In January, we looked at how life insurance can help close the racial wealth gap in the Black community. Similarly, the Hispanic community has suffered disparities in health treatment from the coronavirus pandemic. Recently, a nurse accused ICE of forced sterilizations of immigrant women in custody.
The contributions of Hispanic-Americans like Cesar Chavez and Dolores Huerte changed how companies treated labor unions and were big wins for all American workers. 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 homogenous in country of origin, but have shared traits, values, and beliefs regarding language, family, and entrepreneurial nature.
Insider spoke to Silvia Tergas, a financial planner with Prudential, about how life insurance plays a role in financial wellness in the Hispanic community. (Though the term Latinx is gaining in popularity, Tergas prefers the term Hispanic.)
“A financial plan is built on a strong foundation of life insurance and risk management holding everything up: premature death, loss of income due to illness, or disability,” according to Silvia Tergas, financial planner with Prudential.
According to Hispanic Market Advisors, 44% of Hispanic people have no life insurance coverage, compared with 37% of the non-Hispanic population. The main reasons are the cost of the insurance and the lack of knowledge about insurance. And of those with life insurance, 49% believe that they do not 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 an overarching 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 plans — and the unexpected
Tergas says financial planning is an action verb that requires a person to ask: “Where am I going to be in 5, 10, 35 years?” It requires an understanding that the decisions you make today will impact you down the road. She acknowledges that most people haven’t thought this way because the focus has been survival mode, not next steps.
What are your goals for your career, family, and other individuals you are responsible for — even if you don’t have kids? Tergas uses the phrase “put the mask on yourself before assisting others.” You can’t help your family if you are not financially secure yourself.
Tergas recommends using a small percentage of your income toward disability insurance and life insurance to insure your number one-asset: the ability to generate income in future. That doesn’t mean you have to work into old age if you don’t want to — you can set your own course by careful financial planning for the future.
Quick tip: If you’re considering life insurance, it’s wise to consult an accountant and financial advisor to determine which policy is best for you and to consider the tax benefits and implications.
If you’re seeking a financial advisor who understands the cultural concerns of the Hispanic community, check the CFP Board Center to find financial planners of color.
“Financial planning begins and ends with the client’s need for life insurance,” said Tergas, “and at end of day, life insurance is risk management.” She said based on your cash flow and potential resources, you should balance the need for permanent life insurance, which is more expensive than
term life insurance.
A large permanent life insurance policy might not be the best option if you just want a death benefit for your family or other beneficiaries. In that case, term life insurance makes more sense.
Permanent life insurance isn’t just a death benefit. It’s for legacy planning and income replacement — in other words, financial wealth during 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 advantages to permanent life insurance’s cash value after you cover the baseline goals of debt reduction and retirement.
If you can’t afford a permanent life insurance policy, Tergas recommends get a term life policy with a reputable company that can convert to a permanent policy.
Life insurance for education
First-generation Hispanic students funding college through private student loans make up an increasing 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 be left with the debt if you die.
Even if your parents weren’t co-signers, you don’t want the repercussions of having debt left behind if you’re married.
Life insurance for growing generational wealth
Tergas said that real estate is a key factor for generational wealth — especially if a house has appreciated in value over the years.
Having adequate life insurance can insure that surviving family members can pay for property tax and maintenance if they want to stay in the family home instead of being forced to sell for financial
liquidity. Life insurance removes the financial aspect out of the picture.
Life insurance for protecting the family business
Tergas said inheriting a family-owned business is similar to inheriting a home in terms of the potential to build wealth, though there are some different considerations.
Have a succession plan
No amount of planning or insurance is going to work if family members aren’t aligned and aware of their role. Older generations that live and breathe the family business sometimes don’t consider that their children and grandchildren don’t have the same love for the business, for instance.
Tergas said life insurance is an equalizer for succession plans. Use the life insurance to buy out family members who don’t want to be part of the business.
Life insurance with the business as the beneficiary
Tergas said if one member of the family is key to the business, their disability or death can cause revenue streams to go south — especially for family restaurants where one member is a well known chef.
She recommends a business-owned life insurance policy and business-owned disability insurance that names the business as the beneficiary so it can continue.
Originally published on Business Insider
Ronda is an attorney, writer, and entrepreneur. She is a contributing writer for the Huffington Post. Originally from Chicago, she has lived in Los Angeles and New York. She loves to travel and is passionate about education equity, especially for first generation college students.