While Gerber is recognized in America as a trusted brand of baby food products, a proposed class action claims Gerber Life Insurance Company’s “savings” products are “the financial equivalent of junk food.”
According to the lawsuit out of Kentucky, Gerber’s “Grow-Up Plan” and “College Plan,” despite being marketed as an easy way for parents and grandparents to save for a child’s future, actually provide “no meaningful savings benefits.” The case alleges that Gerber misrepresents the nature of both plans as savings vehicles when the products are really life insurance policies that will most likely end up leaving consumers with “a guaranteed loss at best and a total loss of their investment at worst.”
Gerber Life’s misrepresentations of its “savings plans” have allowed the company to take advantage of consumers who are looking to invest on behalf of their children and grandchildren but who are unaware that a myriad of other savings options would better suit their needs, the case says.
Gerber Life has convinced hundreds of thousands of well-meaning but unsophisticated parents and grandparents to pour their often meager savings into risky plans that provide little if any value, putting all their eggs into the wrong basket.”
Gerber Life Grow-Up Plan
The lawsuit first sticks on Gerber Life’s “Grow-Up Plan,” which, according to the complaint, is a whole life insurance policy that has no value “if the child actually ‘grows up.’”
While touting the Grow-Up Plan as a savings product meant to “protect” children and provide them with a “nest egg” and “cash value” once they “grow up,” Gerber Life, the suit says, fails to disclose that the plan is actually an insurance policy that will only protect parents and grandparents in the tragic event of a child’s death. When the child does grow up, the plan may only pay out less than a thousand dollars even if consumers have invested decades of premium payments into the plan, the case argues.
Let’s look at an example detailed in the complaint.
According to the case, a Kentucky consumer can pay $7.22 per month to insure a three-year-old child with a $10,000 Grow-Up Plan. The policy will have zero “cash value” until the fourth year of premium payments, at which point the value will grow to an impressive $27, the suit says. At this point, the consumer will have paid $259.92 in premiums, which the case notes is a “massive net loss.”
By the time the child reaches 18 years of age, the value of the policy will be $705.60, while the premium payments will have totaled $1,299.60, the suit goes on. “Again, a massive loss.” The complaint notes that the cash value of such a policy will continue to be lower than paid premiums for nearly 40 years.
The case argues that Gerber Life doesn’t disclose these numbers to consumers in an “intentional effort” to hide that the Gerber Life Grow-Up Plan is, in fact, “a terrible savings vehicle.”
Citing personal finance journalist Helaine Olen, the case claims Gerber’s Grow-Up Plan indeed pales in comparison to other savings options.
“Heck, parents would be better off sticking the money in a mattress,” Olen writes on Slate.com. “After 15 years, the cash value of the mattress would be larger than the cash value of the Gerber Life Grow-Up Plan.”
Gerber attempts to hide the true nature of the product—which really only has value if the covered child dies—because “reasonable consumers have little or no interest in children’s death insurance,” according to the lawsuit.
“For obvious reasons,” the case states, “Gerber Life did not name this product the more accurate ‘Never Grow-Up Plan.’”
Gerber Life College Plan
The lawsuit claims Gerber Life’s College Plan is similarly misrepresented. Despite the plan’s name, the product is not specifically designed for college savings and is really “an endowment life insurance policy in disguise,” according to the complaint.
Unlike other options that are “specifically designed” for college savings, the College Plan comes with several disadvantages that can significantly impact the amount of a child’s savings when it comes time to pay for college, the case says.
One characteristic of the plan that the suit says Gerber “barely mentions” in its marketing materials is that the returns from the plan are taxable. As compared to other college savings options such as state government-sponsored 529 plans, which are tax-free, payouts from the College Plan are significantly reduced by tax obligations, the case alleges.
Additionally, investing in the College Plan could also negatively impact a child’s eligibility for financial aid, the lawsuit argues, given the plan payout must be reported as income on the Free Application for Federal Student Aid (FAFSA). Distributions from the College Plan count against students at 50 percent, according to the complaint, which means the funds from the plan “will effectively replace financial [aid] funds a student would otherwise have been eligible for.”
The lawsuit further argues that since the College Plan is really an insurance policy, even one missed premium payment could significantly reduce or completely devalue the entire investment—a consequence that the case says can be easily avoided by investing in the 529 plan or other college savings vehicles.
Despite being fully aware that its College Plan is “easily outperformed” by other college savings options, Gerber Life, the suit claims, continues to tout the product as a way for parents to “plan for college the right way.” From the complaint:
Gerber Life’s marketing ceaselessly touts the product as a college savings vehicle, but the product is not designed for that purpose, fails to perform in a way that meets that purpose, and is demonstrably worse than the myriad other products available to consumers that actually are designed to further college savings goals.”
Who Is the Lawsuit Looking to Cover?
The case seeks to cover Kentucky residents who purchased a Gerber College Plan or Grow-Up Plan “within the applicable statute of limitations” up until the date of class certification.
What If I Don’t Live in Kentucky?
Unfortunately, this case is only looking to cover Kentucky residents. But that doesn’t mean you’re without options. You may want to consider reaching out to a local attorney if you’re interested in taking action. Attorneys typically offer free initial consultations and would be able to help you understand your legal rights and options, including whether you can start a new class action lawsuit.
How Do I Join the Lawsuit?
In general, there’s nothing you need to do to join a class action lawsuit. If the case moves forward and eventually settles, which could be months or years from now, class members should receive notification of the settlement with instructions on what to do next. You can always contact the attorneys handling the case (their information can be found on the complaint below) if you have questions or concerns.
In the meantime, you can keep on top of class action news by signing up for ClassAction.org’s newsletter here.