Looking into potential college plans for my children is something I have been mulling over the last year or so. I have a 3 year old son and do not want him to leave college with the $30,000 of college debt that I had when I left; fortunately for me that is much lower than many of my peers.
With all the different options it can be extremely confusing to decide on what plan to go with and with all the slimy salespeople telling us to do this or that, we think it best to go with a name we trust. -Gerber
Gerber, a name you can trust
For years Gerber us a name we have trusted when it comes to our children growing up healthy. It would seem as though they have the best interest of growing children in mind. You have heard of the Gerber Life College Plan and it seems to make sense:
- Affordable payments
- Guaranteed payout
- Flexible in where the money is spent
- Doubles as a life insurance plan
Sounds good. The plan guarantees to pay out more than what is put in and if the parent passes away in during the time of coverage the child at least has the life insurance portion to help financially.
Most things are designed to sound good, but I wanted to make sure that it was good enough for my child, so I got a real life quote.
Gerber Life College Plan in Action
According to the Gerber Life website, 2012-2013 college expenses for an instate college were $17,860 a year. Let's pretend like college costs do not increase every year. That means a total four year college equals $71,440 so it makes sense that we plan for at least that much. As a 23 year old saving for 15 years for my son here is my Gerber Life College Plan:
Let's Break it Down:
Over the 15 years, I pay $59,320.80 and will get a payout of $71,000. (About a 1.24 interest rate)
Not to bad for a safe and guaranteed plan.
Where things started to not make sense
As you can see from the real life example above it seems like a very viable option, but there were 2 things that bothered me. 1) The monthly payment for the amount actually earned. 2) The life insurance + college fund does not match up for me.
To me the amount of life insurance needed and the amount of college funds needed is a world apart. To me, $71,000 is not nearly enough life insurance for me, which means on top of the Gerber college plan I need to have another life insurance policy anyways.
While the Gerber College Plan is extremely safe, as an investment tool, it seems like I am paying out an awful lot for a small return. I love my child and am willing to invest the money into his future college fund but it is also important to be smart about using that money.
Comparing Gerber Life College Plan to other plans
The most complimented college savings plan I had found was the 529 college savings plan. This seemed like a very good plan but there is no steady growth and no guarantee that it will not lose value. There is also no life insurance plan combined like the Gerber plan.
Wanting to get a better apples to apples comparison I decided to look at the costs of a 529 college savings plan with an added life insurance plan.
A healthy 23 year old male who does not smoke (i.e. me) can get a $100,000 term life insurance policy for less than a dollar a day. To keep it simple we will say $30 a month. Compared to the Gerber Life College Plan from earlier (for $71,000) that leaves $299.44 a month that can be invested into a 529 plan. The 529 plan ends up accumulating $105,370 in non-taxable earnings.
Gerber Life Compared to the 529 plan + Term Life Insurance
With the total investment of $59,320.8 Gerber Life will give you $71,000 towards their college fund (or realistically any purpose) OR $71,000 in life insurance if you do not make it to see your child's college years and is taxable.
With the same investment, the highlighted 529 plan will give you $100,000 worth of life coverage AND $105,370 of non-taxable income for education.
Deciding the Best Plan
It appears as though the Gerber Life College Plan is not as great as it is made out to be. Dollar for dollar it really makes sense to go with a 529 college savings plan.
Planning for your children's educations is not always a dollar for dollar deal. While it does make sense to go for the 529 plan there is actually more safety in a Gerber Life College Plan. Confusing right?
Each family has different needs and will view each plan differently. Some individuals have actually purchased a safe Gerber Life College Plan as a higher yielding savings account, while using the 529 college savings plan for the major cash accumulation.
Only you know what you are able to spend a month for savings. Only you know what is most important to your family and your children's future education. You unfortunately are probably not an expert in the hundreds of college savings plans available. That is why you should team up with those who have the scoop on different savings plans. Contact the experts at Diversified Insurance Service for your children's education planning and even your own retirement planning! Call (800) 848-2788.