The relationship between life insurance and the African American community is complex. Although black Americans are more likely to have life insurance than whites, a recent study shows that their coverage is often much less.

According to experts, the large coverage gap between black and white Americans has many causes, including how life insurance has been sold in the black community and how discriminatory practices have hampered access to health insurance. the cover.

Without adequate life insurance, families can struggle to protect themselves and pass their assets on to the next generation. The amount of life insurance isn’t always obvious, but there are ways to calculate the right amount of coverage.

What is the life insurance coverage gap?

Black Americans typically have one-third of the coverage of their white counterparts, according to a 2020 study by Haven Life, an insurance company. Both groups had less than the recommended coverage amount described in the study of five to ten times annual income. But black respondents reported having life insurance equal to about a year of income, compared to nearly three years for whites.

Having the right amount of life insurance can help beneficiaries cover costs such as living expenses or debt. And given the COVID-19 pandemic, this safety net may seem all the more necessary.

But historically, life insurance was often sold to African Americans as burial insurance – smaller, cheaper policies that cover the bare minimum. “These door-to-door salespeople weren’t always honest with them,” says Jessica Smith, an insurance agent in Marietta, Ga., And customers weren’t told of the other options.

Causes of the coverage gap

After the Civil War, insurers began classifying blacks who were former slaves as higher risk of death, meaning they were either billed more or denied coverage. These practices extended into the 1960s, with separate sets of rates for black and white applicants. Some states have banned race-based underwriting, but many insurers have simply taken their business elsewhere, reducing access to coverage and separating the industry.

For a long time, black people have been “left out of the conversation about just protecting their assets and protecting their loved ones,” says Malcolm Ethridge, executive vice president and financial advisor at CIC Wealth.

Insurance companies would also find creative ways to not pay claims, adds Ethridge, “so it became that level of mistrust between the black community and the insurance world.”

Years of discriminatory policies have also reduced access to medical care, housing, and education for many Americans, and all of this can factor into the cost of life insurance.

If a candidate with a high school diploma, living in a poor neighborhood, asks for the same $ 2 million policy as someone with a doctorate. living in an affluent neighborhood, the less educated applicant may be approved for coverage, but will likely pay more for it, Ethridge says.

If the premiums are too expensive, the coverage becomes inaccessible, the wealth can be more difficult to pass on and the situation worsens.

Why the gap is a problem

The legacy of segregation, redlining, and discriminatory policies has made generational wealth accumulation a challenge for many members of the black community, and the Haven Life study found that black Americans are more likely that whites see life insurance as a means of passing on generational wealth.

This approach poses a problem when a person dies and is underinsured. In this case, assets that would have been passed on are often liquidated to pay for expenses, and less wealth is passed on, Ethridge says.

Get the right amount of coverage

Many of these causes are the result of larger historical and social issues, making it difficult for policyholders to bridge the gap on their own. And being underinsured isn’t always easy to recognize.

If you are not sure if you have sufficient coverage, a financial advisor, insurance agent, or online calculator can help you estimate how much life insurance do you need.

“We first want to know what they want life insurance funds to do for them after they’re gone,” says Smith. “Then we have to figure out how much money they would need to achieve that goal.”

If people are relying on you financially, you may want a large payment to support them for several years after your death. Otherwise, if you have no financial obligations or dependents, you may not need any coverage at all.