Why life insurance plays a key role in closing the racial wealth gap, according to a financial advisor

• Traditionally, life insurance was marketed to the Black community for burial expenses, not as an investment tool, and Blacks were given higher premiums for lower death benefits.
• According to financial advisor Rosalyn Glenn, life insurance can be a powerful wealth-building tool - even during your lifetime.
• Permanent life insurance can be a particularly good option because it never expires and there's a cash value you can borrow against.
• Watch Insider's panel on closing the racial wealth gap.

The coronavirus pandemic has highlighted the disparities and health inequities that fuel a lack of trust between the medical profession and the Black community. Stories of Anarcha, the Tuskegee experiment, Mississippi "appendectomies," and Henrietta Lacks are reminders of how the medical community misused Black patients. Even today, 40% of first- and second-year medical students endorsed the belief that Black people's skin is thicker than white people's, according to the Association of American Medical Colleges.

Similar to the Black community's mistrust of the medical profession, there is a mistrust of the financial industry. The FBI, under J. Edgar Hoover, said its purpose was to disrupt, discredit, and prevent the rise of a Black Messiah that would unify the Black community. And when there has been wealth in Black entrepreneurial centers like Black Wall Street and historic Beale Street, they were destroyed from racist attacks and replaced with white-owned businesses.

The economic impact of COVID-19 combined with pay inequality and institutional racism continues to create barriers to generating wealth in the Black community. But despite the setbacks of 2020 and the past, in the words of poet Maya Angelou, "still we rise."

Closing the racial wealth gap will take time and effort on many fronts, but according to Rosalyn Glenn, a financial advisor with Prudential, ensuring you have adequate life insurance coverage - and understanding how it can build wealth not only after your death but during your lifetime as well - is an important step.

'Life insurance is for the living'

"Life insurance is for the living, not the deceased," said Glenn, who has dedicated the past 30 years to educating and helping to build wealth within the Black community. "You want to make sure that your family is taken care of, but we've got to start thinking about life insurance as more than just something to bury me with."

Glenn noted that there are three main features of life insurance:

1. Death benefits to leave a legacy.
2. Generate income over time for retirement from the cash value built up.
3. Tax-deferred benefits.

Glenn is passionate about educating the Black community and explaining that no matter what your income level, you can use life insurance to drive your financial plans - not just after your death, but during your lifetime too.

Glenn said that African-American baby boomers strongly believed in life insurance. "I can remember my grandparents paying the insurance man each week. But I also remember that when it was time for us to use that insurance policy, it wasn't there because we didn't understand how it worked."

For years, life insurance had been marketed to the Black community as something for after you die, not as an investment tool. Recall Lorraine Hansberry's "A Raisin in the Sun." The family is finally able to move to a better neighborhood due to the insurance policy after the death of the father.

"For decades, it was a standard practice at some insurance companies to charge Blacks more for products and offer them small face amount burial insurance that provided little value for the premium paid," according to Forbes. Studies show that even when they have life insurance, most African-Americans are underinsured. Many have what is known as final expense insurance that essentially covers the funeral and burial costs.

However, the benefits of life insurance as an investment tool are apparent when looking at the career of rapper and entrepreneur, Master P. He started his rap label from $10,000 his grandfather left him from a life insurance policy and now has a $250 million business enterprise. Imagine how much more could have been accomplished with more!

How to get the most out of your life insurance

Start with a budget

Glenn said, "Financial wellness is to be thoughtful about your income, expenses, and knowledgeable about your household. Everyone needs a budget and directing their income to sustain their livelihood. COVID-19 taught us what we can do without before we thought we needed." She noted that for some two-income households, losing one income can put families below the poverty level. She recommends these steps to achieve financial wellness:

1. Identify what you need versus what you want.
2. Live within your means and establish a debt reduction plan if you are over-extended.
3. Start young when you're in good health and insurance premiums are cheaper.
4. If you didn't start young, start now. You may not be able to fully catch up, but you can certainly lessen the harm that could potentially be done by not making that change right now.

Have a blend of permanent and term life insurance

There are two types of life insurance: permanent life and term life. Permanent life insurance never expires and is more expensive because in addition to a death benefit, it has a cash value component that you can borrow against during your lifetime. You pay more in the early years of the policy - which makes having a budget extra important - and that earns interest creating cash value. However, the premiums decrease as you age.

Term life insurance covers a set time period only - usually five, 10, 20, or 30 years. If you die during that period, your beneficiaries get your death benefit. If you live beyond the term, you have to re-apply for insurance, which becomes more expensive the older you get.

Glenn said that only having term life insurance is not a good idea, especially for the Black community. She recommends blending permanent and term life insurance, because permanent life insurance is a tool to build wealth and leave a legacy in the Black community. She noted that traditionally due to lower-paying jobs, African-Americans have lacked other ways to build wealth, but a permanent life insurance plan is a starting point.

She said, "If you can't afford permanent life insurance, then get a term life insurance policy with the goal of converting it before the end of the policy." The goal is "getting us to live beyond today and think about how decisions we make now determine how we will live later in life."

Glenn recommends "making sacrifices along the way so you're not forced to make them at the end of life." That is where having a permanent life insurance policy helps offer income during your lifetime - to pay for college, a second home, or fund a business.

Many people think that their employer-provided group life insurance is enough. However, Glenn notes that this "doesn't follow you when you retire and even if you're able to turn it into an individual plan the cost would quadruple."

Convert your term life insurance to a permanent policy to prepare for retirement

Glenn notes that life insurance is the optimal way to prepare for retirement. She explained that you "can use life insurance to generate income for yourself in retirement because the permanent life insurance policy builds up cash value so when you're 65 you can set it up to pay you a monthly income."

She cautioned that she has met many 55 and 60 year olds who had term life insurance but didn't convert it. Now they are older with health challenges and can't afford to pay premiums to insure themselves.

Some term life policies cannot convert. For those that can convert, there is usually a window of time that you can convert. However, competing life insurance companies may offer to convert your term life policy. You do not need to submit to additional medical underwriting because your policy would convert at the health rating under the original term policy. Your health insurability is locked from the time your term life insurance became effective.

When you make the conversion from term life to permanent, understand that there are different types of permanent life insurance policies, like whole, universal, and variable life. It is important to talk to your insurance agent or financial planner about the differences between the various permanent life insurance policies to understand what works best for your situation.

Find a financial planner you trust

Glenn said, "No matter your level of income or socioeconomic status, you will need a financial advisor or planner at some point in your life as you are accumulating savings into an income stream." She said the benefit of working with a planner is to "think strategically about what you're trying to accomplish and plan for possible market downturns to help you ride through the storms."

Business Insider contributor Malcolm Etheridge previously wrote: "According to the Certified Financial Planner Board, in 2019, about 1.5% of Certified Financial Planners (CFPs) in the United States were Black. To put hard numbers to it, there are just 1,355 Black CFPs out of roughly 87,000 total practitioners. Those numbers are not only dismal, they are not improving fast enough."

Glenn understands that there is a lack of trust between the Black community and financial professionals. She recommends building a relationship with someone in the financial industry. She noted that although there is no association or website for Black financial planners and advisors, readers can browse the Brokercheck to find financial planners of color - and the CFP Board site is another great resource.