Key Points
- The Gerber Grow-Up® Plan is a whole life insurance policy that builds cash value over time, often sold as a way to pay for college.
- Families can access the policy’s cash value through loans, withdrawals, or full surrender (cashing out), each with trade-offs and potential tax implications.
- Using a life insurance policy to pay for college is rarely efficient, but for families who already own one, understanding how and when to tap into its value can prevent future costly mistakes.
Many parents (or grandparents) were sold on a Gerber Grow-Up® Plan years ago believing it would help “save for the future.” The plan’s advertising emphasized protection and cash value growth, appealing to families who wanted to do something tangible for their child’s financial security.
But the truth is that the Gerber Grow-Up Plan was never designed as a true college savings tool. It’s a whole life insurance policy, which combines a guaranteed death benefit with a savings component called cash value.
That cash value can, in theory, be used for anything — including college tuition. Yet the reality is that most policies build value far too slowly to make a meaningful dent in college costs, and the accessing the money becomes challenging when you actually do need to pay the bills.
If you already own a Gerber policy, though, you can’t change the past. The question becomes: What can you actually do with it now that college bills are coming due?
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Step 1. Understand What Type Of Policy You Have
The first task is to confirm exactly what type of life insurance policy you hold. While Gerber is one of the main types of policies that are marketed to young families, there are other brands and companies as well. Only permanent life insurance policies — like the Grow-Up Plan, Whole Life, or Guaranteed Life — accumulate cash value.
You can verify this in one of three ways:
- Review your original policy documents, which include a “Table of Guaranteed Values.”
- Log in to Gerber Life eServices, where your current cash value is typically shown.
- Call Gerber Life’s customer service and ask for your current cash surrender value — the amount you’d receive if you canceled the policy today.
If you’ve held the policy for fewer than 10 years, the cash value may be less than what you’ve paid in premiums. This slow start is typical of whole life insurance and often surprises families who thought they were “saving” for college.
Step 2. Know Your Options For Accessing The Money To Pay For College
Once you know your cash value, you generally have three options to get money out of the policy. It’s not as simple as being a savings or investment account (like a 529 plan). Each option for tapping the money comes with consequences for coverage, taxes, and your child’s financial aid picture.
1. Policy Loan: Borrow Against It
You can usually borrow against your policy’s cash value without canceling the coverage. Gerber Life charges interest on the loan, which accrues until you repay it. If you never repay, the unpaid balance and interest will reduce the death benefit.
Pros
Cons
For families looking for short-term funds (perhaps to cover a semester before other aid arrives) this can be a flexible solution, though it’s rarely cost-effective long-term.
2. Partial Withdrawal (if allowed)
Some Gerber policies permit partial withdrawals, sometimes called “partial surrenders.” This permanently reduces both the cash value and death benefit.
Pros
Cons
This option can work if your policy has built up modest value (for example, a few thousand dollars) and you no longer need the full death benefit.
3. Full Cash-Out (Surrender the Policy)
If you’re done with the policy altogether, you can surrender it for its cash surrender value (CSV). This cancels the coverage permanently and you get whatever cash is left after paying the surrender costs (if any).
Pros
Cons
To surrender, contact Gerber Life for a “Surrender Request” form. Processing typically takes a few weeks.
This is what we recommend most families do, simply because most families don’t need to continue to maintain a whole life insurance policy for a young adult.
Step 3. Check Tax And Financial Aid Impact
Before cashing out or borrowing, families should consider two less-obvious implications: taxes and college financial aid.
Taxes:
If the payout you receive is greater than the total premiums you’ve paid, that difference counts as ordinary income. For example, if you paid $2,000 in premiums and the cash value is $2,300, the $300 gain is taxable. Always verify with a tax professional before requesting surrender.
Financial Aid:
Under FAFSA rules, life insurance cash value is not reported as an asset — but once you cash it out, the money in your bank account is considered an asset. That could reduce need-based aid eligibility. If possible, coordinate the timing of your withdrawal with your aid application.
Why Cashing It Out Usually Makes The Most Sense
Generally, it doesn’t make sense for a child or young adult to have a whole life insurance policy. These plans were never meant as a college savings vehicle, though some insurance agents may “oversell” the cash value feature for this purpose.
Typically, the amount you pay in premiums is significant compared to alternatives like term life insurance, and the amount of insurance is minimal. If you believe your child still should have a life insurance policy (for example, if they’re borrowing private student loans with you as the cosigner), a low-cost term insurance policy usually makes the most financial sense. Then, you can take the difference you were paying in premiums and invest – making you wealthier as a result.
Just recognize that surrendering a whole life policy is irreversible — once canceled, the death benefit protection is gone.
Bottom Line: Know Your Life Insurance Policy Before You Act
The Gerber Grow-Up Plan (or any whole life insurance policy) can feel like a disappointment when college bills arrive — its value is often less than families expect or it’s difficult to actually access the money.
Before taking action:
- Verify your exact cash surrender valuer.
- Weigh the loss of life insurance coverage.
- Estimate any taxes on gains.
- Consider timing relative to FAFSA filing.
- Talk with a financial or tax professional before surrendering.
If you’ve already paid into a Gerber Grow-Up Plan or other whole life insurance policy for years, you deserve to understand what that investment can and can’t do for your family now.
Knowing how to access the policy’s value (and the trade-offs involved) can help you make the best possible decision for your child’s education and your long-term financial security.
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Gerber Life Grow-Up® Plan is a trademark of Gerber Life Insurance Company.
Editor: Colin Graves
The post How To Use A Gerber Life Insurance Policy To Pay For College appeared first on The College Investor.
