Grandparents raising grandchildren: coverage, guardianship and who is named

When grandparents are the ones raising a child, the grandparent's own life insurance matters more than almost any other policy in the family, and it is often the one that does not exist. The grandchildren may have no other adult who can step in with money, a home and legal standing. A modest term policy on the grandparent, with a trust or a custodian set up to receive the money, and a written plan for who would care for the children, can make the difference between a stable next chapter and a scramble. These questions work through the pieces in the order most caregivers meet them.

The grandparents and numbers in this post are hypothetical, and the dollar amounts are illustrations chosen for easy arithmetic. Custody, guardianship and benefit rules differ by state and by the family's circumstances, so the answers describe common patterns and say when a family law attorney or the state insurance department is the right next step.

A grandparent to follow through the questions

Say Ruth, 63, is raising her grandchildren Mateo, 9, and Lucia, 6. Their mother is unable to care for them at present, and their father is not involved. Ruth works part time, receives a small pension and has about $20,000 in savings. She owns her home, which has a $60,000 mortgage balance. She has no life insurance beyond a $10,000 policy through her part-time job. She has not completed a will. The children live with her under an informal arrangement: no court order, a caregiver authorization form at the school.

Ruth's situation is typical in one way: many grandparent caregivers start informally, because they stepped in during a crisis, and never revisit the paperwork. We follow her through the questions.

Questions about why it matters and how much

Why does a grandparent's death matter so much more in this situation?

In most families, if one adult dies, another adult remains. Here the grandparent may be the only adult in the home. The children may have parents who are not able or not willing to take over, and other relatives may live far away or have no legal obligation. If the grandparent dies, three things can happen at once: the income and housing that supported the children end, the person with practical authority is gone, and the children face a change of home and caregiver without a plan.

Life insurance cannot solve the second and third problems alone. It can solve the first. A death benefit gives the next caregiver the means to keep the children in a stable setting, and a written plan, discussed below, helps the courts choose that person. The two work together.

Can a grandparent over 60 still get term life insurance?

Often yes, subject to health and age. Many insurers sell term coverage into the 60s and sometimes 70s, with the maximum issue age and the longest available term shrinking as the applicant ages. Price rises with age, and health conditions raise it further. Two guides cover the ground: term life insurance at 60 and beyond and life insurance at 70: options and costs. The practical point is that a term shorter than the children's remaining dependency years may be the only affordable choice, and a shorter term is not a failure. It matches the risk, which is concentrated in the years until the children can support themselves.

A term policy pays only if death occurs within the chosen period. For Ruth, a 15-year term would run until Lucia is 21, which covers the main years of dependency.

How much coverage does a kinship caregiver need?

Use the same method as any parent, with the children's costs and the caregiver's circumstances in mind. Work through four items:

1. The yearly cost of raising the children that is not covered by other sources. Food, clothing, school costs, medical care and housing. Subtract money the family reliably receives for the children, such as certain public benefits or child support, noting that these can change.
2. The number of years. Until the youngest is 18, or until 22 if you want to help with education.
3. One-time costs. Final expenses, debts and any mortgage the next caregiver will need to continue paying.
4. What you already have. Savings and existing coverage.

Here is Ruth's calculation. Say the unmet cost of raising two children is $18,000 a year, and she wants to cover 12 years, until Lucia turns 18.

Ruth might round to $250,000 and look at a 15-year term, with the How much life insurance do I need? and the How long a term do I need? to test other lengths. If the premium for that is too much, she could trim the amount, shorten the term or consider the options in the affordability question below. The aim is a number the family can sustain for the full term, since a policy that lapses after three years protects no one.

Questions about naming and guardianship

Can I name my grandchildren as the beneficiaries?

You can, but a large payment directly to a minor creates problems. An insurer will not usually hand a young child a death benefit. If you name the children outright with no plan, a court may appoint a guardian of the property to manage the money until each reaches the age of majority, which costs fees, requires reports and ends with the child receiving a lump sum at 18. The guide on naming a minor child as life insurance beneficiary sets out the alternatives, and life insurance for grandchildren covers the grandparent's side.

The usual choices are a trust or a custodian account:

• A trust. You name the trust as the beneficiary, and a trustee spends the money for the children's benefit under the rules you write. This gives you the most control over timing, for instance paying for housing and school now and releasing larger amounts at ages 25 or 30. It costs money to set up with a lawyer. The guide on naming a trust as your life insurance beneficiary explains how it works.
• A custodian under the state's UTMA law. An adult you name manages the money for the child until the age set by state law. It is cheaper and simpler, and it usually ends at 18 or 21, depending on the state, with the child receiving everything.

For a family with a small or moderate benefit, a custodian arrangement may be enough. For a larger benefit, or when the children may be unready to handle money in early adulthood, a trust is often worth the cost.

Who should be in charge of the money, and is it the same person who raises the children?

Not necessarily. The person who would raise the children and the person who would manage the money have different jobs. A caregiver who is excellent with children may not want to be a financial manager, and a relative who is good with money may live far away. Some families name a trustee who is separate from the caregiver, and require the trustee to pay for the children's needs to the caregiver. That gives a check on spending and makes sure the money is used for the children.

One caution matters especially in a kinship setting. If the children's parent is alive but unreliable with money or unable to care for the children, do not name that parent as trustee, custodian or the person who receives the money. Name someone you trust, and name a successor in case that person cannot serve. A trusted friend, another relative or a professional trustee can all fill the role.

What if the children's parent is alive? Who gets the children if I die?

This is the hardest question, and the answer depends on state law and your legal status. In general, a living parent has strong rights to custody unless a court has ruled otherwise. If a grandparent has been caring for a child informally, with no court order, the parent may be able to take the child back when the grandparent dies, even if the parent is not currently able to care for the child. Naming a guardian in a will may carry weight in some situations but often does not override a parent's rights.

Ways families reduce the uncertainty include:

• A court-ordered guardianship or custody arrangement, which gives the grandparent legal authority now and a record a court can follow if the grandparent dies.
• Adoption, which creates a permanent legal parent-child relationship but also ends the legal rights of the parents, and is not what every family wants.
• Standby or successor guardian arrangements, which some states allow, naming who takes over if the caregiver dies or becomes unable to serve.
• A will that names a preferred guardian, which a court will consider.

These steps are legal matters, and a family law attorney in your state is the right person. Legal aid organizations and bar associations often have lower-cost help for kinship caregivers. The relevance to insurance is that the policy and the legal plan should name the same people. A trust that pays for the children's care works best when the caregiver the court recognizes is the one the trust expects.

Should I also name a guardian in my will?

Yes, even if the court may not be bound by the nomination. A will can name the person you would like to raise the children, a backup, and the trustee for the money. It shows the court your wishes, and in many cases the court follows them when there is no competing claim. The post on naming a guardian: how the will, the trust and the policy fit together walks through how the guardian, the will and the policy fit together, and the guide on life insurance and your will explains why the will does not control the policy itself. The beneficiary form does that.

Questions about paperwork and benefits

What paperwork shows I am the caregiver?

Keep these in a single folder where another adult can find them:

• Any court order of custody or guardianship.
• A school caregiver or enrollment affidavit, if your state uses one.
• A medical consent form or authorization that lets you take the children to the doctor.
• The children's birth certificates and Social Security numbers.
• Health insurance cards and records of immunizations and doctors.
• A list of contacts: the children's parents, other relatives, the pediatrician and the school.
• The life insurance policy, the insurer's contact details, the agent's name and a copy of the trust or custodian papers.

The insurer does not need proof that you are the caregiver to pay a claim. It pays the beneficiary on the form. But the next caregiver will need these papers to act for the children quickly, and a court will want them to see who has been caring for them.

Will the children get Social Security benefits if I die?

Do not assume so. Social Security survivor benefits are designed mainly for the children of a worker who dies, and the rules for grandchildren are narrower. The guide on Social Security survivor benefits and the $255 death payment explains who generally qualifies. Ask the Social Security Administration whether your grandchildren would be eligible on your record in their circumstances. Because the answer depends on facts such as the children's parents and who supports them, plan on the basis that benefits may not be available, and treat any benefit as a bonus.

Would a lump sum affect benefits the children receive now?

It can. If a child receives a needs-based public benefit, a large payment made directly to the child may affect eligibility. A trust designed for the purpose can protect both. The glossary entry on special needs trust explains one type of trust used for children with disabilities, and a lawyer who handles public benefits can say whether it or a similar tool fits your situation.

Questions about paying for it

What if the premium is more than the budget allows?

Work through a short list.

1. Shorten the term or lower the amount to a level you can pay for the full period, using the numbers from your worksheet.
2. Look at group coverage. If you work, your employer may offer coverage at a low group rate. Unions and professional associations sometimes offer plans too. See life insurance through a union or professional association.
3. Check veterans' options if you served. The guide on Life insurance for veterans: VGLI, VALife and more lists them.
4. Use the tips in the guide on affordable life insurance on a tight budget, such as comparing several quotes with the same amount and term.
5. Consider a guaranteed-issue policy only as a last resort. guaranteed issue policies accept applicants without health questions but usually have small benefit amounts, higher costs per dollar and a waiting period. They suit someone who cannot qualify for anything else.

What if my health is poor and I am declined?

A decline from one insurer does not mean every company will decline. Different insurers treat different conditions differently, and an independent agent can place a case with the company most likely to accept. The guide on Declined for life insurance? What to do next explains the next steps. If no individually underwritten policy is available, guaranteed issue may be the fallback, with its limits. Also look at your other assets: the home, a pension and savings can provide for the children if the plan names the right people.

What happens to the policy as the children grow up?

A term policy ends on its end date. As the children approach adulthood, the need changes. Review the plan each year and at milestones: a child graduating from high school, moving out, or entering college. At some point the policy has done its job. If you still want to leave something for the grandchildren, other tools, such as a small permanent policy or a savings account, may fit better, and a financial planner can compare them.

A one-page plan for a kinship caregiver

If the questions above feel like a lot, here is the short version in the order of importance.

1. Write down the number: the gap between what the children will need and what is already in place.
2. Buy a term policy on yourself, sized to the gap and long enough to reach the children's independence.
3. Name a trust or a custodian as beneficiary, not the children directly, and name a successor.
4. See a family law attorney about a guardianship or custody order, a will naming a preferred guardian and a power of attorney.
5. Gather the caregiver paperwork in one folder and tell a trusted adult where it is.
6. Review everything once a year.

Key takeaways

• A grandparent who is the children's main support is often the household's most important policyholder. A modest term policy sized to the children's unmet costs does more than a large policy that cannot be afforded.
• Do not name young grandchildren directly. Use a trust or a custodian, and name a successor in case the first choice cannot serve.
• Insurance does not decide who raises the children. Court orders, guardianship nominations and a will do, so see a family law attorney, especially if a parent is alive.
• Keep caregiver paperwork and the policy details together, and tell another adult where they are.
• If premiums are too high, shorten the term or lower the amount before dropping coverage, and use guaranteed-issue policies only as a last resort.