How bias persists in life insurance

Many Americans look to life insurance to protect their families from financial burden after death, but those protections can be vastly different depending on factors that include the color of the policy holder’s skin.

In Philadelphia, where the life insurance industry was born, racial disparities in coverage play out daily in funeral homes and kitchen tables, where families struggle to pay for expenses they thought policies would cover. In the latest installment of the More Perfect Union series, writers Oscar Perry Abello and Lynette Hazelton take readers through history from some of the first policies that benefited slaveholders to more subtle practices that continue to negatively affect Black Americans today.

Here are three takeaways from that story.

America’s first life insurance company, the Pennsylvania Company for Insurances on Lives and Granting Annuities, was founded in 1809 in Philadelphia at the corner of Second and Walnut Streets.

Other insurance companies, which protected buildings and ships, sprung up in the surrounding area and profited off goods produced by enslaved people as well as off of enslaved people themselves.

Girard Life Insurance, Annuity & Trust Co., which opened in 1836, later advertised policies it called “Insurance on Negroes.”

The coverage inequities were evident from the beginning. In the 1800s, companies leaned on discriminatory data to justify rising premiums charged to cover Black children as well as dropping coverage amounts for Black adults. Some agents were barred from doing business with Black people at all.

“We do acknowledge past history,” said Salene Hitchcock-Gear, president of Prudential Individual Life Insurance, in an interview with The Inquirer. “We use it, I would say, as motivation ... to have a real insight into how we can do good in the community and do well with the products and services we have. But we fully acknowledge what occurred in the past. There’s no two ways about it. It’s terrible.”

By the 19th century, it wasn’t uncommon practice to sell Black people “substandard” policies, or what the story defines as “life insurance plans with higher premiums or lower coverage amounts based on a constantly evolving array of factors such as policyholders’ profession or the neighborhood where they lived.”

The federal government finally banned discriminatory race-based premiums in 1964 but left enforcing the ban to state governments and the courts, where individuals could sue their insurers. Hundreds of millions of dollars in settlements have flowed from insurance companies to Black families since but major accountability gaps remain and the National Association of Insurance Commissioners, a standards-setting body for state insurance regulators, continues to work to identify and mitigate racial biases in the industry.

Today, Black people are more likely than white people to seek out life insurance. However, white families have much larger policies – even when they earn the same income, according to the report.

That pattern of underinsurance is part of a contemporary system that historian Benjamin Wiggins, author of Calculating Race: Racial Discrimination in Risk Assessment, describes as “two-tiered.”

The generational impacts of discriminatory life insurance continues to affect Black families today.

Arlene Blackston in Wyncote recalls the seeing her grandmother, Mary Ann Young, pay an insurance salesman faithfully for decades only to discover when Young died that the policy barely covered the cost of her burial. Another source was surprised to find her mother’s policy was one marketed to African Americans and barely paid for her final expenses after she died of COVID last year.

Tawana Ford Sabbath, of Walter E Sabbath Jr. Funeral Service, said many clients must pay for expenses they thought life insurance would handle.

Rodney Stevenson, a State Farm insurance agent, said he’s “one of the few” African Americans in the industry. In the North Philadelphia hair salon where he is a regular, he gets asked about all kinds of policies.

“Ask me anything,” he said. “I’m not trying to sell you. I’m just here to educate you.”