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Gerber Life College Plan Review

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Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency...

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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We review a lot of insurance companies and products for our readers, and if you follow us closely, you’ll notice we don’t ever call anything a “scam.”

We do, however, from time to time, point out that there may certainly be better ways to accomplish a particular insurance-related goal. The “Gerber Life College Plan” may fit into that category.

What’s the “Pitch?”

This product offers a “safe and guaranteed growth” plan for your investment money, which is ultimately a term life insurance policy with an accruing cash value. This means unlike regular term insurance policies, you can borrow against your balance as it accrues.

The marketing is targeted as a college savings vehicle, but any research you perform will quickly point out the money can be used for “anything,” including expenses that are not remotely linked to college.

The idea here is that you can save money for your child’s college fund, with no risk of investment loss…and if you “expire” prior to the policy term, the insurance policy limit is paid to your beneficiary, even though you didn’t live long enough to complete your savings goal.

If you don’t die, you simply save about the exact amount of money you were aiming for over the period of the Gerber Life College “term.”

[Term life vs. whole life insurance]

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What are the Benefits of Gerber Life?

Policy Values – you can opt for a policy in the amount of $10,000 all the way up to $150,000.

Guaranteed Money – Unlike other college investment plans, which invest your money into stocks and mutual funds, the Gerber Life College Plan will never return less than what you put into it (unless you borrow against the funds and pass away prior to repayment).

Fixed Monthly Payments – you will pay a fixed installment each month during the term of the policy.

Is There a Catch?

We’re glad you asked. Yes, there are some “catches” and as you may suspect, Gerber does not advertise these particular potential downsides to “investing” with them.

The reality is; this is not technically an insurance policy, but an “endowment” policy. Why does that matter? Because endowment policies that return capital are taxed as such, whereas other college savings plans are not (think the 529 college savings plan).

So, while you are seeing your money grow in the Gerber Life College plan based on their examples, they forget to tell you that you are paying taxes on some of the “growth.” If you were to pay your taxes out of your plan, the returns would be significantly less over time. Ouch!

At the end of the day, most of the individuals who opt for this plan, those 24-45 years old, are not likely to die and collect the policy limit payout.

This is why term life insurance policies are so cheap and offer very high limits in the first place…insurers love them. If you don’t die, you are basically giving your money to Gerber for 10-20 years and getting it back with no real increase in your investment. Your money may even lose value as inflation eats away at it.

All the while, Gerber is using your money for whatever they want (probably investing for a return) each time you make a monthly installment.

Another potential downside may be the fact that you can probably only afford to contribute to the $25,000 plan, as the costs are already hefty at this level.

What are the odds your child will be able to attend a college in 20 years that will only cost $25,000. Are you kidding? That may be good for a single year at an out-of-state college in 2022.

No sweat, opt for the $150,000 plan, right? Well, how does a potential $400-plus monthly contribution sound to you? Not good? We thought so.

Is Gerber Life the Best Way to Invest for College?

The answer depends on your tolerance for risk…just like every other investment on the planet. The Gerber Life College Plan could be for you if you like the idea of not losing a dime of the money you are setting aside over the long term, with the “safety net” of the insurance policy paying out the full amount if you don’t make it.

BUT, and this is a large but, if you were to simply buy a term life insurance policy for SIGNIFICANTLY less per month versus your Gerber installments and place the rest of the money in a 529 college savings plan with a reasonable rate of return, you’d have SIGNIFICANTLY more money to pass on in the event of your untimely death, and the 529 money would return quite a bit more over any period of time you measure against Gerber’s plan.

The term life policy may cost as little as $25 per month for $100,000 in coverage. If Gerber is asking you for $150.00 per month and only offering $25,000 in life coverage, you’d be paying $125.00 more for one-quarter of the life insurance coverage portion of their plan.

Now, take the left over $125.00 you saved with the term life policy and place it in a 529 college savings plan for the same 20-year period and you’ll likely earn much more money on your investment…and your child will have an additional $75,000 if you kick the bucket before you’re done saving for their college.

Do yourself a favor and compare term life insurance policies online. You’ll probably be happy to see you can obtain similar coverage for a tenth of the cost of the Gerber Life College Plan and have a ton of money left to invest in the 529 plan, which will likely at least keep pace with inflation for goodness sake.

Read more: How much does life insurance cost?

(photo: gruntzooki)

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