Too early for life insurance? Think again

Tamara Davis doesn’t have life insurance on her parents, but wonders if she should.

“[It] definitely has been brought to my attention very recently that I should do something like that,” said Davis, 37. “Being the oldest, it really is my responsibility to make sure that in the event of the worst case that [my parents] are taken care of, and that we can cover all expenses.”

Davis’ father recently started having health issues, and while she is confident that she and her siblings would be able to pay for a funeral, she does worry about being stuck with unpaid medical bills and debt when her parents, who have life insurance, die.  

Davis added she is unsure of her parents’ wishes for when they die.  “That's a discussion that I would need to have [with them],” she said. “We all have savings. We have like 401(k)s, a lot of things that we can borrow from. But even with savings alone, amongst the five of us, we will be able to come up with $11,000.”

Life insurance protects a family or individual by guaranteeing to pay a sum of money to named beneficiaries after a person’s death. Although it is easy to assume a parent may have such a policy, it’s not a guarantee. “I don't think that there is a lot of conversation about having it,” said Ebony Guerrier, an agent at National Agents Alliance based in Burlington, N.C. “Some people may think, ‘Oh, my parents probably have that taken care’ of and they don’t. It’s really important for that conversation to happen between the parent and the child to see.”

In 2021, when COVID-19 was the second-leading cause of death in the United States and Black Americans dying at a rate higher than whites, according to the U.S. Centers for Disease Control and Prevention, there was an uptick in policies, according to Guerrier.

Studies show that Black people have the highest rate of life insurance at 56% compared to any other ethnic group, according to the Life Insurance Marketing and Research Association.
An average funeral ceremony can cost between $15,000-$20,000, according to Guerrier.  With inflation, prices are steadily rising.

According to the insurance company Progressive, policyholders typically pay less when the insured is between the ages of 25 and 40. Younger and healthier people save on policies and as they age and are more likely to develop health conditions will likely pay higher rates for coverage. Young adults may hesitate when it comes to talking about death to parents, but it’s the perfect time to start conversations about funeral plans and insurance.

If your parents have a policy, ask if it’s current and how much coverage is in force. Is it a term policy or whole life? Is it an older policy for a small amount that will not cover the full cost of a modern funeral? In that case, you may want to consider getting a whole life policy, which “is a permanent plan that provides coverage throughout your entire life,” according to the website of national insurance carrier Aflac. “The premiums tend to cost more than a term plan would, but getting this insurance plan may be beneficial in the long run.”

The cash value of a whole life policy usually ends up being higher, but payments grow in a tax-deferred account at an established rate.  Term policies, on the other hand, provide a death benefit that pays beneficiaries of the policyholder throughout a specified period, usually between five to 30 years. Once the term expires, the policyholder can either renew the policy for another term, allow it to lapse or potentially convert it to permanent coverage.

“A lot of parents, they picked out policies back in the day when funerals weren't a lot, so they may have a $5,000 policy or $10,000 policy, which is cool. It's something, but it's not enough,” said Guerrier, who adds that families should have at least $25,000 in coverage to offset funeral expenses.  

According to LIMRA, about 40% of Black adults believe they should need 15 or more years of income coverage and a third of people of color said they would face financial hardship within a month of a primary wage earner’s death.

There are benefits to having life insurance while the policyholder is alive. For instance, retirement and legacy planning, income replacement, estate planning, and health benefits.

If you have a long-term policy, it can help cover medical treatments if a loved one gets sick and can be used during retirement, to buy a house, or pay for college expenses.

Most life insurance companies are marketing to older audiences, but not to young people.  

“There's a push for credit cards, but why are we not telling our students to get life insurance,” Guerrier said.  

Talaysia Jackson, 23, pays $30 a month for two policies totaling $60,000 on her daughter, Alori, 2. She has a $50,000 whole life insurance policy through Mutual of Omaha and a $10,000 term policy through State Employees Credit Union Insurance Company. She doesn’t have life insurance on her parents, who are in their 40s, and doesn’t plan to, either. If something were to happen to them, she wouldn’t be able to contribute to funeral expenses.

“I actually never thought about that just because both of my parents are young,” Jackson said.

Jackson recently opened a savings account for Alori at SECU and the bank informed her that a supplemental life insurance policy is included with the account. The bank credited the account $1,000, which lowered the amount owed to $9,000.

Jackson, who said she plans to take out her own policy next year, wants Alori to learn financial literacy early.  

“Eventually, I do want her to understand her policy and see that this is something that I signed you up for as a child, but it’s something that’s going to benefit you through your adulthood,” she said.               

Comments