Wednesday, April 15, 2009
Life insurance is vital to financial security
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Randolph Stuart Sergent
Sergent received his J.D. from the University of Virginia in 1995. He is a former deputy counsel to the Maryland insurance commissioner.
These are difficult times for middle-class families. Jobs are at risk, foreclosures are on the rise, and each day brings new signs of a struggling economy. With 401(k)s shrinking and savings dwindling, it is more important than ever that we find ways to ensure families have the resources they need to achieve financial security.
One of the most important features of a family's financial security is life insurance. A recent Virginia report, however, raises concerns that we are not doing all we should to make life insurance and other financial advice equally available to all families.
Recently, the Virginia Bureau of Insurance released its first report on the demographic results of insurance agent licensing examinations. These are the exams that determine who may sell insurance in the commonwealth.
According to one table in this report, there were large disparities in who passed and failed the life insurance exam during a three-month period in 2008. Among all test-takers who took the exam from July to September last year, the report shows white candidates had a pass rate of 56 percent, compared to 30 percent for African-American candidates.
Such disparities raise two fundamental concerns. First, the commonwealth obviously needs to ensure that minority test takers are not being unfairly denied jobs selling life insurance in Virginia. Second, it raises a concern that large populations in Virginia may not have access to the financial experts who can help them protect their future.
A 2005 poll by the Coalition for Financial Security and the League of United Latin American Citizens found that having access to a neighborhood agent is the single biggest difference between those who take advantage of life insurance and those who do not.
Since those findings, a key goal of CFS has been to find new solutions to put middle-class Americans in contact with financial experts. One solution has been to encourage states to look at their regulatory tests to be sure their exams are fair. While no one should ever advocate for dumbing down these exams, states do have a responsibility to make sure they are not arbitrarily keeping some out of the profession.
Judging from recent research, there is an urgency to this problem. Life insurance is one of the most basic and important financial planning tools available to middle-class families. Yet studies show fewer and fewer households are taking advantage of the protection it affords.
Just as important, life insurance agents often offer more than life insurance protection to their neighbors. They are frequently financial experts who lead their friends, family and neighbors in important discussions about finances and the future. At a time when financial literacy is lacking, access to such experts is needed more than ever.
There are many steps that can be taken in light of the recent demographics report, and the Virginia Bureau of Insurance has been advised that its testing vendor, Pearson Vue, is undertaking further evaluation of the testing process. Insurance Commissioner Alfred Gross and his office should be applauded for raising the issue. A new report based on more data will be published this summer, and all of Virginia's leaders should look to it for signs of progress.
A proper test can result in new jobs, greater financial literacy and a more secure future for all of Virginia families. During these difficult economic times, those are goals that everyone can share.
