- June 15, 2014
- Posted by: Brian Poncelet
- Category: Approved, Life Insurance
One of the things that drives me nuts is the shows like the Suzie Orman show on CNBC.
Callers will say their situation which takes 30 or less Suzie will give advice in about 8 -15 seconds.
If you go to a Dr.’s office for the first time do you have to do a physical? Of course! Why he/she needs to get a base line of where you are.
Here is an other example of lack of information and poor advice based on this lack of information.
Is term life insurance worth the cost?
While term life insurance can be a tool in estate planning, its best used to protect your family from an unexpected calamity.
Q: My wife and I are 66 and we’re in good health. Does it make sense to take out term life insurance carrying an annual premium of $6,000 to cover the tax on our substantial registered investments when we die?—Jim Semple, Regina
A: Insurance is a crucial part of a financial plan. While it can be a tool in estate planning, its best use in my opinion is to protect your family from an unexpected calamity. The latter doesn’t seem to apply to you because your investments are substantial. Besides, upon the death of either you or your wife your RRIF assets will roll over without tax to the other. As an estate planning strategy it may be an expensive way to shield your beneficiaries from tax.
Matthew Ardrey, a financial planner with fee-based firm T.E. Wealth, suggests comparing the “return” on the insurance policy with what you’d be able to save in a TFSA. “If they both live until age 90, that will be 25 years of premiums or $150,000. If they took that same $6,000 per year and saved it in a TFSA with a rate of return of 5%, they would have about $300,000 at age 90 payable to the other beneficiaries without tax.” Does the death benefit on the policy exceed the return on the TFSA? If it’s $400,000, then yes. But if it is $200,000, then no.
Bruce Sellery is a frequent guest on financial television shows and author of Moolala.
Ok, see the problem? The odds of the husband and wife living to age 90 is slim.
If they bought a permanent policy they could get $280,000 (joint last to die).
If you pay for 20 years @ $6,000 in a TFSA they will have $205,000. They will both be age 86. Is it possible to have a year like 2008 say 3 years before they die? Even balanced funds (50% bonds and stocks) had -20% returns!!
So like all advice this assumes everything will be perfect!