The Gerber Baby Goes To College
L.B. of Sea Cliff, NY writes:
As the new mother of a bouncing baby boy, I would like to start saving for college, especially given the rising costs for both public and private universities. Can only imagine what four years of tuition, fees, room and board will cost in 18 years! Having heard about the [b]Gerber College Plan[/b], I was wondering whether this would be a good way to save for college, in lieu of or in addition to a 529 Plan. Any thoughts?
The College Whisperer responds:
First, congrats on the new mom gig. May you have many wonderful days and years ahead, not only planning for college, but for all of life's firsts.
Thoughts on using what is basically a whole life insurance policy for college? You bet!
In a word, DON'T!
There are far better investment vehicles to save for college, including - first and foremost - funding that 529 Plan on a regular basis.
Life insurance - as in term life - should be used as a hedge against the uncertainties of life. Say, the untimely death of an income-earning parent. Whole life, "enhanced" life, "endowed" life, or other such polices bearing euphemistic names and marketed as investments, should be avoided - period!
The Gerber Baby may be a familiar face with a well known name, but please don't be lulled into a false sense of security by way of an ingenious means of selling you an insurance policy.
Yes, you can scour the web and find post after post of cheery, positive reviews of the Gerber College Plan. Beware! Virtually all of the blogposts are little more than sponsored advertisements, meaning that Gerber paid to have their college plan touted. Great marketing for Gerber. Not such good news for the consumer.
Granted, the Gerber College Plan will deliver - assuming you continue to make the required premium payments, through good times and bad - as promised. And, assuming, again, that you do not miss a payment, the Gerber policy will pay out on schedule come that college tuition bill. [Or that new muscle car sonny boy may want to buy, policy proceeds not being restricted to educational pursuits.]
Still, market-based, tax-advantaged investments, such as are available under most states 529 Plans, will likely yield greater returns over the next 18-25 years (when junior will need the money for college), and, while not typically guaranteed, have performed rather well, even during times of economic downturn.
Chuck Jaffe of MoneyWatch sums up his thoughts on the Gerber College Plan this way: "In the end, this Gerber product takes advantage of the consumer's best intentions to give them a less-than-optimal solution to the problem they're solving. Most people can do better on their own."
After a reasoned analysis of costs, surrender charges, tax consequences and other negative nuances of life insurance as college savings tool, Mr. Jaffe opines that traditional 529 college savings plans beat out insurance-based plans almost every time, calling the Gerber Life College Plan, "awful," "lousy," and the "stupid investment of the week."
The College Whisperer agrees!
Indeed, using an endowed life policy to save for college is akin to purchasing a college meal plan consisting solely of pabulum, strained beets and pureed turkey. Easy to swallow for a baby. Much less palatable for an 18 year old!
Bottom line: What seems like a good idea at the time, may not look so good going down the road, especially when it comes to navigating the road to college, and paying the tolls along the way.
Open up, and regularly contribute to, a 529 Plan. Buy life insurance to protect your family's needs, by insuring the breadwinners, not the kids. Then, sign up for a U-Promise account, and go shopping for diapers, formula, and baby rattles. Enjoy your newborn!
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Consult your college planning counselor for the best advice on how you can save - and pay - for college.
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The road to college admission success starts at College Connection!