For the greatest college savings, skip this insurance plan

Money-filled Mason jar labeled

It’s never too early to start saving for your child’s college bills. There are dozens of college savings plans to choose from. Here’s one most people should nix.

The Gerber Life College Plan promises a risk-free investment and a guaranteed return through a product it claims to be "economy proof."

The company’s website also promises in bold print: "Your premium will never increase, and you'll never lose a penny to investment risk or interest rate declines."

Gerber Life’s claims about this product are actually true. You’re not being misled. But that doesn't make it a smart investment.

The Gerber Life College Plan is marketed as a product that combines life insurance with college savings.

It’s actually a less-common type of life insurance product called an endowment life insurance policy, which combines term life insurance with a guaranteed payout (an endowment) at the end of the term.

If the policyholder dies before the term expires, the beneficiary receives a payout. If the policyholder is still alive at the end of the term, the policyholder receives the payout.

You can do whatever you want with the money, but the idea is to spend it on college expenses.

Like a term life insurance policy, an endowment life insurance policy terminates at a predetermined date. Like a whole-life insurance policy, it accumulates cash value. Like both, it provides a definite payout as long as you pay all your premiums.

An endowment life insurance policy is relatively expensive because there is a guaranteed payout. Term insurance is relatively cheap because the insurance company is betting you will live through the end of the term.

In the case of the Gerber Life plan, the maximum policy amount is $150,000, which might not be enough money to cover tuition and fees at some colleges today.

If it won’t even cover college, how is it enough to support your family if you die prematurely?

I used the website to calculate the payments and benefit for a hypothetical plan for a healthy 30-year-old mother with a 2-year-old child. The quote was $42.58 per month for 16 years to receive $10,000. You’d pay $8,175 into this plan and receive $10,000 at the end.

After factoring in inflation, there’s really no investment return at all -- you’re merely keeping pace with inflation.

And the money you’ll earn is taxable, and those taxes, even if modest, will eat away at your college savings.

What most parents really need is a large term life insurance policy and a more effective way to save for college. Enter the college savings account.

A prepaid tuition plan, which is a type of 529 plan, lets you lock in today’s tuition prices for your child’s education. This option could offer the best return on your investment, and it provides tax advantages to boot.

"The Gerber Life College Plan is a good plan provided you take it out early enough. But it does not offer the tax-exempt status of the 529 plans, nor does it offer the guaranteed tuition rate of the prepaid tuition type 529 plan," says college financial aid expert Maura Kastberg.

Indeed, the advantages the Gerber Life College Plan offers -- stable monthly payments, a benefit for your child if you die young and a guaranteed payout -- can all be achieved with other college savings products, often more effectively.