Should I invest my money or buy a life insurance policy instead? + MORE Feb 8th

Insurance policy getting you down? There are always sound insurance alternatives.
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If you’re like many Canadians, you’re hoping you’ve paid enough tax in 2018 and may even be looking forward to a hefty tax refund. You can help ensure that happens by knowing the details of your Registered Retirement Savings Plan (RRSP), what sets them apart, your cont.... More »
Q: My wife and I are both 40 and have two kids—ages 5 and 7. We are considering buying a joint last-to-die life insurance policy that would cost a fixed $7,105 per year for ten years. That’s a total of $71,050 and the policy would pay $500,000 when the last of us dies. This is a proposition from our advisor after we have made our retirement plan. We have concluded that we have enough savings to retire at 55 with a very comfortable nest egg made up of TFSAs, RRSPs, and defined benefit pension plans, as well as money in non-registered investments.
We do not have any debts except a remaining mortgage of $95,734. We also have life insurance and disability insurance with our employer that would cover our needs if one of us were to die or could not work anymore. The goal of this joint last-to-die policy would be to transfer money tax- free in the future as all other needs are covered either by our savings or our employee benefits.
I am wondering if buying this policy is really a good move and if the cost of this product is reasonable? We can afford the cost without changing our lifestyle but our advisor is not independent so the policy would be sold by its institution and that’s what makes me wary…

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Q. My wife and I are retired, in our late 60s. With interest rates expected to continue rising for the next year or two, and bond funds making almost no gains or even losing value in recent years, I have been considering converting the fixed income portion of our portfolio to GICs.  Would this be a good strategy? — Frank

A. GICs get little respect, and that’s a shame because these humble investments can play a useful role in a balanced portfolio. Frank, your strategy for substituting GICs for bond funds is an excellent one, albeit with a few caveats.

First, we’ll consider the benefits. GICs offer significantly higher yields than government bonds of the same maturity. At the time of writing, five-year Government of Canada bonds were yielding about 1.9%, while you didn’t have to look far to find five-year GICs paying as much as 3.6%.

Normally more yield means more risk, but because most GICs are backed for up to $100,000 by the Canadian Deposit Insurance Corporation (CDIC), a Crown corporation, they don’t carry any more risk than a federal bond…

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