Life Insurance Complicated By Minority Health Concerns

Getting life insurance is not easy for some ethnic populations. African-Americans and Latinos often have pre-existing medical conditions such as diabetes and high blood pressure that may make it difficult for them to get coverage. Host Michel Martin speaks with financial advisor Louis Barajas for more on how to get the best life insurance policy.

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MICHEL MARTIN, host:

Now, most people know that certain groups are predisposed to certain health conditions or are likely to experience them in greater numbers. African-American and Latino adults are more likely to have high blood pressure than whites, for example. Native Americans, Latinos and African-Americans are more likely to suffer from diabetes and so on.

That's not news to America's life insurance companies. They are watching for preexisting conditions. But unlike companies affected by the new health care reform law, life insurance companies are not required to provide coverage to people with preexisting medical conditions. And that's why we've turned to one of our personal finance gurus, Louis Barajas. We want to talk about why preexisting medical conditions could make it challenging for many people to get life insurance and what they can do about it. And he's with us now. Thanks so much for joining us once again.

Mr. LOUIS BARAJAS (Financial Adviser): Thank you, Michel.

MARTIN: So, first of all, just, who needs life insurance?

Mr. BARAJAS: Well, you know, not everyone needs life insurance. People who are earning an income and they have dependents and those dependents, you know, rely on that income. They're the only ones that need insurance. And unfortunately, sometimes insurance is sold to people that don't need it.

MARTIN: Okay, like, so for example, you're just out of college, you don't have kids. Your parents are fine. You're not supporting them. You probably don't need life insurance.

Mr. BARAJAS: You probably don't need life insurance also. Children don't need life insurance. Also, sometimes young couples, professional couples who earn great incomes together may not need life insurance. But, you know

MARTIN: But once you start having people who depend upon your income, that's when you start to need to think about that.

Mr. BARAJAS: Absolutely. That's the purpose of life insurance. And you transfer that risk over to the life insurance company.

MARTIN: Now, there are two different kinds of life insurance, as I understand it. One is whole life and one is term. What's the difference?

Mr. BARAJAS: Well, term is just plain vanilla insurance. And if you die, you get the dollar amount that you purchased. Cash value or whole life is an investment feature with term insurance and it's really expensive. And most people really can't afford it. So term is the way to go for most families.

Unfortunately, though, in the African-American and Latino communities, only about 36 percent of these households have life insurance, as compared to the general market where I think it's over 54 percent of the general market has life insurance policies.

MARTIN: Tell me about the role of preexisting medical conditions. And is that a factor in people not being able to get insurance or get insurance that they can afford?

Mr. BARAJAS: Absolutely. For example, underwriters - and when people say underwriters, it's just a person working at an insurance company who's making a decision on your policy. What they're doing is they're looking at your age. They're looking at your medical history. They're looking at your family medical history. They're also looking at your lifestyle and your occupation. If you work in a hazardous occupation, they'll take a look at your, you know, what kind of risk is the insurance company willing to take on you? And then they're setting the premiums based on all these factors that I just talked about.

MARTIN: Are there particular, well, I'll just use the word scams, that you feel are more likely to be directed at people of color?

Mr. BARAJAS: Unfortunately there are scams. And let me tell you why. The business of financial planning or the insurance companies, when they're working in lower socioeconomic areas, when they sell term insurance to people, they don't make any money. There's very little commission in that. And so if these companies are going to survive in these areas, what they're trying to do is convince the purchaser of life insurance to buy these cash value life insurance policies that really are very, very expensive.

And the agents are selling them things that they don't need, and so they're paying much, much more. And when they're sitting there and they're having a conversation with a salesperson, the salesperson is selling the other person based on emotion. So people become impulsive and buy these really high priced insurance policies. And after about a year or two they can't afford them. And they have no life insurance and people end up just as poor as can be because they didn't do the right thing.

MARTIN: Are there other cultural factors or superstitions that sometimes play into this that you wouldn't mind telling us about?

Mr. BARAJAS: There are. Yeah, absolutely. Let me share with you one that I think is kind of funny. It plays officially for the Hispanic community. It's more of the machismo role. A lot of men do not buy life insurance because they think that, and I'll use the term (foreign language spoken), meaning that if they die, the one who's going to benefit is the new boyfriend that their wife will have.

MARTIN: They really say that? I'm not going to buy insurance because if I die I don't want the boyfriend to get it.

Mr. BARAJAS: Absolutely. And, again, we call it (foreign language spoken). And it's part of that ego, that machismo thing that we see in the Hispanic communities. And the African-American communities, it's just kind of hard to talk about death. There are these thoughts that sometimes people will always tell you, well, I'm never going to die. You know, as long as I understand that every statistic that I've seen is, you know, a hundred percent of all of us are going to die, and

MARTIN: Well, I've heard of the argument, you're borrowing trouble. That the idea by naming it, you're somehow bringing it on.

Mr. BARAJAS: Absolutely. And the same thing is when you're talking about death or even estate planning, they're thinking, I don't want to do it because if I do it, then I'm going to die soon. Well, we're all going to die, it's just we don't know when. And the problem is that if we have young children, again, young families that we have to take care of them, it's important that we think about life insurance.

And, also, if you do have some kind of medical condition, there are companies that will actually take you if you've got high cholesterol, high blood pressure and you're under doctor's care.

MARTIN: Well, talk to me a little bit more about that. If you do have a preexisting medical condition, what can you do?

Mr. BARAJAS: Well, first of all, you can actually go on the Internet and do research for life insurance policies and you can do one application and you can have a whole bunch of companies take a look at it and some will deny you, some will accept you, some will accept you at a higher rate. That's the first thing. The second thing, if you really cannot qualify for life insurance because you've got cancer or something and they're not going to give you life insurance, but you still can get life insurance.

You can get it through your group plan at work, because they're not going to deny you as long as you have a group plan. And a lot of people don't ever look at membership associations. For example, if you are a member of AARP, you can get a small policy, but at least you'll qualify for a policy, even if you do have a preexisting condition.

MARTIN: One more thing I wanted to ask you about, if you're a single head of household and your main concern is to take care of your children but they are minors, what do you do?

Mr. BARAJAS: That's the number one mistake I see. If anybody's listening to us and they've named their children, who are minors, as the beneficiaries on their life insurance policies, they need to change that immediately. What they want to do is they either want to create a trust or you want to name someone that you actually trust as the beneficiary.

For example, it could be a parent, it could be a sister that you know that will take the proceeds of the life insurance company and actually use them to raise your children. But, you know, don't be afraid of this. I've been around long enough to actually tell you that I've seen people pass away with life insurance policies and it's made a world of a difference in their lives.

I've also seen people pass away with no life insurance. It's created the most amount of struggle and kind of a survival mindset in the lives of the families. And life insurance is just so inexpensive these days that it's available for everybody's situation.

MARTIN: Louis Barajas is one of our regular contributors on matters of personal finance. And he joined us from Costa Mesa, California. Louis, thanks so much for joining us again.

Mr. BARAJAS: Thank you, Michel.

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