Re: “Couple aims to leave a significant estate,” by Catherine Harris (IE, Mid-October 2006).

This article dealt with a 50-year-old couple who have $5 million in non-registered (and, I’m assuming, tax-satisfied) assets. Their goal is to retire in five years and spend time travelling. It is also important for them to leave a significant estate to their children.

Don Fraser, Don MacDonald and Adam Pion all had excellent recommendations about the asset-allocation mix. But I was surprised that none of these advisors thought the couple would benefit by adding life insurance to the portfolio.

I am a life insurance broker, so my first thought when it comes to maximizing an estate usually involves life insurance. It could be argued that I have a bias; but, that being said, many bankers, brokers and financial advisors have little knowledge about insurance, so they have a bias as well and will often simply brush aside the idea of using life insurance as a financial tool.

From my perspective, the husband and wife have worked hard and achieved much, and they are now ready to pursue their dream of extensive world travel. So it is unfortunate that the advice from all three experts would still leave them worrying about their spending.

For a premium of $25,000 a year, the couple could buy a guaranteed $5 million joint/last-to-die life insurance policy with return of premiums. On death, the initial $5 million is paid out to the beneficiaries, along with the return of all the premiums that have been paid.

A woman who has just turned 50 has a life expectancy of 32.2 years, but the couple is trying to stay safe and plan for their money to last until age 95, or 45 years. By Year 45, the life insurance payout would be a tax-free $6.125 million.

This means that the couple will leave a minimum of $5 million to their children, no matter how long they live and regardless of the performance of stocks, bonds or real estate. What rate of return would be needed to have $6.125 million after taxes in 45 years if they were to invest $25,000 each year instead? The answer is 6.25% after taxes, which means somewhere between 10% and 12% before taxes.

I don’t think I am going out on a limb when I say it would be impossible to guarantee that return with the investments the consultants recommended. The $6.125 million in 45 years might only be worth about $2.5 million in today’s dollars, but the couple’s real estate holdings should make up the other $2.5 million by the year 2051.

Using a real rate of return of 3%, the couple could have a gross income of $300,000 a year (including pension income) from age 55 to age 95, which would give them an after-tax income of about $185,000. Subtracting the cost of insurance at $25,000 a year gives them $160,000 a year, which is more realistic, and would still leave them with about $750,000 at age 95.

Life insurance is the best way to leave a significant estate and free up money to spend in the investor’s lifetime.

Mike Matheson

Associate broker

DMR Financial Services Group Inc.

Oakville, Ont.





High costs of GIF contract

Re: “Products aim to lower risk to retirement income,” by Dwarka Lakhan (IE, Mid-October 2006).

I did some digging and used the example of CI Harbour GIF 2 Fund in trying to determine the value of Manulife Financial Corp.’s guaranteed income fund, GIF Select IncomePlus. This article indicates guaranteed benefits come at a small cost. However, one must take into account the already higher costs to access the product through the GIF contract.

As per Globefund, the MER of CI Harbour GIF 2 is 3.71%. Add the cost of GIF Select IncomePlus at 0.75%, and the total is 4.46%.

By comparison, the cost of CI Harbour GIF 2 directly from CI Investments Inc. is 2.34%. Advisors must be certain the benefits warrant almost doubling the product’s underlying expenses.

Doug Corner

Certified financial planner

John Shea Insurance Brokers Ltd.

Ottawa





Ban “bosses of the world”

Re: “Talk about dangerous drivers!” by Tessa Wilmott (IE, September 2006).

I enjoyed this Editor’s Letter. It would be great to be “boss of the world” and eliminate the behaviour of those we don’t agree with, whether on moral or ethical grounds, or just because they are pet peeves.

@page_break@I must state, however, that I do not agree with this letter. It’s not that I condone cellphone usage by people driving cars, because I do not. Cellphones distract drivers.

The problem is: if we use the argument that cellphone users are distracted by something that can be avoided, we should also ban the use of car stereos and radios, transport of children and pets in cars, and maybe even transport of passengers. I have seen many near-accidents because of children misbehaving in vehicles or drivers carrying on intensive conversations with passengers.

The point is we live in a free country. Every time we suggest legislators ban a freedom because we disagree with a behaviour, we move closer to the world Orwell envisioned in 1984. I respectfully suggest people with a platform be careful about how they use it.

David Lordon

Financial advisor

CIBC Imperial Service

Moncton, N.B.



Editor’s response: I, too, would like to avoid Orwell’s 1984. But driving is a grave responsibility; it is up to drivers to behave accordingly.