African Americans Own More Life Insurance, Not Less

The net worth of white households in the U.S., at $190,000, is ten times larger than that of African American households at $19,000. Differences in life expectancy between white and black Americans are also striking. After an African American male reaches age 50, he has a remaining life expectancy of 27.2 years, six years less than a white female. African Americans are significantly more likely to die during their working years relative to whites. More than 12 percent of African American males who reach age 50 die within 10 years, double the rate in the entire population. In standard economic models, differences in life expectancy contribute to differences in wealth accumulation and spending patterns. Financial struggles may follow the death of a breadwinner including lost earnings and debt due to costly end-of-life medical care.

In contrast, our analysis finds that African Americans hold significantly more life insurance than whites after accounting for other confounding factors such as income and education.

Life insurance has the potential to mitigate wealth disparities across race. When an insured person dies, life insurance pays a large lump sum to that person’s estate. Life insurance coverage is widespread with almost 60 percent of adults having coverage. Life insurance coverage is highest where the consequences from death of a breadwinner are greater. For example, 71 percent of married individuals with a child and mortgage have coverage in comparison to just 27 percent for individuals who are single, childless, and renters. Families not insured against early mortality of the breadwinner may end up depleting wealth, carrying balances on credit cards, or using payday loans, all of which lower wealth.

In our published work, we analyzed differences in life insurance holdings between whites and African Americans. The existing academic literature has found large disparities, with white households holding significantly more life insurance than African American households. In contrast, our analysis finds that African Americans hold significantly more life insurance than whites after accounting for other confounding factors such as income and education. The main reason we find such different results is that we focus on all household structures—married, cohabiting, and single households—rather than zooming in on married households. Household arrangements are strikingly different by race, with higher divorce rates for African Americans and with African Americans being almost twice as likely to be single parents. Previous studies that ignored single households excluded many African American individuals who would have important motivation to purchase life insurance coverage.

Previous studies that ignored single households excluded many African American individuals who would have important motivation to purchase life insurance coverage.

Using multiple years of the US Census Bureau’s Survey of Income and Program Participation, we found that African Americans are two percentage points more likely to hold life insurance, from a baseline of 60 percent. Digging deeper, we found that African Americans are much more likely to hold whole life insurance and slightly less likely to hold term life insurance. Whole life insurance combines both investment motives with the hedge against mortality, while term life insurance provides the pure hedge against mortality risk. At the same time, whole life coverage is thought to have less value than term coverage. Furthermore, African Americans have higher rates of participation in life insurance offered through employers.

Overall, our results suggest that, although financial difficulties due to early mortality likely contribute to racial disparities in wealth, the influence is mitigated by the higher life insurance coverage rates for African American households. In the context of life insurance, incorporating differences in household structure dramatically affects conclusions about disparities in coverage. With respect to public health policy, both health insurance and life insurance are financial products intended to provide protection against adverse health events—sickness or death. Yet our research demonstrates that in the context of life insurance, there are no such disparities in coverage.

Feature image: Anthony Conti, Universal Life Insurance, used under CC BY-NC 2.0.  Antonio Maceo Walker was an African American businessman and president of Universal Life Insurance Company in Memphis, Tennessee. The company was established by his father, Dr. Joseph Edison Walker, former president of Mississippi Life Insurance Company, in the Fraternal Bank building in Memphis on September 6, 1923.