have enough life insurance coverage.

Price is the most significant deterrent preventing shoppers from purchasing a comprehensive insurance policy. LIMRA found that 75% of Black Americans and 82% of Hispanic Americans overestimated the cost of life insurance compared to 50% of the general population. In short, many people of color who could benefit from life insurance don't know how affordable and accessible it can be.

Financial protection for your family

The Federal Reserve reports that the US average Black and Hispanic household earns about half as much as white households. The gross difference between the earnings between white and Black/Hispanic households means that white households may be better equipped to weather the financial strain of death in the family.

In contrast, because people of color make less on aggregate, a death in the family, especially of a breadwinner, can be debilitating. Sahang-Hee Hahn, head of strategy and planning at Haven Life, says," We found that over half of both Black respondents and white respondents believe their death would have a significant impact on their family's future."

That said, underinsurance in households of color is an ongoing issue preventing many people of color from enjoying the full benefits of life insurance. According to a study by Haven Life, Black households, on average, purchase $50,000 of coverage. Meanwhile, white families purchased an average of $150,000 in coverage.

Bills don't go away when you pass away. More often than not, your family inherits financial obligations, many of which are medical. This added debt and loss of income can cripple families already on the cusp of financial stability. Life insurance pays for funerals and other obvious death-related costs. However, investing in a comprehensive insurance policy with enough coverage also replaces your income and pays for essential expenses like mortgage, child care, and education.

Build generational wealth

Life insurance isn't exclusively for death-related expenses. One of the attractive benefits of a permanent life insurance policy is its cash value component.

Cash value grows tax-deferred, making it an excellent tool for building wealth. With a considerable cash value, you can use it to pay premiums. So you don't have to dish out a single dime in the future. You can even withdraw or borrow against your account to finance expenses like starting a business, buying a home, or funding your children's education without going into debt. In addition, some life insurance owners use the cash value to supplement death benefits and leave a larger inheritance to their families.

According to the Federal Reserve, Black and Hispanic households own about 15 to 20% of net wealth compared to white households. Cash value in a life insurance policy can be an excellent wealth-building vehicle to secure your family's future and close the wealth gap. As previously mentioned, it involves more than just death benefits. Things like buying a home, paying off debt, and starting a business are all launchpads that can be used to build a future for your family.

Supplement retirement income

Due to skyrocketing inflation, we often underestimate how much we need to retire comfortably. Current numbers are only accurate for a limited period, after which you'd need to factor in the changing market. According to a study done by Annuity.org, only 61% of Hispanic Americans and 64% of Black Americans save for retirement compared to 80% of white Americans.

The financial gap is even wider for women of color. Single, senior Hispanic women are most likely to live in poverty during retirement at 32%. But, again, with tax-deferred properties, and compounding interest, the cash value is your friend when it comes to growing considerable life insurance retirement savings.

Life insurance is more affordable than you may think

Perceived cost is one factor that deters people of color from buying adequate life insurance. Unfortunately, institutionalized racism in the form of fewer advisors of color, misinformation, and steering (i.e., companies encouraging non-white buyers to buy cheaper policies with lower payouts) can also factor into this trend.

It's vital to remember anybody can be misinformed about life insurance. Unfortunately, we've seen licensed life insurance agents who still tell buyers term to whole conversions are "guaranteed," or rates will stay the same in those life insurance conversions. Misinformed life insurance agents or others with misconceptions about buyers of any color can unintentionally mislead buyers of color. The critical part is getting the correct information to move forward now. However, due to factors that are not always within our control, people of color are disproportionately underinsured, ultimately being denied access to the full benefits of life insurance.

Life insurance doesn't have to cost a pretty penny, and life insurance is constantly changing. Companies like MassMutual have started initiatives to hire more diverse life insurance agents and financial advisors specifically to connect with previously neglected populations. As a result, we expect to see further change in the future.

According to our guide on the average cost of life insurance, the average premium for a term and permanent life policy falls between $40 to $55 per month. Rates do go up for seniors and buyers with certain health conditions. But life insurance is accessible to more buyers than shoppers might expect.

Permanent life insurance is generally more expensive than a term life insurance policy and can vary highly based on various factors. However, unlike a term life insurance policy, you can access the lucrative cash value feature with many policies. You can even use your cash value to pay for premiums later. More importantly, the payments can be fixed for the rest of your life without a pending expiration date.

Even if you don't have the budget to purchase a policy with all the bells and whistles, it's worth shopping around to find one that fits your needs at an affordable cost. You can start by visiting our guide to the best life insurance companies.

"It may not be possible for everyone to purchase the best possible option for their family. However, anything you do, including educating yourself about life insurance, the various types and options, and how policies work, is a step forward in the right direction," says Lindley-Myers.