Gerber grow-up plan – waste of money

Many of you may have heard of the Gerber Grow-Up plan.  Essentially this is pitched as a life insurance and savings product by a baby food company – that right there should be enough to tell you that this isn’t a good idea.  Typically aimed at the parents of newborns, this product gives you the option of purchasing life insurance on your child ranging from $5,000 to $50,000 worth of coverage.  The insurance is a whole-life policy which means that it also has a savings, or cash value component, that grows right along with your child.  And, at age 18, your child has the option to double their coverage guaranteed.  On the surface, this sounds like a pretty good deal, right?  Let’s dig in further.

For starters, life insurance is intended to replace the lost income of someone who passes away to protect those who depend on that person’s income.  Since a child does not produce any income, it is ridiculous to purchase life insurance for them.  Next, the premiums on these policies are outrageous.  $5,000 of coverage costs $2.92 per month or $35 per year; at the maximum face value of $50,000, the premium is $336 per year.  As an adult male, age 45, I pay $160 per year for $200,000 worth of coverage.  Third, one of the secrets that insurance companies don’t tell you is that any cash value built up inside a life insurance policy disappears when the insured passes away.  You can’t get both the face value of the insurance and the cash value of the insurance.  If you cash out the policy, then the policy expires.  If you borrow from the cash value, then you have to pay it back to the policy and any amount that remains unpaid when the insured passes away is deducted from the face value of the policy.  If the insured dies, only the face value of the policy is paid out and the insurance company keeps the cash value.

Next, let’s look at the savings component.  All whole life insurance policies tout the savings as a benefit.  On Gerber’s website itself, it tells you that in 25 years that the cash value will be at least equal to what you paid in premiums.  Let’s say you purchase a $50,000 policy for your newborn at a rate of $336 per year.  They are telling you that at age 25 the policy will have $8,400 in cash value.  If you stick the same $336 in the bank at 3% interest you’ll have approximately $12,500 in 25 years.  For long-term investing, you can do much better in the stock market, which has averaged 11% per year since the Great Depression, by using an index mutual fund.  If you can average 11%, then that amounts to $48,000 after 25 years.

Another thing that Gerber (and others that pitch buying life insurance for children) will tell you is that this guarantees that your child will have life insurance in the event they have some illness that makes them uninsurable as an adult.  While this is true, the risk of that is very low and there are other options (like insurance through an employer) that your child will have if something like that happens.  The last argument that the Gerber folks will make is that this provides you with money for your child’s final expenses should something happen to them.  That is the only part of the plan that makes any sense.  A couple of observations with this, though.  One, if you’re planning well financially, you’ll have more than enough in emergency savings to cover something like this.  Secondly, child riders are available on many insurance policies (typically offered by employers as a benefit to their associates) that can be had for a couple of dollars per month.  Third, it’s my opinion that this is a fear-based tactic and you should avoid anyone who uses such approaches to get you to purchase anything.

In short, the Gerber Grow-Up plan is a waste of money.  If you have one of these policies for your child, my recommendation is to cancel it and get any cash value you can from it and put the same amount of money into the bank each month.  If you own one of these as an adult, replace the insurance component with a good term insurance policy and get your cash value out of the Gerber plan.  Don’t be drawn in by a cute baby to a ridiculous product, and Gerber, stick with making baby food.

28 thoughts on “Gerber grow-up plan – waste of money”

  1. first of all You are an idiot. term insurance is a waste of money and to rely on employer based insurance to protect your family is like putting the fox in charge of guarding the hen house. If you are looking to protect your family and assets, talk to a reputable insurance agent about options. If they have any character they will advice you to spend a little more monry up front and purchase whole life, because it is for your whole life

    1. I appreciate you reading my post and you’ll see that I approved your post in whole. Looks like I stepped on some toes, eh? I’m assuming you are an insurance agent or else you wouldn’t believe your own logic and instead would listen to the math. I’m not going to get into a long discussion here but I definitely disagree with your premise that whole life insurance is the only way to do this. Buy term and invest the difference has long been the standard that is putting whole life insurance to pasture. If I can get $50,000 of term insurance for $100 per year, or $8.33 per month (not a stretch for an 18-year old in good health), and it costs me $28.05 per month for $50,000 of Gerber Grow-Up life insurance, then I have $20 per month to invest. If I invest the $20 per month difference for 25 years at 11%, then I’ll have almost $35,000 in cash (not cash value) in that single investment account. After 25 years with Gerber Grow-Up, I’ll have $11,781 in cash value or have $50,000 of insurance, but I can’t collect on both. And, if you manage your financial affairs properly, you become self-insured because your assets have grown and have no need for insurance for your “whole life”. You also don’t address my statement about buying life insurance for someone who has no income to replace.

      1. Hey Paul. This was a good post. The math definitely speaks to me. I have a nephew with one of those policies and now that he is 18 he will definitely be cashing it in. Oh and term life is definitely more feasible than whole life. Thanks

      2. Thank you for this information. My son is 8 months old and I was considering gerber grow up plan college fund and your math speaks to me also. I am going to go another route.
        Thanks again…
        Lindsay

      3. Your comment about buying insurance for someone who has no income baffles me. Obviously you are not considering the amount of costs for funeral and barrial or even creamation services. I don’t know about everyone else, but if I am ever to loose my child, I myself will be unable to return to work within a few days. I ensure my child so that if something happens I can take a proper amount of time to greve without having to worry about making my mortgage

        1. Hi Polly,

          I understand where you are coming from. I have never had this experience but it is an emotionally charged possibility. It feels like you are worried about the worst-case scenario, which is exactly how Gerber wants you to think. If you plan well and save this money instead, and do other things to build up an emergency fund, then within just a few months you’ll no longer have to worry about this possibility without having the cash to weather the storm.

          I wish you all the best and thank you for reading my blog.

          Paul

          1. Paul,
            There are companies out there that for $48 per year can provide 25k of term ins for a child to age 30. I know your original post is about the Gerber plan, but to say that in a few months you’ll no longer have to worry is crazy. No one can save 10-12k, the average cost of a funeral in that time span. And the insurance is immediate so at least have the term coverage. Also, the buy term and invest the rest is an old A.L. Williams (Nashville, TN) philosophy that Dave Ramsey endorses. The idea as you have stated is to become “self-insured’. No doubt that is a great idea, but few people have the discipline to do so.

    2. And your are even a bigger idiot than you seem, first of all, no whole life policy is not worth your time or money, you are paying for two things and only going receive one, what sense does that make? Why not buy a term to where it does its job which is in the event of protecting your income for those who depend on you financially, and adding your child as a rider so they can maintain insurability, and sense you are concerned about a savings so bad, invest the difference of what you would spend for a whole life policy which is also more expensive, and put it in a mutual fund so you can gain some interest like a bank would. The purpose of life insurance is the same purpose as having car insurance, health insurance, home insurance, they clearly don’t have a savings to it so what sense does it make getting it for life insurance? Instead invest your money responsibly with a company that does not take too much risk, and build a decent savings for whatever it may be that you want for the future.

  2. I am now 22 and cancelled my policy for gerber about two weeks ago my cash value is about 3 bucks short of 700 my grandmother has being paying on it since I was three .I was just wondering if I get my cash value back or what happens next

    1. Hi April,

      Cash value is always available, and I definitely think that cancelling the policy is the right thing to do. When you cancel the policy they owe you the cash value. Be sure to check the cancellation procedures and make sure that all of your contact information is accurate prior to cancelling so that they can get the cash value out to you. Hope this helps you out.

      Paul

  3. You have a misconceived conception of the purpose of life insurance. I agree that the parent should never expect to gain from the death of a child. But, life insurance is not just “intended to replace the lost income of someone who passes away to protect those who depend on that person’s income.” Granted, that is one purpose of life insurance. Another is to provide dollars to cover final expenses such as burial, hospital bills, etc. to reduce the burden on those left behind.

    The main reason for life insurance on a child is to protect insurability. In today’s world, more children are diagnosed with life threatening illnesses than ever in history. We are exposed to chemicals in the very air we breathe and the food we eat, and we do not work physically nor exercise like our forefathers did. Once a child is diagnosed with diabetes or heart problems, they may not be uninsurable, but they no longer would qualify for standard rates. I don’t work for Gerber, nor do I endorse their product, but I think every responsible parent should make life insurance on their children part of their financial plan, and should pass that plan along for the next generation.

    1. Hi dell,

      You know, risk is a funny thing. Every type of insurance was created to transfer risk. Does that mean that every person of every age should hold every type of insurance there is? It is true that there are more diagnoses than ever before. But, there are better advances in medicine and more ready access to healthcare now. I never thought any of my kids needed this type of coverage, but a family that has a genetic history of such an illness may strongly consider it.

      Thanks for your comments and for reading my blog. May you and yours have a safe holiday season!

      Paul

  4. While we are Dave Ramsey fans, I wholeheartedly disagree with some of his advise, and this is one of those times that I feel he (and you) are misleading people. Term life insurance is exactly that: TERM, terminates at some point in the future. Security is knowing that your insurance policy will NEVER terminate, and better yet, knowing that the rates will never change (i.e., go up, like the cost of medical insurance has sky-rocketed under obamacare). For a small monthly amount ($8/mo for each of our two children and $5/mo for myself) that one should reasonably be able to afford, Gerber is providing us with peace of mind. You can play with the numbers all you want. But you know what? Company insurance is not permanent, because jobs are no longer permanent, as OUR FAMILY has just learned. We are, for the first time in our adult lives, without medical insurance and my husband’s new employer provides a paltry little $25K life insurance policy. With his other company, whom we’d hoped he’d spend the rest of his working years with, he had a very large life insurance policy. So much for counting on employer insurance. NOW we worry that if anything should happen to him (God forbid), the $25K employer-provided policy would probably not even be enough to cover everything. Whole Life policies may not be the best investment, but they ARE at least somewhat of an investment. I’ve had a WLP for many years and when we were in dire need one year, we were able to withdraw the cash we needed without hurting our policy. In fact, the policy continued to pay for itself for quite a few years until we could get back on our feet. I just joined the Gerber AD&D family of insureds by insuring myself for $50K for a mere $5.23/mo for the rest of my life – guaranteed to never increase premiums. Gerber is NOT a waste – it’s an investment, albeit small. But small is all some families will ever be able to do – and at least emergency money will be there should they need it. Can term life insurance provide this bit of security for so little cost? I think not!

    1. Hello Irate,

      I think we will have to disagree on this. Did your husband not have the option of converting the insurance to an individual policy upon his departure? Have you checked term life rates from companies like Zander Insurance? AD&D policies only cover accidental death or dismemberment, not illnesses or natural causes. You won’t ever build cash value with that policy so let’s not confuse others by making them think this is just like a whole life policy. Whole life is not a good investment. If it were, why would people not invest in more whole life insurance instead of stocks in their 401k or IRA plans? You mentioned borrowing, but had you passed away with an outstanding balance then the death proceeds would have been reduced by the remaining balance.

      I still contend that buying term independently of your employer is still the best way to go. If you are worried about your term insurance expiring, then simply buy a longer term.

      I am glad that you are reading my blog and have the interest to comment. May you have a blessed holiday season.

      Paul

  5. Please spell out “the math” a bit more. Perhaps you can advise more specifically where to look for these higher interest rates. Though we hope for improved conditions in the future at least for the last couple of years Gerber’s 3% return is much better than anything (stabile) offered elsewhere in the marketplace. Thank you.

  6. I just cancelled my policy after 8 months of paying 67.67, They sent me a check for 37.45.. LOL.. The lady lied to me when I set up the College Plan for my 5 year old son. I specifically asked her, “what happens to the premiums if I have to cancel?” she said, I will get ALL of the paid premiums back minus taxes and fees… Come to find out, you only get cash value back! Which is basically nothing. I am so glad I decided to cancel. I wanted to “test” the company before I committed anymore time and money into the policy. They FAILED. DO NOT BUY the GERBER COLLEGE PLAN. I could have just put the money in my savings or paid a bill with it. Now, term insurance and whole life are a different story if you just want want basic coverage for the family in the case of death.

  7. I’d like to raise a completely different angle: if you read or watch true crime on TV- I mean the quality stuff- you can’t help but notice how often life insurance is involved in murder by a family member, usually a spouse. But these can be investigated, for defense wounds, struggle debris, warnings by or about the the deceased, etc.
    Anyone can kill a infant in 60 seconds without exerting themselves. How would you investigate this? As proof of how easy this is, check out the history of the baby breathing monitor industry, developed by a doctor whose patient had five, repeat five SIDS deaths. Twenty years later the mother confessed to killing them by smothering them. The motive was not insurance, they just annoyed her. I don’t know if it was possible to life insure infants in the 70’s but the ‘protection’ of a life insurance policy is for the beneficiary.
    So you aren’t protecting the kid, you are protecting yourself.
    Whether it is ‘protection’ for an infant to have a large cash payment to an adult if they die is debatable. Some of the moral hazard could be reduced by limiting the payout to funeral expenses but in one episode of “Investigative Reports”, the funeral home owners were the beneficiaries, and the murderers.

  8. Paul , I have made an account to simply THANK YOU for opening my eyes and saving me from this scam! You are a GENIUS Can we be friends ?

  9. your numbers are actually wrong. For a 50k life coverage, I pay $33.61 every three months, which is $134 a year. Also, life insurance as an adult for me is at least $100 monthly. That is the cheapest I have found.

    1. Hi Flaviane, I won’t argue what you have been able to find because I do not know your situation. You may have health conditions that put you into a higher risk pool, so your premiums will be higher. You don’t say if you are quoting term insurance or whole-life insurance. I can say that my wife just took out a new 10-year level term policy in May 2014 for $200,000 face value. Her annual premium is just $134 at age 41. We purchased a new policy because her last 10-year term had run out and allowing it to simply renew was much more expensive than buying a new policy. She is in relatively good health, non-smoker, normal weight range, but with a history of asthma. We found her policy through Zander Insurance. I wish you all the best.

  10. Paul McGuire you should be ashamed of yourself. You willfully leave out the thing that makes whole life significantly better than term life. Whole life, you eventually stop paying for it, and with some plans eventually, it pays you.

    Term life insurance is not equivalent to whole life. You cannot borrow against term life insurance, term life becomes exponentially more expensive as you age and you ALWAYS have to pay for term life. (OH BUT MY KIDS CAN JUST GET STUDENT LOANS, not at the interest rate
    you can against a whole life policy, do you want your kids paying 11% or
    3% interest on a loan?) (OH BUT I CAN JUST INVEST IT IN THE STOCK
    MARKET, the stock market can go down, whole life never goes down, it is
    guaranteed, forever.)

    The fact that you go through a laundry list of reasons why term is so much better than whole, and then conveniently forget to mention that the higher premium of whole life is only for a limit number of years, where term life goes up, is forever and has no cash value, speaks to either your ethics or competence.

    AND THEN you talk down on people in the comment section, and people have actually followed your advice.

    “You know, risk is a funny thing.” – no its not. There is nothing funny about someone following your poor advice, being “disciplined”, investing in the stockmarket and another bubble bursts and their kids cannot afford to go to college. (OH BUT THE MARKET IS ALMOST WHERE IT WAS NOW IN 2008, so your kids are going to wait 4+ years to go to college, that sounds like solid advice.)

    P.S. no i am not involved in the insurance industry at all in anyway. no, i do not have a gerber life ins plan.

  11. This wasn’t as informative as some other articles I’ve read but it was okay. My main comment is you’re wrong about putting money in the back and it maturing or earning more there. I’ve looked into savings accounts, CD’s and savings bonds and they’re all making little to no interest, virtually nothing. If I remember what my accountant told me it’s about 0.5%. So yes putting money in a bank and making 3% interest would be great.. If interest rates were actually that high.

  12. Insurance industry has done such a good job ripping people off that the student loan industry wanted a piece of the action. What a shame: B.T.I.D. is the best way to protect & save.

  13. Thank you for a very well-written explanation of the Gerber Insurance plan. I, just as many others, keep getting these flyers in the mail about Gerber. I struggle a bit to control money, as I’m a full time student and do not have much coming but alas I manage and thought it to be a good idea to look into it. I’m definitely going to opt for something more sensible such as a 529 plan or a simple interest-gaining savings account. Thank you so much for clearing up my confusion.

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