We can all recognize the adorable half-smile of the Gerber baby. It has been around long enough that today’s parents and grandparents who are feeding pureed carrots to their little ones once smeared same Gerber brand baby food in their own hair.
This longevity makes it one of the most well-known and trusted baby brands out there. But another branch of the Gerber empire may be capitalizing on that trustworthy image.
Gerber Life Insurance offers several types of life insurance coverage, the most well-known of which is the Gerber Grow-Up Plan.
The problem is, when it comes to life insurance, and particularly life insurance for children, emotion tends to trump rational financial decision-making.
So how do you determine if the Gerber Grow-Up Plan is a savvy financial strategy or just a way for the Gerber baby to part you from your hard-earned money?
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Is Life Insurance for Children Even Necessary?
I will admit I have a visceral and superstitious reaction to the idea of life insurance for children. I can’t help but think insuring my child’s life is somehow tempting fate.
After all, the primary purpose of adult life insurance is to replace lost income.
However, there are certainly some additional factors to consider when thinking about purchasing life insurance for your children.
Related Guide: How to Buy the Best Life Insurance in 7 Easy Steps [The Ultimate Guide]
Funeral Expenses
The average funeral costs $9,420, which could be a serious financial strain on a family.
Life insurance can provide families with the peace of mind these final expenses would not eat into other aspects of their budget.
However, it’s important to note it’s relatively rare for children under age 18 to die. Of course, this is part of the reason why life insurance premiums for children are so low.
Some funeral homes may offer services free of charge for families who cannot afford the burial costs of losing a child, but you shouldn’t count on it.
If concern over the possibility of funeral expenses is the only reason why you are considering life insurance for your children, you may find you can do better with your money elsewhere, like adding a rider to your own life insurance policy.
Your Own Loss of Income
While you may not need to be concerned about losing your child’s income (because there isn’t any), your income will certainly still be necessary for your remaining family in the event of the death of a child.
If you need to take time off in order to grieve and take care of your family responsibilities, an insurance benefit could help to keep your family finances afloat while you are not working.
Your Child’s Future Insurability
Purchasing life insurance for your young child does ensure they will be able to get life insurance during their prime earning years, even if they have a health problem which would otherwise exclude him from life insurance.
For instance, a friend of mine has a son who was diagnosed with Autism when he was 15 months old. Because of the diagnosis, he may be considered ineligible for a child life insurance plan now and may be ineligible for life insurance in the future.
My friend now counsels everyone to get life insurance for their babies as early as possible—to make certain they will be able to have at least some basic life insurance through adulthood when they are producing income and/or have a family of their own.
Investment Strategy
One last selling point many infant life insurance policies make is the fact the permanent whole life plan makes for a good investment.
According to the literature from Gerber Life and any number of other companies, the policy will build cash value, which can be borrowed against if needed. And, it could be cashed in entirely for college or other expenses once your child reaches adulthood.
While all of this is true, there is a good reason why most financial planners advise against permanent life insurance: It can be costly and doesn’t often provide competitive returns.
Below, I’ll look specifically at the numbers for Gerber’s Grow-Up Plan to show why using it as an investment strategy may not the best use of your money.
Related: How to Keep Investing Simple and Get Started Today
The Gerber Grow-Up Plan
The packet of information Gerber sends out to new parents focuses on the affordability of their plan.
According to their cover letter, you can start a policy for your child for as little as $3.70 per month. This initial price is for a child under one year of age, and your monthly premiums will never go up.
In addition, the coverage amount will double when your child turns 18, at no extra cost.
When your child turns 21, ownership of the policy transfers to them, and they can cash it out at any time—for at least the amount paid in premiums, and potentially more.
Finally, the Gerber program offers your child four guaranteed opportunities to buy additional coverage as an adult at standard rates, for up to 10 times the original coverage.
But—the numbers are not quite as good as the promotional literature would have you believe.
To start, the most affordable option is the $5,000 coverage amount, which wouldn’t even cover the average priced funeral.
Unless you are simply purchasing this in order to guarantee some insurability in the future, you’d be better off putting money aside in an emergency savings account or 529 Plan.
If you were to choose the maximum coverage of $35,000, which could potentially provide your child with a reasonable amount of coverage as an adult ($350,000), you would be paying around $20 per month, if you start when your child is under a year old.
Gerber Insurance as an Investment
Since most of us expect our children to outlive us, children’s life insurance is often sold as a great investment vehicle. When the child reaches age 25, they can cash out the policy.
Gerber does not specifically state just how much your investment will grow, but states:
“the plan accumulates cash value and will continue to do so as long as premiums are paid. After 25 years, the cash value is equal to or greater than 100% of premiums paid.”
But if you crunch the numbers, this is not nearly the good deal Gerber is advertising.
Supposing I were to buy a $35,000 policy for my now 2-year-old son. I would pay about $24.50 per month for the next 25 years before he could cash out, meaning I’d pay $7,350 total in premiums.
Even if my investment doubles, my child would only have $14,700 when he turns 27.
If I were to invest that same amount of money each month into a mutual fund with an 8% return (which is fairly modest), the money would be worth $23,635.
There’s a reason why insurance is not an investment if you only consider the cash value aspect.
Protecting Your Child’s Future
When it comes down to it, the Gerber Grow-Up Plan is expensive and unnecessary.
Even if you have reason to be concerned about your child’s future insurability, or your family’s ability to financially recover from a child’s death, there are other, better options than Gerber’s.
For instance, you can purchase a children’s protection rider on your own life insurance for the peace of mind.
According to USNews:
With a child life rider or add-on to a qualified adult policy, ownership is usually transferred later, at age 23 or 25, depending on the insurer. If the child wants to continue coverage, they’ll need to convert the original policy rider into a new whole life insurance policy.
Rather than fill out the handy-dandy form with the smiling Gerber baby on it, you’ll do much better for your children to look into a protective rider on your own life insurance and to invest the money you’d otherwise be sending to Gerber in a 529 Plan or Mutual Fund.
Your kids will thank you for encouraging Gerber to stick to making mushy food.
Related Guide: What Types of Insurance Do You Need? [Our Complete Guide]
What’s your take? Is the Gerber Grow Up Plan, or any life insurance product for kids, a good idea? Do you have any?
