Life insurance can provide a lifeline for people struggling with financial challenges after the death of a family member. Without it, a family may have to tap into its wealth or be forced into debt, or they may need to rely on public programs.
This can be devastating for families who haven’t been able to accrue as much wealth—which is disproportionately the case for Hispanic families. (We have used the term “Hispanic” to match the data sources we’ve cited, though we recognize that not everyone in this group identifies with the term). Though Hispanic families have considerable strengths and resilience (PDF) that contribute to their well-being, they are less likely than white families to have any form of life insurance, and overall, they have the lowest rates across racial and ethnic groups. This stems from many factors, including the systemic racism (PDF) baked into policies and practices of many social systems that created barriers to building savings.
The vulnerability created by systemic racism was amplified during the COVID-19 pandemic, when Hispanic households faced higher age-adjusted death rates and higher unemployment rates. The median Hispanic family lacking life insurance didn’t have enough wealth to cover one year of their household’s income.
In response to the COVID crisis, all levels of government responded with financial assistance. Social Security also provides survivor benefits—however, not every Hispanic family may qualify, and accurate knowledge of these programs varies.
These gaps may have undermined the effectiveness of public policy during the pandemic and exacerbated vulnerability stemming from a lack of life insurance. Policymakers can take steps to address these inequities now to increase Hispanic families’ resilience to crises and potentially limit the need for social insurance policies.
How does life insurance work, and why can it be so valuable?
Life insurance is a contract between an insurance company and a policyowner. In exchange for a premium, the life insurance company agrees to pay a sum of money (the death benefit) to one or more named beneficiaries upon the death of the insured. One of the primary intentions of this type of coverage is to help provide financial security to family members and loved ones upon death of the insured person.
There are two main types of life insurance term, life insurance and permanent life insurance, both with the primary purpose of paying a death benefit to the beneficiaries. Broadly, term life insurance policies will offer coverage for a set period of years with the death benefit payable while the policy is active. Permanent life insurance, on the other hand, will typically offer coverage for the insured’s lifetime with the death benefit payable upon death but may also offer a cash value component. Depending on the type of insurance, the cash value is a portion of the premiums that may be available to earn interest or a rate of return and may be accessed by the policyowner during the insured’s lifetime.
Life insurance may be purchased individually by a policyowner or offered by an employer as part of a comprehensive benefits package. The type of life insurance available for purchase will vary by insurance company or by the specifics of the benefits package in the case of employer-sponsored coverage. The cost of the insurance premiums may also vary widely based on the type of insurance selected, the health of the insured individual(s), and other benefits and options offered within the plan.
Hispanic families were less likely to have life insurance during the pandemic
Hispanic workers were more likely than white workers to have jobs that placed them at greater risk of exposure to and transmission of COVID-19. They also faced greater risks of transmission of the virus at home because they were more likely to have a family member who works in person, or close to others, and were more likely to live in households with multiple generations of adults.
Compounding employment challenges, COVID-19, and stay-at home orders resulted in a soaring unemployment rate. During the pandemic, the unemployment rate rose even more for Hispanic workers than white workers.
And people who were unemployed were less likely to have any life insurance. This was true even more for Hispanic families than for white families.
Families lacking life insurance also had less wealth. The lack of financial protection offered by life insurance combined with less wealth means these families have fewer financial assets to repay liabilities and other costs in the event of one’s death.
Public policies helped bolster financial security during the COVID crisis—and could help them weather future crises
During the pandemic, policymakers took significant steps to help families, such as expanding unemployment insurance for workers; issuing economic impact payments to help families, including automatic COVID-19 economic impact payments for Supplemental Security Income recipients; providing emergency rental assistance for tenants and forbearance for many homeowners and student loan borrowers; and providing funeral assistance funds. Evidence shows they helped.
The lack of life insurance, as well as other traditional forms of wealth, may also increase the role of Social Security survivor benefits for families affected by COVID. A number of factors (PDF) determine the amount and timing of benefits for a surviving spouse and children, and critical among these are the age of survivors and the earnings of the deceased worker. Since Hispanic families tend to be younger compared with white families and tend to have less income, the amount of survivor benefits may be lower.
However, there may be opportunities to improve this provision. Partly because of differences in country of origin, not all Hispanic families accurately understand Social Security’s benefits, including elements of survivors’ eligibility, and the risks may be greater for mixed-status households. As a result, improving outreach to inform Hispanic people must be nuanced, accounting for cultural preferences across countries of origin. Hispanic people report differences in both their knowledge of survivor benefits as well as their ranking of preferred communication about these benefits.
Social Security survivor benefits also require that the deceased worker had a Social Security number. Instead of a Social Security number, some Hispanic people have an individual taxpayer identification number (ITIN). Although an ITIN helps one pay taxes, it doesn’t provide for the accrual of Social Security benefits.
The COVID-19 pandemic amplified racial and ethnic disparities across the United States, including differences in life insurance coverage. Policymakers responded to this historic challenge by building on the social safety net already in place. To ensure Hispanic families can remain financially resilient in the face of future crises, policymakers and industry practitioners can ensure they have access to currently available programs and improve these programs themselves.
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