Life Insurance Is A Powerful Option To Aid In Building Wealth
THIS CONTENT IS SPONSORED BY PRUDENTIAL
Black Americans are eager to create pathways to build generational wealth, yet most are not utilizing one of the least expensive and easiest tools for financial planning: life insurance.
Life insurance can serve as an invaluable vehicle in the journey to build wealth and prepare for emergencies like unexpected job loss, family crisis, or unforeseen legal expenses. And it’s not just for the wealthy or those who are older.
“Life insurance is a tangible and helpful tool no matter what stage of life you’re in, and we need to help expand knowledge of it as a resource to take advantage of in your everyday life,” says Salene Hitchcock-Gear, president of Individual Life Insurance at Prudential.
Debunking the myths about life insurance
According to a LIMRA and Life Happens 2021 Insurance Barometer study, 56% of Black Americans in 2021 owned life insurance, a higher rate than other racial groups. (i) Yet misconceptions about how life insurance can support the living have prevented many from fully exploring the options within their policies.
Research commissioned by Prudential Financial in 2022 showed that roughly 30% of Black Americans are convinced that life insurance is only for final expenses, and another 66% maintain that they have purchased policies largely for that reason. (ii) While the primary purpose of life insurance is to provide a death benefit, there are additional benefits, too. For example, some policies allow you to access money while the policyholder is still alive.
Another myth is that life insurance is only for high net-worth individuals and income earners, according to Prudential research. In fact, the 2021 Insurance Barometer study showed that around 75% of Black Americans overestimate the cost of life insurance. (iii)
The fact is that some life insurance policies can provide you with the flexibility to borrow from yourself first before tapping other financial sources. It can be used to pay bills (including mortgages), outstanding debts, and college costs.
Outstanding loans and withdrawals reduce a policy’s cash values and death benefits and may produce tax consequences. But having the option with a life insurance policy can make a difference when life throws a curve ball.
The truth about life insurance
“When you have the resource of cash value life insurance, it may help to avoid taking on unnecessary debt or exhausting lines of credit,” says LauRyn Williams, MBA, MS, CFP®, a Troy, Michigan-based Prudential Financial advisor.
Furthermore, life insurance can accumulate cash value to help cushion retirement income needs. Another perk: entrepreneurs have effectively used coverage as seed capital for their ventures.
Williams asserts that “buying life insurance is an act of love—whether it is love for your children or caring for yourself later in life.” She explains the importance of riders, which can allow the policy’s terms to give you extra benefits you can potentially access while still living. In turn, riders can be added to permanent life insurance policies. According to Prudential, permanent life insurance is long-term protection that can last a lifetime, considering premiums are paid. Most of those policies can build cash value.
Williams stressed the best type of life insurance is coverage that is in place when you need it most. For instance, when you are young, term life insurance is typically the most affordable at any income level. In general, term life insurance is an economical way to offer death beneﬁt protection to a family for a temporary or set number of years. However, consider that most of those policies cannot provide cash value accumulation.
As your career progresses and your income rises, some term life policies can be converted into permanent coverage. This conversion process allows one to update their policy without submitting to a physical examination.
“When you choose your policy, make sure the conversion provision is within the original term insurance policy from the beginning,” says Williams.
She also stressed the importance of working with a financial adviser to determine the best life insurance policy for you. Williams uses a seven-step process that includes reviewing a person’s financial situation, identifying their goals, analyzing their current course, creating an individually tailored strategy, making client recommendations, and conducting ongoing conversations with clients to monitor their progress.
“I work with my clients to place the appropriate coverage to protect their family within the scope of their financial situation. When life insurance coverage is aligned with your personal goals, you can build wealth that matches your lifestyle.”
Prioritizing financial education to help increase awareness of life insurance
Prudential has been a big advocate for building personal and generational wealth, including through its latest effort, Blueprints to Black Wealth. Blueprints aims to close the access gap through education, products, and services built on a deep understanding of the diversity within the Black community.
“It’s a powerful time for Black Americans,” says Hitchcock-Gear.
“Income levels are rising, and there is greater economic mobility than ever before. Black communities are eager to create pathways to wealth no different than anyone else, and it’s critical that they have equal access to tools and information that will help them on their financial journey.”
Hitchcock-Gear knows firsthand how financial planning and support can play an influential role in one’s livelihood.
“Growing up, we didn’t have a lot of money, but I didn’t know it because we always had something good to eat, we lived in a house, and we always had heat. We weren’t deprived, but we also didn’t have extra. I saw firsthand that financial security is a big deal.”
Hitchcock-Gear started her career as a lawyer and, early in her practice, found many financial issues that came with her clients. While she knew little about financial planning at the time, it was the catalyst for her to learn more about it. She hopes to help more people along their financial journey through her work with Prudential.
“Most people have the same kind of aspirations, hopes, and dreams for themselves and their families regardless of where they come from, their culture, or background,” says Hitchcock-Gear.
“I feel fortunate that every single day I’m helping people do something really important in their own lives and in the lives of their families.”