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Still on the hook: Grandparents need life insurance while raising grandkids

Many grandparents throughout the U.S. are taking on the added responsibility of raising grandchildren on a full-time basis. According to recently released results of a 2011 telephone survey by AARP, 11 percent of grandparents in the U.S. have at least one grandchild living with them. This figure jumps to 13 percent and 19 percent for Latinos and African-American grandparents, respectively.

The average age of grandparents surveyed was 69. Nearly half of the grandparents surveyed had incomes of $50,000 or less.

Grandparents are needing more life insuranceAt a stage of life when many older people expect to pursue their own interests, survey results instead show that:

  • 37 percent of grandparents are contributing to their grandchildren's everyday living expenses.
  • 23 percent of grandparents are paying for their grandchildren's medical or dental bills.
  • 53 percent of grandparents are contributing to the educational expenses of their grandchildren.
  • 40 percent of grandparents spent more than $500 on their grandchildren over the previous 12 months, the most common expense being birthdays and holidays.

In this difficult economy, "grandparents are having to take care of more of the financial responsibilities," says Bob Stephen, vice president of AARP's Home and Family Portfolio. "We also found that 44 percent of the respondents said that they had made changes in what they spent on themselves. So unfortunately, grandparents are putting their grandchildren first and themselves last."

More information about people who are raising grandchildren can be found on the AARP website.

Considering life insurance

Whether you're caring for one grandchild or a whole houseful of grandchildren, it's wise to think about purchasing life insurance, says Marvin Feldman, president and CEO of the nonprofit Life and Health Insurance Foundation for Education (LIFE) in Arlington, Va.

"Grandparents have to assume financial responsibility to make sure their grandchildren are raised in a manner in which the grandparents are comfortable," he explains. "They need to look at what happens if something happens to them and they can't raise their grandchildren.

"Statistically, in order to raise a child from 0 to age 18, they're probably going to spend $300,000, and with college, it may be $500,000. And if you're thinking about retiring, how do you replace those assets? Life insurance is a very cost-effective way of replacing those assets and a definite necessity."

"Life insurance becomes more important, especially if grandparents want to see their grandchildren succeed later in life," says Stephen.

A variety of resources for grandparents can be found at USA.gov, the federal government's Web portal.

Things to remember when buying life insurance

If you're raising grandchildren and plan to purchase life insurance, keep some things in mind.

"There's all sorts of life insurance coverage out there," says Patti Rose, an insurance and retirement income planner with Rose Financial Solutions in Campbell, Calif. "Don't make the mistake of buying the cheapest insurance, which is term coverage. I would go for permanent life insurance that has many benefits, including a death benefit where a beneficiary would get an income stream that is tax-free."

Another type of permanent life insurance product is equity indexed universal life insurance, which earns interest based only on the upward movement of a stock market index.

"This has become more popular over the past 10 years as more people look at more places to park their money," Rose says. "You can use the cash value to fund large expenses such as paying for college, you have tax-free distributions and the returns on savings are very competitive on these products."

If you're raising grandchildren and considering a life insurance purchase, you can use an online calculator to help you determine how much and what type of insurance you need, such as Insure.com's life insurance calculator.

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