Gerber Life Insurance has been offering whole life coverage for children for over 40 years. The highly-reputable and well-financed company is probably the best known of all child life insurance providers and their Grow-Up Plan is something of a standard against which other policies are measured.

If you’re going to buy life insurance for your child, Gerber seems like an obvious choice. The real question, however, isn’t from whom to buy the policy. It’s whether you should buy ANY policy in the first place.

In the insurance world, there are few subjects of disagreement as pronounced as the child life insurance question.  Opinions are split.  While some view it as a wise investment others decry it as a waste of money. What’s the bottom line? Should you be calling the folks at Gerber immediately or should you save your dough?

THE CASE FOR INSURING A CHILD’S LIFE

The arguments in favor of life insurance for children are persuasive. Consider the following:

- Low costs
- Guaranteed future coverage
- Investment value

Cheap, cheap, cheap. The actual cost outlay associated with life insurance for children is low. While every dollar counts, this isn’t a budget-busting decision for most families. One could certainly argue that the peace of mind stemming from having a policy in place, in and of itself, is worth the expense associated with its purpose.

Future insurability. Children’s life insurance, including products like the Gerber Grow-Up Plan, allow the child to lock into whole life coverage at a low price and the insurance will remain in effect and available in the future–regardless of the child’s eventual medical circumstances. That doesn’t just apply to the tender years, either. The policy will still be in effect after the insured reaches the age of majority. Think about what that means. If the child develops a serious medical condition as an adult that would make life insurance cost-prohibitive or impossible to obtain, he or she would still have coverage in the form of the policy opened when he or she was young. This opportunity for guaranteed future insurability is a definite mark in favor of buying that policy for your little one.

Investment value. As noted, kids’  life insurance is a whole life product. That means that it does have investment value. One can also eventually borrow against the policy’s benefit. Many people have used whole life insurance, started during childhood, as a method of obtaining down payment money for a home or to defray the costs of a college education. Unlike term insurance, which is basically “rented coverage” with no lasting value beyond the designated term, whole life provides a secure investment vehicle for the insured.

ARGUMENTS AGAINST LIFE INSURANCE FOR CHILDREN

So, in light of those arguments, why do some people maintain that buying life insurance for a child is unnecessary or undesirable? They have a few arguments of their own–and a few of them are persuasive at face value. They include:

- Low risk of utilization
- Absence of at-risk income
- Investment inferiority

The policy probably won’t be used while the insured is a child. That’s a statistical reality. Fortunately, most of us do survive well into adulthood and the risk of death for a child is almost slight when you look at it in actuarial terms. This, critics argue, means that the premiums paid for coverage are, not considering potential investment value, wasted. Likewise, the number of adults unable to secure term life or other whole life coverage later in life is relatively small, statistically speaking. This, some argue, renders the “guaranteed future coverage” argument moot.

There’s no income to replace. Critics of Gerber and other child life insurance providers maintain that the primary function of life insurance is to protect income. Since children generally don’t bring home the bacon, they claim that insurance becomes an unnecessary expense.

It’s not an ideal investment. Borrowing against a policy isn’t “free money”, after all. You do pay interest on the funds. Additionally, the historic rate of return on whole life policies of these sorts has underperformed other popular investment options. Those who disagree with the idea of insuring a child’s life will often point out that the parents have other opportunities to earn more money at their disposal and that whole life isn’t a great option.

ANSWERING CRITICS OF CHILD LIFE INSURANCE

While criticisms of Gerber and other child life insurance products do have some prima facie appeal, they become far less persuasive when examined critically. Let’s look at the three aforementioned arguments against insuring your children a little more closely.

The “you won’t use it” argument isn’t all that persuasive, nor is the idea that there’s no real income to replace.

I’ve carried auto insurance for over 22 years and I’ve never personally needed it. Not once. Does that mean I should’ve been taking to the streets with nothing more than a rabbit’s foot in the glove box? Of course not. We insure ourselves and our loved ones against low-risk propositions every day. And before you discount the auto insurance parallel due to the higher statistical likelihood of a crash compared to a child’s death, consider the risk analysis involved in situations like these.

We’re talking about an event that will be costly on its face (funeral expenses, etc.) and that brings with it a huge emotional impact. The impact of a child’s death is so substantial that it warrants action in the face of even a reduced risk of need.

Critics of children’s life insurance seldom consider the emotional trauma associated with a child’s passing. It’s actually a very important consideration, however. Not because a cash payment will “make things feel better”, but because the emotional impact of the tragedy will undoubtedly have a financial repercussions. Critics fail to consider these.

If your child is sick before he or she passes away, how much work will you miss tending to his or her medical needs? How will your time away from work and constant rumination on the seriousness of the child’s condition impact your work performance or opportunities for advancement? If the unthinkable should happen, how much time away from work will be required? Will you be prepared or capable of returning to work before you begin to feel a financial squeeze? If your spouse works, what will the impact be on his or her work situation?

We live in a society where even many so-called middle class families are only a few paychecks removed from falling into poverty or extreme financial hardship. Under those circumstances, it makes no sense to ignore the REAL financial risk associated with a child’s passing.  It’s amazing how infrequently you see even the strongest advocates of these policies explain this position.

Think in terms of solid risk analysis when considering the issue of future insurability, too. Is it likely that your child will be unable to secure good coverage later? Of course not. If the risk was that high, the product couldn’t be that affordable. However, the seriousness of the impact associated with being unable to get coverage is substantial enough to justify the relatively small cash outlay associated with Gerber and other life insurance products for children.

The argument regarding the merits of whole life as an investment is, admittedly, slightly stronger. Historically, other investment opportunities have outperformed whole life. However, an examination of what has happened during the last few years demonstrates that putting one’s faith in traditionally stronger investments isn’t always the best idea. Look at your 401k balance and compare the number with where it was at a few years ago. If you’re like most Americans, you’ve witnessed a significant decline in the value of your investments.

While whole life insurance may not have the potential to create rags to riches stories, it does have a solid track record of producing quality returns and of being an almost completely safe investment opportunity. At times like these, the idea of trading fast cash potential for security makes a great deal of sense. Plus, the gap between earnings associated with other investment vehicles and whole life for kids usually doesn’t represent a huge chasm even during non-recessionary times. When one considers the other advantages of products like those offered by Gerber, the return is more than adequate.

A LIFE INSURANCE POLICY FOR YOUR CHILD

Now that we’ve established why purchasing a policy for a child makes so much sense, let’s examine Gerber’s most popular product, the Grow-Up Plan. This should give you a good idea of what a strong child’s life policy can look like.

• Benefit levels are variable. Parents can choose between $5K, $10K, $15K, $25K, $35K and $50K. Premiums start at as little as eleven cents per day and are locked in forever—they’ll never increase. That’s true even when the insured turns eighteen—even though the benefit level AUTOMATICALLY DOUBLES at that point, providing heftier levels of adult coverage without a price increase.
• Insured parties can also offer to increase their coverage levels as they age. They will have guaranteed continued coverage AND opportunities to “buy up” to higher benefit levels.
• As a whole life insurance offering, the Gerber plan does build cash value. According to the company, that cash value is worth 100% OR MORE of the sum of the premiums paid after just 25 years.

While the debate will undoubtedly rage on, it would appear as though purchasing life insurance for a child can make a great deal of sense—assuming one is purchasing a quality product from a solid vendor like Gerber Life Insurance who combines security and stability with solid policies.