Life insurance and the changing role of grandparents
If you're raising your grandchildren, you're not alone. According to the U.S. Census, the number of grandparents raising their grandchildren has increased substantially over the past several decades. In fact, 2.7 million grandparents nationwide have taken on the role of primary caregiver for grandchildren under the age of 18.1
We're looking at the many ways in which life insurance can help people protect what matters most in their lives. In this article, we're looking at the importance of life insurance for grandparents who are raising their grandchildren.
Changing rolesAccording to an AARP study, 53 percent of grandparents are contributing substantially to their grandchildren's educational costs, with another 37 percent contributing to everyday living expenses, and 23 percent contributing to medical/dental costs.2 Yes, the roles of grandparents are certainly changing - including being the primary caregiver for their own grandchildren. And while there are many factors that have contributed to this changing role and every situation can be different, the commonality shared with other grandparents who are also primary caregivers of their grandchildren, is being financially responsible for the young lives in your care.This may very well be the time in your life when you're planning ahead for your golden years, but if you're a couple raising your grandchildren, it's also time to think about how you would continue to offer financial support if one or both of you were to pass away.
The importance of life insurance
As a grandparent, you want the very best future for your grandkids. With the right amount of life insurance, you can have peace of mind knowing that after you're gone, not only will their basic needs be met, but the payout from the death benefit can help pave the way for a brighter future that includes money for college tuition and other educational expenses.
If you already have life insurance, now is the time to review your policy. Here are some helpful considerations:
- Be sure to update your beneficiaries. If you haven't already done so, it might be time to update beneficiaries named on your life insurance policy so that it considers your grandchild(ren). However, it's important to note that life insurance companies will not pay life benefits directly to a minor. For this reason, you might consider setting up a trust for the benefit of the grandchild(ren) and name the trust as the beneficiary of the policy. Another option is to name an adult custodian for the life insurance proceeds under the Uniform Transfers to Minor Act. Be sure to discuss your options with your life insurance agent, financial advisor, or estate planning attorney.
- Evaluate your current limits. When you first took out your life insurance policy, you most likely had very different needs. Now that you're raising your grandchild(ren), those original limits may not offer enough coverage. According to the USDA, the average cost of raising a child from birth to age 18 is $245,000 - not including college tuition and inflation.3 Depending on your situation, you may need to increase your death benefit. This could mean having to buy an additional policy to help supplement your existing coverage. If you find that you require more life insurance, contact your life insurance agent or company representative who can help you determine just how much more coverage you may need, as well as affordable options for buying a supplemental policy based on your current age and health.
If you don't have a life insurance policy, then this could be the time to get a policy in place. Fortunately, there are many different types of life insurance to choose from. Here are a few helpful tips:
- Don't wait. It's important for anyone, especially those over the age of 50, to buy life insurance as soon as they think they need it. Waiting a year or two can make a big difference in premiums, plus, you never know when your health may change.
- Discuss your policy options. A good agent or company representative can help you compare several different types of policies to find the one that best fits your individual needs and budget. Some choices include:
- Term life insurance. Because premiums will be based in large part on your age and health, buying life insurance over the age of 50 is typically more expensive than it is for someone in their 30's or 40's. A term life policy can be an option for buying the coverage you need at a more affordable price, plus, many term life insurance policies have riders available that will allow you to customize your policy based on your particular needs. You can read more about life insurance policy riders here.
- Permanent life insurance. In many cases, permanent life insurance* such as whole or universal life may be a better choice. Yes, premiums are typically higher compared to term, but the policy will not expire as long as you continue to make your required premium payments. Plus, these types of policies offer the potential to build cash value over time.
- Indexed Universal Life (IUL). Another type of permanent life insurance that can help provide a death benefit for your grandchild(ren) is an IUL policy. In addition to offering a traditional declared interest rate, an IUL policy offers the opportunity to earn a cash value that is linked to the performance of a designated market index. When a market index performs well, your cash value builds at a faster rate. Withdrawals and/or loans from this type of policy can be used to help pay for college expenses or any other need your grandchild(ren) may have. It's important to remember that withdrawals and outstanding loans will reduce the policy's death benefit.
- Second-to-die life insurance. This type of policy differs from other life insurance in that it's a single policy for two people (typically married), that pays out the death benefit to your beneficiary only after the second insured dies. Second-to-die life can be more affordable than purchasing two separate policies. Moreover, if you or your spouse have health issues that have made it difficult to obtain life insurance in the past, this type of policy can sometimes be easier to qualify for.
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