Life insurance is one of the most misunderstood tools often utilized as a wealth-building vehicle in our lives today. Due to the connotation of the term, most people think of life insurance as death insurance. Life insurance, as opposed to auto, homeowners and health insurance, is not mandated by the government. Yet, it is the only tool with an IRS tax code that continues to significantly impacts wealth impacts for all cultures in the U.S.
The concept of insurance can be traced back to Roman society, but since insurance concepts were first established in the U.S. in the late 1800s, generations of Americans have been able to use life insurance as a risk management and wealth building tool in situations that include the sudden loss of a family member and the protection of assets in the case of income loss.
The history of life insurance for African Americans started around 1898 with North Carolina Mutual Life Insurance Company — one of the first Black-owned insurance companies in the U.S. and currently the largest Black-managed insurance company in the U.S.
By the first part of the 20th century, over 20 Black-owned insurance companies had been formed throughout the U.S., providing insurance products during segregated times. As valuable as these companies were to our communities ($1.65 trillion collectively in written polices), most were unable to remain solvent in the midst of evolving integration and the introduction of group life insurance through employers — an option which African-American companies were unable to provide during those early years.
To understand life insurance is to define the different types along with strategies and applications that can positively affect our lives (living benefits) and our families such as providing coverage for funeral expenses. Life insurance, just like any other product and service, undergoes regular changes and updates. It’s no longer like the policy your grandmother purchased.
Permanent life insurance is where it all started and serves as the foundation of life insurance where you save money with a life insurance company and receive various benefits in return including: compounding interest, benefits based on financial markets, cash values, potential dividends, benefits to family, loans, withdrawals, tax-free growth, tax-free use if designed properly and other options based on a company’s products. The types of permanent life insurance policies are whole life, universal life, index universal life and variable life with each providing different benefits.
Term life Insurance is just what the title implies — it is protection for a term designed to cover your assets and your family only in the case of loss of life. It is usually very affordable and with its singular strategy only benefits in one specific case unless it has optional riders (provisions) that may add additional benefits. Some benefits can be used prior to loss of life. In most cases, at the end of the term the policy increases in price and some may be converted into a permanent insurance by provisions in the policy.
Annuities are life insurance policies that carry benefits for saving your money with an insurance company that could provide benefits such as growth of funds, no loss of principal during downturns in an economy, family protection and even lifetime income similar to pensions.
College planning is a great opportunity for parents or grandparents to save money with a policy where the cash values can be used for education or other related expenses. Currently, cash values are not calculated as assets on the Free Application for Federal Student Aid (FAFSA) application, creating potential eligibility for federal financial aid.
Retirement planning can strategize the use of permanent policies by using the cash values to cover retirement expenses and if set up properly can be tax-free. This gives individuals greater control and options beyond the use of government-based taxed-deferred accounts.
Building a Human Equity Line of Credit™ (HuELOC) creates a source of funds for a lifetime controlling interest and tax payments to other institutions as well how one spends their dollars. You are in control of whether you “buy” (borrow) money from institutions or not. The strategy shows you how to accumulate funds in a life policy and build a Human Equity Line of Credit™ that you and the next generation may use. It puts the “why” back into using life insurance as a tool.
It is the wealth gap closer for today’s and future generations based on current life insurance and tax laws. Do your research and look at how life insurance can specifically work for you and your family. Kill the stereotypes and establish a legacy of change.
The LaBroi Insurance Group, LLC, is an African-American-owned independent life insurance and retirement strategy firm (www.labroiinsurancegroup.com).
Millennial Banking Concept (www.millennialbankingconcept.org) is a not-for-profit organization that teaches younger people money management strategies.