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Abstract
This study uses the 1992-2010 Survey of Consumer Finances to analyze whether the likelihood of life insurance ownership and the face value amount of life insurance changes for minorities as household size changes. We find that the likelihood of life insurance ownership declines for Black and larger Hispanic families as household size increases when controlling for a variety of socioeconomic and demographic variables. There is also a significant decline in the face value amount of term life insurance purchased by Black families as household size rises. We provide possible explanations for these effects and also discuss implications for financial planners. © 2015 Academy of Financial Services. All rights reserved.
Keywords: Life insurance; Household size; Term life insurance; Cash value life insurance; Race, minority
1. Introduction
A properly structured life insurance plan can be a powerful part of a family's financial plan. It is especially useful in managing tax liabilities, unexpected expenses, lost income, and household services after the death of a family member. However, this basic observation is not a truism for all parts of American society. In particular, the existing literature suggests a very diverse usage of life insurance ownership among households in different ethnic and racial groups. If these suggestions are correct, financial planners may face special challenges when constructing plans for clients who are in a group that tends to underutilize life insurance products. Alternatively, it may be that the decision to use life insurance may be a function of family size, rather than ethnicity. Studies on family support networks suggest that the presence of strong family support networks are important in determining how families manage household resources. Could family support networks be perceived by clients as a substitute for a properly designed life insurance program? This is an important distinction for financial planners because it could suggest a focus on family size rather than cultural background when deciding how to educate clients about insurance products.
This study investigates how family support systems affect life insurance purchasing decisions across various ethnic groups. By performing this analysis, we are able to help distinguish whether possible underinsurance tends to result from strong family support networks accompanying larger family size or whether it tends to be a function of ethnic background, or...