Race-Biased Premiums: African Americans Receive Reparations for Years of Disparaging Insurance Practices. (Buying Power)

By Jackson, LeAnna | Black Enterprise, June 2002 | Go to article overview

Race-Biased Premiums: African Americans Receive Reparations for Years of Disparaging Insurance Practices. (Buying Power)


Jackson, LeAnna, Black Enterprise


The practice of charging African Americans as much as 35% more for life insurance than white policyholders is not a new one. Beginning in the 1930s, many of our parents and grandparents unknowingly purchased policies that were often coded "substandard" and based on mortality tables that showed them to have shorter life expectancies. They were charged higher rates.

These industrial life policies, also known as "burial policies," were primarily sold door-to-door, to low-income African Americans who purchased them to cover funeral expenses. In many cases, the premiums exceeded the face value of their policies. After several law firms, thousands of plaintiffs, and a little more than 70 years later, an investigation initiated by the National Association of Insurance Commissioners found that many of these insurance companies had altered, but not changed their race-based policies. Currently MetLife, Prudential, Liberty Life, and more than 20 other life insurance companies are under investigation.

American General Corp. of Houston will have to pay $206 million to African American policyholders in June 2000, and an additional $7.5 million in fines to be split among various states--one of the largest of such lawsuits. In this case, one policyholder, a 70-year-old Florida woman, had paid $4,700 for several burial policies between 1964 and 1985 that were worth only $3,000 upon her death.

"This is tremendously distressing to me. I have a real passion for holding these insurance companies accountable and I'm certain there are others that haven't been caught as yet," says attorney Johnnie Cochran.

Cochran's firm will be representing individuals who chose to opt out of the recent Life Insurance Co. of Georgia class action, for an expected $55 million to $60 million settlement. Three million policies nationwide could be eligible for reimbursement under this settlement. While many companies discontinued charging different premiums based on race for new policies, Life Insurance Co. of Georgia, licensed to sell insurance in 30 states, continued to collect the higher premiums on already existing policies until last year. The settlement calls for black policyholders who paid the higher rates before 1966 to receive the difference between their premiums and those of white customers plus 5% interest. …

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