Free Family Finance

The mysteries of mass mailing baffle me. Nonetheless, I received a mailing for the Gerber Grow-Up plan yesterday. My wife and I don’t have kids, don’t want kids, and generally speaking don’t like kids. But, as luck would have it, we are the target market for childrens whole-life, life insurance. Riddle me that!

If you are unfamiliar with the Gerber company, they make baby food. Additionally, for some odd reason, they sell life insurance too. Their plan is specifically marketed towards the parents & grandparents of children. Through the Gerber Grow Up plan, you can begin a whole-life life insurance policy for your child. Because the child is so young, the monthly premiums are very low (mainly because the child pays into the plan for 25+ years longer than the average participate who doesn’t look for life insurance until they are out of college).

The basic plan includes $5,000 of permanent, whole life coverage. At age 18, the coverage doubles to $10,000 and the premiums stay the same. Moving forward, as an adult you have opportunities to expand the policy for higher coverage amounts. Or, after 25 years on the plan, if the child decides to turn in the policy, they will receive a cash value amount equal to all of the premiums paid. The cash value feature seems to be the big draw to the program.

I personally think this type of insurance is a bad deal. Here is why:

1. First, why does a 2 year old need life insurance? The value of life insurance is to defer the financial risk of a death from the surviving dependents to the insurance company. Who is financially dependent on a toddler? A tween? A high school kid? That situation hardly ever exists. Thus, there is no need for life insurance. Typically speaking, an individual doesn’t have financial dependents until they are married. If you are in a dual income family, dependency might not exist until there are children. That could be 25-30 years from the day the policy is written.
2. Second, let’s compare this policy against comparable investing:
   1. For the sake of example, let’s assume Grandma & Grandpa purchase this policy for their granddaughter before she turns 1. She will keep the policy for 25 years, at which time she will realize she needs money far more than life insurance. She then cashes out the policy. Her grandparents will have paid $38.16 a year for 25 years – $954. That is the cash value of the policy when the granddaughter cashes it out. But, if Grandma & Grandpa had paid $38.16 per year in an average mutual fund, their beloved granddaughter would have over $5,000 saved at age 25 ($3.18 per month, for 25 years, at 11% interest).
   2. Let’s assume the same granddaughter does not cash out the policy at age 25. But instead keeps it. Heck, it is only $38 bucks per year. She might as well hang on to it. After all, the coverage amount doubled when she was 18. So it now provides $10,000 worth of coverage. The granddaughter keeps the policy until she is 65. At that time, she realizes that she is self insured and subsequently no longer has a need for the policy. The total contributions/cash value of the policy would be $2,480. Not bad considering it provides $10k in coverage. Right? But if she had only gone the mutual fund route…she would have over $430,000 invested ($3.18 per month, for 65 years, at 11% interest). Holy Crap.
   3. Lastly, let’s assume the policy is never cashed out. The granddaughter, who now has grandchildren of her own, passes away at the age of 88 years old, leaving her children the $10,000 life benefit. The total contributions toward the policy would be $3,358. Again, not bad for a $10,000 policy. But again, if the Gerber life insurance investment had simply been invested in mutual funds, she would leave her loved ones almost $5.4 Million dollars. Holy Crap x 10!

When contemplating the purchase of products such as the Gerber life insurance. Please Please Please consider an alternative. By avoiding the purchase of insurance when you don’t need it, buying term insurance when you do, and investing along the way, you could build substantial wealth for you & your estate.

If you are a grandparent looking to make a financial investment on behalf of your grandchild, consider a simple mutual fund investment. A basic, $1,000 one time investment for an infant, would grow to over $6.3 million dollars by the time your grandchild reaches 80 years of age. This small investment could mean a radical change in the financial health of your family tree.

If you are looking for an out-of-the-box way to help the Haitians, you can donate your credit card points.

Although we’ve discussed that ‘You probably won’t help the folks in Haiti‘, donating credit card points could be a great way to help with no cash out of pocket. Below you will find helpful information on how to donate credit card points through the major credit card companies.

American Express: American Express cardholders enrolled in the Membership Rewards program can redeem points to support charities aiding the relief effort in Haiti, with 1,000 points equaling $10. Donations can be made in increments of 1,000, 5,000, 10,000, 50,000 and 100,000 points.

Bank of America: By Friday, Bank of America plans to have a donation option that will enable WorldPoints Rewards and Power Rewards customers to donate to the Red Cross to help Haiti. Currently, the bank does enable customers to donate to other charities, including the Make-A-Wish Foundation and the World Wildlife Fund. To redeem points for a donation, customers log into their account here and select their credit card account rewards tab. Customers can also visit here to redeem points or call the customer service number on their card to redeem by phone.

Capital One: While it doesn’t have a donation program specific to the Haiti crisis, Capital One began a “No Hassle Giving Site” in 2008. The site allows cardholders to donate rewards to more than 1.2 million United States charities, including organizations supporting Haiti relief efforts. Cardholders can set up charitable donations online as one-time only or as a reoccurring donations and also earn rewards on the actual donation transaction.

In addition, a spokeswoman for Capital One said the donations were tax deductible, and donors could get a detailed donation history and summary of taxable donations. The response so far in donating points to help Haiti “has been phenomenal,” she said. “We’ve seen an 850 percent increase in donations year over year comparing January 2009 to January 2010, with one week yet to go in January 2010.”

Chase: As of last Saturday, Chase Freedom, Sapphire and Ink from Chase cardholders can redeem and donate their Ultimate Rewards points to the American Red Cross Haiti Relief and Development Fund. Cardholders can donate starting at $25 for 2,500 points and then in $25 increments, with no limit, up to their points balance.

Citibank: Before the earthquake, the bank enabled customers to redeem their ThankYou Network loyalty points to make donations to the American Red Cross and the ARC Disaster Relief Fund. Donations to these charities increased to 20 times the normal number after the earthquake. As a result, Citibank added a Haiti-specific donation option, to the American Red Cross International Response Fund, on Jan. 20. Since then, there has been a nearly 100 times increase in the daily redemption rate for the American Red Cross, Nancy Gordon, executive vice president for affluent loyalty assets at Citibank, said in a statement.

To make the donations, which can be made in denominations of $50 and $100, members can go to ThankYou.com and redeem their rewards points for the American Red Cross International Response Fund option under “Charitable Gifts.” They can also call the ThankYou Network service center at 800-THANKYOU (800-842-6596).

I was not able to find evidence that these donations would be tax deductible. I would suspect not. However, the donations are cash-free transaction, which does have an appeal.

article | Donating Credit Card Points to Help Haiti – Bucks Blog – NYTimes.com.
photo | ohadweb

In the wake of the recent disaster in Haiti, many Americans are compelled to give. The Red Cross, among hundreds of other organizations, are raising funds to help the Haitians in their time of need. But economists would tell us, we probably haven’t given to those organizations. Economists also tell us that we probably won’t.

The first thing to understand about our charitable impulses is that they’re one of the least rational facets of our economic being. Not only is giving away money for no obvious benefit irrational, but the way we give away money is extremely strange — and that strangeness is where we can glean insight into our true motives.

Take, for instance, the problem of bigness. The bigger the problem, generally speaking, the more money is needed to solve it. Unfortunately, the more overwhelming a problem is, the more abstract it is, the more our brains shut down.

“What really moves people is making an emotional connection,” Slovic said. “The numbers not only don’t convey feeling, they actually get in the way of feeling.” While what’s been called “psychic numbing” can have beneficial effects — the term was coined to describe how rescue workers turned off their emotions to deal with the horrific aftermath of the Hiroshima bombing, and relief workers are presumably operating off of the same thing in Haiti today — it also gets in the way of people watching from abroad reacting compassionately.

By necessity, our well of compassion is far from bottomless. The current view is that altruism, to the extent it exists in any pure form in the human animal, is an evolutionary adaptation to bind families and small communities. And, as ancient as these preferences may be, our contemporary giving habits seem to reflect little change. Roughly 80% of Americans’ giving, according to the Center on Philanthropy at Indiana University, is focused on their local communities and churches. In 2004, according to a report by the Center, international aid received just 1% of household giving; tsunami relief got another 2% of the pie that year.

Some interesting stuff here. I think we can all understand the idea of giving to causes that are close at hand. I guess we fail to continue giving from that point.

One concept that seems missing from the “problem too big to give” argument, is effectiveness. To look at the current devastation in Haiti, one has to ask themselves, how can I help? More so, in the name of being a good steward, how can I help effectively? Does giving to the Red Cross actually accomplish that goal? I would like to think so. But I don’t know that. I mean no disrespect to the Red Cross. The same could be said of any large, national charity. In a world of 20/20 Specials and Televangelists, there is a certain level of doubt that exists.

As far as the statistic that 80% of charitable giving is local, it doesn’t surprise me. If you were to examine my checkbook, it would be even more locally focused. The reason being, I give to the nations through my local church. I support the work throughout the world, by tithing & giving locally. I think the article’s statistic may be misleading. I would assume that the same could be said of many protestants.

Have you given to Haiti? Why or why not?

Article | Why Haven’t You Donated to Haiti Yet? at SmartMoney.com
Photo | United Nations Development Programme