Using Life Insurance to Build Wealth in the Hispanic Community
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In January, we took a look at how life insurance can help close the racial wealth gap in the black community. Likewise, the Hispanic community has suffered disparities in health treatment because of the coronavirus pandemic. Recently, a nurse accused ICE of forced sterilizations of immigrant women in detention.
The contributions of Hispanic Americans like Cesar Chavez and Dolores Huerte changed the way companies treated unions and were great victories for all working Americans. Yet the Hispanic community still lags behind in the wealth gap.
We understand that the Hispanic community in the United States is not a monolith. According to the Insurance Information Institute Hispanic Initiatives, Hispanics are not homogeneous in their country of origin, but have common traits, values, and beliefs regarding language, family, and entrepreneurial nature.
Insider spoke to Silvia Tergas, Financial Planner at Prudential, about how life insurance plays a role in the financial well-being of the Hispanic community. (Although the term Latinx is gaining popularity, Tergas prefers the term Hispanic.)
According to Hispanic Market Advisors, 44% of Hispanics do not have life insurance coverage, compared to 37% of the non-Hispanic population. The main reasons are the cost of insurance and the lack of knowledge about insurance. And of those with life insurance, 49% think they don’t have enough coverage.
According to Tergas, many Hispanic families have negative experiences with financial professionals, especially if financial ruin was the reason they left other countries. She said lack of education and general mistrust are barriers for the community and its approach to financial services like insurance.
What helps build trust? Tergas said brand recognition is important, as well as a strong relationship with an individual. Financial advisors in the Hispanic community need to make it more personal, connecting their clients to the goals that matter to them.
Insurance supports your projects – and the unexpected
Tergas says financial planning is an action verb that forces a person to ask, “Where am I going to be in 5, 10, 35 years?” It requires understanding that the decisions you make today will impact you later. She acknowledges that most people haven’t thought of it that way because the focus has been on survival mode, not next steps.
What are your goals for your career, family, and others for whom you are responsible, even if you don’t have children? Tergas uses the expression “put the mask on yourself before helping others”. You cannot help your family if you are not financially secure.
Tergas recommends allocating a small percentage of your income to disability and life insurance to ensure your number one asset: the ability to generate income in the future. That doesn’t mean you have to work into old age if you don’t want to – you can set your own path by carefully planning your future.
“Financial planning begins and ends with the client’s need for life insurance,” Tergas said, “and ultimately life insurance is risk management”. She said that based on your cash flow and potential resources, you should balance the need for permanent life insurance, which is more expensive than
A large permanent life insurance policy may not be the best option if you just want a death benefit for your family or other beneficiaries. In this case, term life insurance makes more sense.
Permanent life insurance is not just a death benefit; it’s for wealth planning and income replacement – in other words, financial wealth over the course of your life. You can add riders to permanent life insurance for additional coverage, including chronic illness and long-term care. There are also potential tax benefits to the cash value of permanent life insurance once you’ve covered basic debt reduction and retirement goals.
If you can’t afford a permanent life insurance policy, Tergas recommends that you purchase a term life insurance policy from a reputable company that can convert to a permanent policy.
Life insurance for education
First-generation Hispanic students who fund college through private student loans make up a growing number of college graduates. Tergas recommends life insurance to cover private student loans so that if your parents co-signed the loan, they won’t end up with debt if you die.
Even if your parents weren’t co-signers, you don’t want the repercussions of debt to be left behind if you’re married.
Life insurance to grow generational wealth
Tergas said real estate is a key driver of generational wealth, especially if a home’s value has appreciated over the years.
Having adequate life insurance can ensure that surviving family members can pay property tax and upkeep if they want to stay in the family home instead of being forced to sell for financial reasons.
. Life insurance takes the financial aspect out of the picture.
Life insurance to protect the family business
Tergas said inheriting a family business is similar to inheriting a house in terms of the potential for wealth creation, although there are different considerations.
Have a succession plan
No planning or insurance will work if family members are not aligned and aware of their role. The older generations who live and breathe the family business sometimes do not consider that their children and grandchildren do not have the same love for the business, for example.
Tergas said life insurance is an equalizer for estate plans. Use life insurance to buy out family members who don’t want to be in the business.
Life insurance with the company as beneficiary
Tergas said if a family member is the key to the business, their disability or death can lead to lower income streams, especially for family restaurants where one of the members is a well-known chef.
She recommends a company-owned life and disability insurance policy that designates the company as the beneficiary so that she can continue.