Life Insurance for Babies? Worthwhile?

It has been 4 1/2 years since this posting, so we have updated our analysis as of January 2013.

So I'm sitting here in my family room with my young boys, TV blaring in the background.  A commercial for Gerber Life Insurance, the "Grow-Up" plan, appears on the screen.  What the?  Why would I want to spend money on life insurance for a baby??  Does this make any sense to consider?

The plan is summarized at www.gerberlife.com.  It is a whole life policy with coverage ranging from $5K to $35K.  You can buy the policy for a kid (or grandkid) anytime between the age of 14 days and 12 years. At age 21 the policy automatically doubles in value as long as the premiums are paid.  At age 28 your kid can increase coverage by a factor of 10 at the then applicable rate.

I took a closer look at the $30K policy, with a monthly premium of $20.46.  They say that after 20 years the "cash value" of the policy equals or exceeds the premiums you paid.  That would be $4900 in year 2028.

If you took that $20.46 each month and invested in a college savings plan and it earned an average of 5% or 8%, you would have $8400 or $12K in year 2028.  To me, that makes a lot more sense than an insurance policy.

Would this Grow Up plan make sense for anyone?  The policy makes sense if your child dies, as the payoff would pretty much cover the funeral and burial costs; not much more than that.  Statistics in the U.S. indicate a death rate of 1 in 5000 children aged 1 to 14 and 1 in 1400 for teens ages 15 to 19 (the California rates are roughly 10% to 15% better than these averages). 

Seems to me that the premiums are better spent on college savings then the possibility of death at an early age.

One last argument for the policy is that it guarantees your child the ability to increase coverage by a factor of 10 at age 28.  This would only pay off for someone who otherwise is unable to get life insurance at that age.  To me, this is not worth forking out 27 years of premiums for.

Learn All About Fuel Economy

Visit www.FuelEconomy.gov, a website maintained by the U.S. Environmental Agency, for everything there is to know about auto mileage.  The site provides gas mileage tips, miles per gallon on cars going back to the 1985 model year, tax rebate information on new hybrids, quick and easy MPG comparisons for cars and much more.

Tonight I learned the EPA changed the way it measures MPG in 2008 to reflect faster speeds, faster acceleration and increased air conditioning use.  Apparently MPG measurement standards had not been changed for decades.  So if you want to see the old vs new MPG estimates for your old clunker, click here.  The MPG on my cars was about 10% lower than the original estimate (which is no surprise).

You can also use the site to compare MPG on cars.  I compared the mileage on a Toyota Highlander 4WD vs Hybrid 4WD and learned that the hybrid gets about 7 MPG more than the non-hybrid, which would save $800/year if I drove 15,000 miles per year.  Based on my mileage, the hybrid would save me maybe $500 per year in gas, assuming $4 per gallon.  This is not enough to make up for the additional cost of the hybrid.  But the top-rated Toyota Prius Hybrid with city/highway mileage of 48/45, looks tempting.

The last thing I checked out was the current tax rebate status of hybrid cars and discovered that rebates are no longer available on the Highlander have not been available since Sept 2007 (the rebate phases out after 60,000 vehicles have been sold).  But I see there is a $3000 tax rebate on your income taxes if you buy a 2008 Ford Escape Hybrid.

Thanks to my wife for pointing out this useful and informative site.  With gas prices at an all-time high, it is getting hard to ignore finding ways to save money.

Save for College Tax Free

Anyone with kids who has not opened a Section 529 College Savings Plan take note.  A 529 plan allows anyone age 18 or older to open a savings account for future college costs (such as tuition, books, room and board, supplies, etc.).  The California ScholarShare plan (www.ScholarShare.com) allows California residents to save for college and any earnings are TAX FREE as long as withdrawals are used for college costs.

There are a number of other nice features about these plans:

• If your child doesn't attend college, you can use the funds for another child or even use them for yourself.  Or grandkids, siblings, nieces, nephews, (fill-in-the-blank)-in-laws and spouses of any of these individuals.
• Funds can be used at any 2 or 4 year college, university or vocational school.
• There's a very low $50 minimum initial investment and no annual account fees.
• Fidelity has 10 different investment options, including several "age-based" plans that automatically invest more conservatively as your child nears college age.
• If you are leery of the stock market, there are conservative investment options like money market and treasury bond funds.
• You as the account holder control the account, not your kid! 

These plans are pretty much a no brainer if you know someone in your family will be attending college and you will be paying for it.  Sign up now to start saving for college while cutting your taxes!

Airborne Product Settlement and Refund

Popular vitamin supplement maker Airborne Health has agreed to a $23 million settlement for false advertising (such as claiming Airborne products could cure or prevent the common cold).  Final approval of the settlement is expected in June. 

If you purchased certain Airborne products between 5/1/01 and 11/29/07, you can file a claim for a refund.  Visit www.airbornehealthsettlement.com or call 888.952.9080 for more information.  Here are some highlights:

1. You can file a claim for the full purchase price of products purchased, excluding sales tax, assuming you can find proof of purchase (yeah right, like I'm gonna find an old receipt for Airborne purchased at Trader Joe's on June 23, 2001).

2. More realistically, you can file a claim for up to 6 purchases with proof of purchase.  The refund will based on the average retail price of the products.  You still need to provide an approximate purchase date and purchase location.

3. You can file claims online or by mail.  If you have receipts, you can either scan and submit them online or mail them in.

4. You have until 9/15/08 to file your claim.  If the final approval of the refund, is appealed, it may take awhile for you to get your refund (if at all).

5. If total refund claims exceed the "settlement fund" ($23 million less attorneys fees and other expenses), then refunds will be reduced proportionately.

Will this $23 million settlement hurt Airborne?  Nah, probably not.  Last year they were No. 149 on the Inc magazine list of fastest growing private companies, with 2006 revenues of $145 million (up from $10 million in 2003).  And with only 22 employees!

Have You Considered a Health Savings Account?

Health Savings Accounts (HSAs) have been around since 2004 and present a viable alternative to traditional medical insurance coverage.  Especially given the ever-escalating cost of health insurance.

HSAs work as follows:

1. Enroll in what is called a "High Deductible Health Plan" (HDHP).  A HDHP is a health insurance plan with, what else...a "high" deductible.  What is considered high?  The Government says at least $1100 for single coverage and $2200 for family coverage.  The annual maximum "out-of-pocket" for a HDHP cannot exceed $5600 (single) or $11,000 (family) in 2008. 

2. Establish a separate HSA, usually through a bank, brokerage or other approved HSA provider.  Health insurance providers usually are linked to an HSA provider; for example, Blue Cross currently offers HDHPs that offer easy access to Chase or Mellon Bank.

3. Fund the HSA by depositing money into the account.  In 2008, you can contribute up to $2900 (single) or $5800 (family) into an HSA.  You have all year to contribute but you must have money in the account prior to use if for healthcare expenses.

4. Use the HSA to pay for your out-of-pocket healthcare expenses, including medical, dental, prescriptions, etc.  You can usually pay using a debit card or checkwriting option.

5. At the end of the year, take a Federal TAX DEDUCTION for your HSA contributions!  Yes, HSA contributions reduce your Adjusted Gross Income on your tax return.  The bad news:  California law does not conform to Federal law on this and thus you will not get a California tax deduction for HSA contributions.  (Come on, Arnold, let's work on this discrepancy!)

Summary of HSA benefits:

1. HSA contributions are tax deductible on your Federal tax return (but not California). 

2. Your insurance premiums on a HDHPs will usually be lower than on most traditional health insurance plans.  Thus, the savings can be directed towards your HSA account.

3. Any money remaining in an HSA account that has not been used for healthcare can be carried forward indefinitely.  (This is quite different than Flexible Spending Accounts, which you must use each year or lose.)  In fact, you can keep the money in the account until you retire and use it for Medicare premiums and deductibles. 

4. HSA accounts can grow and accumulate over time and earn income.  Many HSAs allow investments in mutual funds when your balance reaches a certain threshold.

More and more employers are offering HSAs and HSAs are also available through individual insurance policies.  For more information, visit www.hsainsider.com.