There are 6 core competencies of financial literacy: Earning, Saving, Investing, Spending, Borrowing, Protecting. With this post, I’m exploring an aspect of protecting; estate planning via life insurance.
There are 2 things that spurred this post. First, yesterday I watched a debate between two Black intellectuals as they each proposed ideas to further the economic progress of Black people in America. Someone proposed the idea that we should use life insurance as a protective measure for Black people, against state sponsored genocide via the police. Their rationale was that if Black people had adequate life insurance, when police officers kill us, the insurance companies have to pay out. If trends continue as they’ve always been throughout American history, insurance companies will get tired of paying out policies due to preventable deaths, they’ll quickly see that this risk needs to be mitigated, through influencing public policy and pressuring police departments to take punitive measures against officers who kill Black people unjustly. It makes sense and is a very interesting idea to explore. It ties to the idea of interest convergence as it applies to critical race theory, which states that White people do nothing for Black people unless and until it serves their interests.
The second thing that motivated this post occurred this morning. As I was emptying my breasts of life-nourishing milk, the Youtube algorithm recommended a viral video that a wife made for her husband who suddenly passed. I was intrigued because the dad was a Black man in his early 40’s. He looked really healthy in the video, so I wondered how he passed. I watched the next video recommended, and in it the wife told her story of his passing, less than 3 days after it occurred. He passed suddenly from a heart attack, there were no indications that this would happen. He left behind four children and his wife, who was a stay-at-home-mom. She commented on her financial worries because they did not have a life insurance policy for him. She said “we never planned for this to happen”. It makes sense, humans are unique in our ability to understand our own mortality, however we rarely think about it until it’s imminent. I thought of how sad it was that in the middle of processing she had to worry about if she would qualify for public assistance to support the family. That’s just awful. And this type of situation is not unique to this Black family.
African Americans are no strangers to life insurance. We have been insured since slavery, although we were insured as property. Slave owners took out life insurance on their most valuable slaves. These policies prevented people from killing these slaves on a whim. This isn’t new to us.
A 2020 survey done by the Massachusetts Mutual Life Insurance Company reports the following:
“The key insight from the survey shows that while Black respondents are more likely to have life insurance, their coverage amounts are strikingly lower than what is recommended to adequately protect their families’ financial futures. Eighty-one percent of Black respondents indicate they have life insurance, either through work or individually, compared to 70 percent of white respondents. Median incomes for the Black and white survey respondents are similar: Black respondents earn $50,162 and white respondents earn $54,823. Yet when asked about their existing life insurance coverage amounts, white individuals state they have a median coverage amount of $150,000, while Black individuals report having $50,000 in coverage. The life insurance industry suggests that adequate life insurance coverage should be 5 to 10 times the amount of a person’s income. Based on this calculation, both Black and white survey respondents do not buy enough life insurance coverage, but Black respondents are substantially more underinsured.”
Black people are doing our thing getting insured, yay yay! There’s room for improvement in terms of the amount of coverage. I thought I was adequately covered because I have supplemental health insurance beyond the $50k policy given by my employer. I took out an additional $450k, so $500k total. That seemed like a solid number. Learning that coverage should be at least 5 years of annual earnings, I know I’ve fallen short on my amount of coverage, I’m not even reaching the minimum recommendation. As a perfectionist, I want to do things right. If the recommendation is 5-10 times annual earnings, I will aim to get to 10 times the amount. So I need to more than double my current amount of coverage.
Life insurance is a morbid topic. I talked about it with a group of friends a couple months ago and one person commented that she didn’t want to think about her death. I responded that I totally understood, but I had to move past my discomfort by planning for my family to be in a solid financial position if I passed away earlier than expected. Life insurance should cover more than the cost of a funeral. It should cover the loss in earnings for your family. It should pay off your mortgage, all outstanding debts, your kids college funds, the cost of care for your aging parents, etc. Looking at the full picture now, $500k doesn’t seem like such a high number, nor does $1m. It’s enough to cover the gaping hole left by the absence of my income and my presence, at least for a few years.
I posted previously about how I used Policygenius.com to save $600 this year on our home insurance policy, I will be using them again to find the best rates for policies for my husband and I. I want to note an additional finding from the study I cited. Researchers found that of the African Americans who didn’t have life insurance, on average they estimated a policy to cost $65 a month for a $250k policy for a healthy person in their mid-30’s. Currently, there are 20 year term policies that would cost $16 a month for $250k in life insurance. We may think life insurance is expensive, and that may be true in some cases, but we won’t know until we take a look for ourselves.
Take care of yourselves and those you love, now and in the future. I’m going to take my own advice and go get this term life insurance stuff handled. Toodles!