How life insurance exacerbates the racial wealth gap

Yahoo Finance's Ronda Lee breaks down how biases in life insurance impact people of color and widens racial wealth gaps.

Video Transcript

SEANA SMITH: Life insurance, it's a common way for wealth to be accumulated and transferred in this country. But a report out by Aspen Institute's Financial Security Program finds a concerning trend, and it's actually widening the racial wealth gap here in the US. For more on this, we want to bring in Yahoo Finance's senior reporter Ronda Lee. And Ronda, what can you tell us about this? Because this is certainly a trend that maybe wouldn't catch people by surprise, but a concerning one, to say the least.

RONDA LEE: So life insurance is one of the many ways that we accumulate wealth here in the US. And unfortunately, we have it where those who don't have it, that's one way that the wealth gap is extended. For example, even though most African-Americans are the most insured with life insurance, they're also the most underinsured, meaning that they don't have enough insurance to cover their wealth transfers.

So they're only paying for what we call funeral or burial insurance. But after that, there's nothing left to send their heirs, cover for housing mortgage, and those type of things. So when that happens, it just widens the wealth gap because if you're not passing on that money, future generations miss out.

RACHELLE AKUFFO: So then, Ronda, once you know that there is this understanding of the importance of having life insurance, though, why is there this gap in insurance coverage within the Black community?

RONDA LEE: Well, unfortunately, there is a history behind that. You had as part of Jim Crow segregation laws, you had insurers that would charge Black families double or even triple what they would charge white families for the insurance. And instead of giving them the full value, they were giving them less insurance. So they're thinking they're paying for a larger insurance policy-- turns out it wasn't.

So this is the history behind racial bias and discrimination when it comes to life insurance, so that what most Black families are used to is burial insurance. I have insurance to bury myself. And they're not introduced to the other products where they can use to use cash value during their lifetime.

DAVE BRIGGS: OK, Ronda, it's a very important story. Appreciate you being here. Thank you.