Gerber Life Insurance Co., whose products are associated with the trusted baby food brand and memorable baby face logo, has been accused of marketing plans for building nest eggs for children that actually lock in financial losses.
Josephine Loguidice, an Ocala, Florida woman who signed up for Gerber plans for seven grandchildren, filed a class action lawsuit against the White Plains company April 24 in U.S. District Court.
“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,” the complaint states, “putting all their eggs into the wrong basket.”
Gerber spokesman José D. Marques said the company does not comment on the specifics of pending litigation.
“We disagree with the allegations and stand behind our products and services,” he stated in an email, and the company has a “long heritage of providing protection for families.”
Most consumers are probably more familiar with Gerber baby foods, accounting for more than 80% of sales in the U.S. But since 1967, Gerber has also sold insurance.
Gerber Life Insurance Co. separated from Gerber Products Co. in 2018, when their parent company, Nestlé, sold it to Western & Southern Finance Group of Cincinnati for $1.55 billion. The insurance company continues to use the Gerber baby logo, under a licensing agreement.
Though Gerber Life Insurance shares the “trusted logo of the wholesome smiling baby,” the complaint states, its products are “the financial equivalent of junk food.”
The lawsuit focuses on Gerber’s Grow-Up Plan and College Plan.
Buyers of the Grow-Up Plan sign up for monthly bank account deductions, ranging from less than $5 to more than $100, to give children or grandchildren a head start or a nest egg.
But the plan, according to the complaint, is actually a life insurance policy that pays the parents or grandparents if the child dies.
If the child lives to age 21, then he or she can receive a payment. Even then, before accounting for taxes and inflation, the complaint alleges, there is a net loss.
“Gerber Life’s guaranteed “cash values” or “nest eggs,” according to the complaint, “lock people into a loss for nearly 20 years.”
The cash value is allegedly less than the paid premiums for almost 40 years, and a buyer who misses a monthly payment risks losing everything.
The lawsuit claims that Gerber misrepresents the Grow-Up Plan because death insurance policies for children are unpopular.
The College Plan, according to the complaint, is an endowment life insurance policy in disguise, not a college savings plan. It pays out on the death of the insured and also guarantees a payout in 10 to 20 years.
The guaranteed payout is allegedly tiny compared with traditional college savings plans.
A College Plan that costs $50.05 a month would earn $2,790 in 17 years, according to the complaint, while a sample 529 college savings plan would earn $7,558.
But unlike 529 plans, College Plan earnings are taxed and are counted in the college financial aid formula. The Gerber plan loses $4,380 after taxes and financial aid, whereas the sample 529 college plan still nets $7,558, for a bottom line difference of nearly $12,000.
Another difference between Gerber’s plan and common savings plans, according to the complaint, is that a Gerber participant who misses a payment will lose all or part of the investment.
The complaint accuses Gerber of deceptive practices, false advertising and fraud. It asks the court to certify as a class all buyers of the Gerber plans, to stop Gerber from engaging in unlawful practices and to order the company to make restitution for monies acquired unlawfully.
Longuidice is represented by Manhattan attorney James J. Bilsborrow. Gerber is represented by Cincinnati attorney Eric W. Richardson.