Is the Gerber Grow-Up Plan Worth It?

The Gerber Grow-Up Plan is a form of permanent life insurance targeted at new parents, who can afford the monthly premiums. The plan is a whole life insurance policy you can purchase for your children when they are newborns or infants.

The rationale behind such a product is that because life insurance is more expensive the older the insured is, it makes sense to lock in a low rate at the earliest possible age. This type of plan can build cash value and provide a vehicle to save for college and other future expenses.

However, not everyone can afford life insurance, whether for themselves or their children. A plan like Gerber's is mainly used as an investment and money-saving tool, and there are other more affordable ways, like opening a no-fee savings account, where you can put aside money for your children rather than purchasing a whole life insurance policy for them. If you can afford and want to purchase permanent life insurance, Gerber is a well-known plan.

Who Needs Life Insurance?

The primary purpose of life insurance is to protect the insured's family and dependents from financial calamity if they die prematurely and their income is cut off. For example, two partners each earn $50,000 per year and have two young children they hope to send to college. The spouse dies in a car accident during a severe thunderstorm, and the family income is cut in half. Now the surviving spouse has to pay for the house, car, food, clothing, and other necessities on their own, and find a way to continue saving for their children's education.

The parents in the above scenario need life insurance. Why? Because the family depends on the parents' income, the loss creates a severe financial hardship. Children are different. While they contribute many things to their families, money is rarely one of them, and because of this, it may make little sense to pay to insure yourself against a doomsday scenario that does not even exist.

Advantages and Disadvantages of a Gerber Grow-Up Plan

Advantages

The Gerber Grow-Up Plan can provide life insurance coverage for children if the worst happens while providing a savings vehicle via its cash value account. While your kids may take out an insurance policy when they are adults, this account can be transferred to them at age 21, providing extra financial cushioning if they want to pay the premiums. When the account is transferred, Gerber will double the death benefit up to $100,000. You or your adult children can borrow from the account's cash value or cancel the policy and receive a payout minus fees.

Disadvantages

The Gerber Grow-Up Plan allows children to secure the coverage they may need later at an early age while still inexpensive. The only problem with this line of thinking is that the Gerber plan does not enable your children to obtain anywhere near the level of coverage necessary when they have dependents of their own.

The Gerber Grow-Up Plan has a maximum death benefit of $100,000. That is way too much life insurance for a child, but it is nowhere near enough for an adult with dependent children. While the plan's cash value aspect may look enticing for college savings, most respected financial advisors pan whole life insurance as a long-term investment vehicle, pointing out that, historically, the returns are anemic to mutual funds and other investments.

Life Insurance as an Investment

Whole life insurance provides more than a death benefit. Each month when you pay the premium, a portion of that money goes into a fund, and that fund grows with interest. Down the road, if you decide you no longer need the death benefit, you can instead elect to receive the current cash value of your policy. This is a big selling point of the Gerber Grow-Up Plan: It doubles as a college savings vehicle, with its cash value serving as a de facto college fund.

This line of thinking also presents a problem. Historically, cash value life insurance grows at an anemic rate. Your child's college fund stands to become much more robust if you invest it in mutual funds.

The Bottom Line

The combination of a child rider for life insurance and a mutual fund for college savings may present the most promising alternative to the Gerber Grow-Up Plan. Mutual funds offer a much stronger track record than cash value life insurance for college savings. If you cannot afford to open a mutual fund or take out permanent life insurance, saving a little each month or year for your child or children is also a good idea.

The Gerber Grow-Up Plan does offer several tangible benefits, but it may not be the panacea the company makes it out to be. The biggest argument against purchasing life insurance for children is that it is unnecessary and can be expensive.