One of the most iconic advertising images in the history of commercials is the Gerber baby, that pink skinned, liquid-eyed representation of all that is pure, safe, innocent, and good – values that Gerber Life Insurance, Co. has used to sell their products, including the Gerber Grow-Up Plan for decades.
The Gerber Grow Up plan was introduced in 1967, and has been incredibly popular among young parents, with more than half a million applications “in the last year” according to the sales materials that are disseminated every year. It works like this:
Parents can buy a whole life insurance policy for their healthy child aged two weeks through twelve years with a face value ranging from $5,000 to $35,000, for which they will pay a small monthly premium – the maximum face value costs just under $24 / month. While the exact formula isn’t publicized, the policy grows in cash value as the child grows up (hence the name), so that after twenty years (according to Gerber’s literature) “the cash value is equal to or greater than 100% of the premiums that have been paid.” When the child reaches 21, if the policy has stayed in force since inception, the cash value will double, and the insured child will have the option of purchasing additional coverage then, and again once they turn 28. Any additional coverage comes with Gerber’s standard rate regardless of the health status of the insured party.
On the surface it sounds like a good deal. Parents pay minimal premiums and can offer their children guaranteed life insurance coverage once they’re grown up. There’s even another version of the plan aimed at insuring teenagers, with slightly better rates.
The problem is this: unless your child is a working actor or professional athlete, there is no reason to insure them. After all, life insurance exists to replace lost income in case of death or disability. Most children have no income to replace.
Then, too, while Gerber’s plan guarantees coverage, the coverage is severely limited, and your just-graduated-from-college offspring probably won’t be able to afford the payments anyway. Bulk insurance is incredibly expensive – it’s priced that way on purpose because most purchasers are skirting death already.
So, what should parents do instead? Well, the roughly $285/year they might spend on insuring their child would probably be better spent on an additional $100,000 in term insurance for one of them, which would ultimately be a wiser investment. Alternatively, stick that money in a college fund and don’t touch it for eighteen years.
Gerber’s plan banks on the notion that a child might not be insurable as an adult, and while losing insurability is a valid fear, it’s not one that makes it worth spending that kind of money insuring a baby.