If you watch TV you have probably seen the ubiquitous ads for the Gerber Life Grow-Up Plan. A group of young parents sit around a table asking if the others have started saving for college expenses yet.
One handsome couple says, “We have” and launches into high praise for Gerber Life’s plan which offer ‘guaranteed, safe growth’. Products like these are almost always bad investments. I went directly to their website to check out the details.
The main focus of the television commercial is on college savings. Get started early, Gerber tells you. That is good advice. What does their plan provide towards this goal? How much does it cost?
Let’s analyze exactly what they are offering.
#1) A whole–life insurance policy for a child or grandchild.
Life insurance is meant to provide for dependents if a breadwinner or caretaker parent dies. Does a very young child have any dependents to protect? For 99.99% of toddlers this life insurance coverage is totally unnecessary.
#2) Coverage that doubles.
Doubling a death benefit on a young adult only matters if that person actually dies. That is a statistically low probability event. The initial coverage appears to priced high to reflect this later ‘free doubling’ of coverage. The language choice of ‘during age 18’ allows Gerber Life to wait until 364 days after the insured’s eighteenth birthday to provide this perk.
#3) Guaranteed coverage as an adult.
The company will be happy to sell you a much larger face-value policy later if you, or the insured person, are willing to pay bigger premiums for more coverage. The guarantee of their standard rate is a potential benefit in the event that a life-threatening health issue has occurred.
#4) Guaranteed safe growth
Whole life policies do build cash value over time. This always occurred at a painfully slow rate and ZIRP has made that even worse. Gerber Life promises a minimum surrender value of 100% of cumulative premiums if all payments were made on time for a full twenty-five years.
If you planned on using the cash value of this policy to pay for college, as the ads suggested, you would likely have very little to draw on at the average matriculation age of 18. If you borrow against your policy, rather than surrender it, the interest rate owed is currently 8%.
That interest charge is higher than almost any other source for college funding loans.
How crazy is it to think of the Grow-Up Plan as providing college funding? Very crazy.
Based on Gerber Life’s quoted price for a newborn’s $50,000 policy, the guaranteed surrender value would only be $8,415 after 25 years of paying the annual premium. Your son or daughter would already be well past normal college age. That amount, which does not increase with inflation, would likely buy just a few credits rather than an education.
Any state-sponsored 529 college savings plan will almost certainly far outperform the savings component of the Grow-Up Plan. Term life insurance for young children, if you insist on it, is available at much cheaper rates than in this package. See Gerber Life's actual price quotes, for an infant under 1 year old, in the chart below.
Those Grow-Up Plan ads, with their adorable baby pictures, must be working. Gerber Life keeps them running day in and day out.
Now that you know what they are really offering perhaps you won’t be the poor sap that falls for their pitch.
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