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Lazetta Rainey Braxton remembers when she was a child growing up in South Hill, Virginia, and insurance agents went door to door in African-American communities selling life insurance to cover burial expenses. The small policies gave people like her parents and grandparents the security of knowing they’d be buried with dignity and that their families wouldn’t be burdened by funeral expenses.
“Insurance agents were trusted in our community,” she says. “They made my parents and grandparents feel valued.”
That history of trust may be one reason the rate of life insurance ownership is higher among African-Americans than for the general population, says Braxton, CEO of Financial Fountains, a fee-only financial planning firm in Baltimore, and president of the Association of African American Financial Advisors.
About 60 percent of “middle-market” African-American adults own individual life insurance, compared to 46 percent of the general middle-market population, according to industry group LIMRA. The middle market includes adults ages 25 to 64 with household incomes of $35,000 to $100,000. Additionally, about 7 in 10 middle-income African-Americans strongly agree that most people need life insurance, compared to about half of the general population.
Familiar and safe
Another reason for the high rate of ownership among African-Americans may also stem from a lack of access to other investment products years ago.
“Life insurance was an additional savings vehicle beyond the bank for African-Americans when they didn’t have access to brokerage houses,” says Nicolas Troy Abrams, a financial planner and independent insurance agent in Columbia, Maryland, and Washington, D.C., and AAAFA secretary.
As a result, life insurance has been a familiar product for generations of African-American families and may seem more tangible and safe than stocks, Braxton says.
The relatively high rate of life insurance ownership is a good thing, says Cliff Wilson, board chairman of insurance industry group Life Happens. But it still means that 40 percent of middle-income African-Americans do not own individual life insurance, he notes.
And among those who do have coverage, some may be underinsured.
Financial planner James Brewer, president of Envision Wealth Planning in Chicago and AAAFA vice president, says he often meets new clients who own small life insurance policies to cover their funerals but lack coverage that would replace their income for their families if they died prematurely.
“What I tell clients is, ‘If you have only enough life insurance to bury you, then your family is going to be buried when you’re gone,” says Delvin Joyce, managing director of Prudential Financial’s South Florida agency office in West Palm Beach. Joyce and other African-American advisors work with community organizations such as the National Coalition of 100 Black Women to educate consumers about personal finance.
The next generation
A 2015-2016 Prudential study showed that 58 percent of African-Americans expect the next generation of their families to have a better financial situation than their own, compared to 46 percent of the general population.