Dear Mr Tan,
I am enjoying reading your Blog almost everyday. Great sharing and learn alot for you.
Someone actually approached me regarding to one of the MLM opporitunity. (Details deleted) Not sure whether have you hear of the company. But many people are investing their Broadband Wireless and Properties Projects.
The reward is excellant. For 1-GP investment (SGD 11800), the return is SGD 1200 per month.
Expecting to break-even within 8 month and get the extra Customer Rebate for the following months up to SGD 19200, Beside that within the 4 to 5 month, they will also give out USD 60000 bonus within 5 years.
Is this a good Investment opporitunity ?
MY REPLY:
I always avoid this type of "high return" investment. I also advise people to avoid investing in anything that looks too attractive, and where they do not really understand the business model. Some of these types of investments are scams.
Sunday, September 30, 2007
Courteous drivers in Brussels
The car drivers in Brussels are courteous. They give way to pedestrians on the road. They are patient. They drive slowly.
Why are drivers in Singapore impatent? Perhaps it is the heat or the stress of life!
Why are drivers in Singapore impatent? Perhaps it is the heat or the stress of life!
Friday, September 28, 2007
Tips for young parents
If you wish to have some ideas about what to buy for your baby, you can visit this blog.
My daughter Su Ling shares her experience about raising her daughter Vera. She scouts the internet for products that are suitable for Vera.
Here are some ideas about furnishing your home.
Here are my tips on financial planning for parents to save for their child's education.
My daughter Su Ling shares her experience about raising her daughter Vera. She scouts the internet for products that are suitable for Vera.
Here are some ideas about furnishing your home.
Here are my tips on financial planning for parents to save for their child's education.
Picturesque Brugge, Belgium
I visited the old city of Brugge in Belgium. It has been described as "picturesque". It has many buildings built in the olden style but with bright colours. They are best appreciated on a boat trip along its canals.
Brugge has been described as the Venice of the West. It is a favourite among tourists to Belgium.
Brugge has been described as the Venice of the West. It is a favourite among tourists to Belgium.
Look after your Medisave account
Many people think that Medisave is somebody's else money. They are delighted when they have the chance to take out from Medisave.
Actually, Medisave is your own money. If you keep in Medisave, you earn an interest rate of 4% plus 1% on the first $20,000. This is an attractive rate of return.
Here is my tip:
1. If you have money, pay by cash. Keep your Medisave intact, until it reaches the cap.
2. Your savings in Medisave earn an attractive interest rate. It is better than the interest paid by your bank.
3. You will need your Medisave when you grow old. When you are young, do not use it carelessly.
4. Do not spend too much money to buy expensive Shield plans using your Medisave. Choose a more economical plan.
Actually, Medisave is your own money. If you keep in Medisave, you earn an interest rate of 4% plus 1% on the first $20,000. This is an attractive rate of return.
Here is my tip:
1. If you have money, pay by cash. Keep your Medisave intact, until it reaches the cap.
2. Your savings in Medisave earn an attractive interest rate. It is better than the interest paid by your bank.
3. You will need your Medisave when you grow old. When you are young, do not use it carelessly.
4. Do not spend too much money to buy expensive Shield plans using your Medisave. Choose a more economical plan.
Avoid over-insurance for medical bills
Dear Mr Tan,
I am insured under a Shield plan. But my agent said that the coverage is not sufficient. Should I buy another medical insurance plan to cover the gaps?
REPLY:
It is better to select one medical policy to provide the coverage that you need. If there are gaps, you can pay for the balance out of pocket. You need insurance only to cover the big bills. There is no need to cover every dollar of the bill.
If you buy two insurance policies to cover your medical bill, you are paying twice the premium. But you do not enjoy the full coverage from the two policies.
You can only claim under the second policy for what is not paid under the first policy, even though you have paid the full premium for the second policy.
For every $100 of premium, the average claim payout is about $70. If your policy pays for only part of what is covered (due to over-insurance), you may be getting (say) only $30 worth of claim. This is not worth buying.
This restriction against over-insurance applies for medical insurance where you can only claim for what you have spent. It does not apply in the case of life insurance, where you can claim in full under several insurance policies.
I am insured under a Shield plan. But my agent said that the coverage is not sufficient. Should I buy another medical insurance plan to cover the gaps?
REPLY:
It is better to select one medical policy to provide the coverage that you need. If there are gaps, you can pay for the balance out of pocket. You need insurance only to cover the big bills. There is no need to cover every dollar of the bill.
If you buy two insurance policies to cover your medical bill, you are paying twice the premium. But you do not enjoy the full coverage from the two policies.
You can only claim under the second policy for what is not paid under the first policy, even though you have paid the full premium for the second policy.
For every $100 of premium, the average claim payout is about $70. If your policy pays for only part of what is covered (due to over-insurance), you may be getting (say) only $30 worth of claim. This is not worth buying.
This restriction against over-insurance applies for medical insurance where you can only claim for what you have spent. It does not apply in the case of life insurance, where you can claim in full under several insurance policies.
Antwerp, Belgium
I visited Antwerp in Belgium.
The roads in the old city were not suitable for motor traffic. Most people walked, take the subway or the city tram. There were few private cars.
An idea struck me. It is a better arrangement for the city or town center to be free of private cars. It should be served by public transport or town bicycles. Life will be more pleasant, with less traffic congesation. It will also be safer for the people to walk along the roads.
The private cars can be parked outside the city center, for travel to other towns.
The roads in the old city were not suitable for motor traffic. Most people walked, take the subway or the city tram. There were few private cars.
An idea struck me. It is a better arrangement for the city or town center to be free of private cars. It should be served by public transport or town bicycles. Life will be more pleasant, with less traffic congesation. It will also be safer for the people to walk along the roads.
The private cars can be parked outside the city center, for travel to other towns.
Thursday, September 27, 2007
How to use an agent
I use an agent (i.e. a stockbroker or relationship manager) actively on my personal investments. Here are some tips on how to use them:
1. Ask them to get relevant information for you. They have access to a large institution and colleagues who can identify and extract the information.
2. You can ask for their views and advice. But, you should be ready to take the decision yourself. It is your money that is being invested.
3. Get them to transact for you. They know the process and forms that have to be filled. They can fill the form for you and follow up on the next steps.
4. Pay them the standard fee for this service. They need to make a living, and can save you a lot of your time (which is costly) and unnecessary expenses.
1. Ask them to get relevant information for you. They have access to a large institution and colleagues who can identify and extract the information.
2. You can ask for their views and advice. But, you should be ready to take the decision yourself. It is your money that is being invested.
3. Get them to transact for you. They know the process and forms that have to be filled. They can fill the form for you and follow up on the next steps.
4. Pay them the standard fee for this service. They need to make a living, and can save you a lot of your time (which is costly) and unnecessary expenses.
Buying a financial product
One commentor in my blog frequently recommended to see a financial adviser who can give a financial health assessment. He is strongly against insurance agents who sell products.
Here are my views on this matter:
1. Most people can sort out their financial priorities on thier own, by reading the relevant FAQ.
2. They can buy invest in the cost products, such as term insurance or low cost funds.
3. They can see an agent to help them to source for the best product.
4. They need to see a financial adviser only if they are wealthy or have tax and other legal issues to sort out.
5. They need to learn how to identify bad and costly products, and avoid them. If they use an adviser or agent, make sure you get an honest one, who looks after your interest.
Here are my views on this matter:
1. Most people can sort out their financial priorities on thier own, by reading the relevant FAQ.
2. They can buy invest in the cost products, such as term insurance or low cost funds.
3. They can see an agent to help them to source for the best product.
4. They need to see a financial adviser only if they are wealthy or have tax and other legal issues to sort out.
5. They need to learn how to identify bad and costly products, and avoid them. If they use an adviser or agent, make sure you get an honest one, who looks after your interest.
Wednesday, September 26, 2007
Save in a bank account first
Hi Mr Tan,
I'm really glad that I happen to read your blog! I have been searching online and looking for the right saving plan for myself but I just couldn't find one that I understand. I've tried looking at some websites of banks and insurance companies, it got me more confused. I need some advice from you.
I am a fresh graduate, earning $1.6k per month. I would like to do some saving plans for my future to invest in a fund that will grow after like 5 – 10 years.
I'm kind of in dilemma because I'm thinking of furthering my studies next year if I manage to get into a local university. Should I start my saving plans now or wait till I'm working full time permanently?
MY REPLY
You can read this FAQ
I suggest that you save in a saving account with a bank first. The interest rate may be low, but you do not incur any upfront investment cost. When you are clear that the savings can be locked up for the long term, you can invest in a low cost fund, which is described in my FAQ.
I hope that this suggestion fits into your needs.
I'm really glad that I happen to read your blog! I have been searching online and looking for the right saving plan for myself but I just couldn't find one that I understand. I've tried looking at some websites of banks and insurance companies, it got me more confused. I need some advice from you.
I am a fresh graduate, earning $1.6k per month. I would like to do some saving plans for my future to invest in a fund that will grow after like 5 – 10 years.
I'm kind of in dilemma because I'm thinking of furthering my studies next year if I manage to get into a local university. Should I start my saving plans now or wait till I'm working full time permanently?
MY REPLY
You can read this FAQ
I suggest that you save in a saving account with a bank first. The interest rate may be low, but you do not incur any upfront investment cost. When you are clear that the savings can be locked up for the long term, you can invest in a low cost fund, which is described in my FAQ.
I hope that this suggestion fits into your needs.
Expensive Broadband Connection
Broadband connection is expensive in Brussels. My hotel charges Euro 15 for 1 hour and Euro 25 for 1 day. Wow!
Tuesday, September 25, 2007
Financial Planning Tips
Mr Tan!
Recently, I've been reading your blogs. It has really helped me alot in understanding the wise and prudent way to manage my finances. I'm quite sure many others would have similarly benefited much from it too.
MY REPLY
You can read the FAQs posted in my website. There is a link from my right panel called "Financial Planning Tips". You can also access the page here.
Recently, I've been reading your blogs. It has really helped me alot in understanding the wise and prudent way to manage my finances. I'm quite sure many others would have similarly benefited much from it too.
MY REPLY
You can read the FAQs posted in my website. There is a link from my right panel called "Financial Planning Tips". You can also access the page here.
Participating Annuity
Dear Mr Tan
Your blogspot is really helpful to the public. I have also been reading your recent articles on annuities in the Straits Times with great interest.
I have two annuities, both participating but with a refund feature, if I die within 15 years or less.
Upon reading your recommendation I asked my NTUC income agent if I could switch to a non refund policy and thus obtain increased monthly payouts. He said there is no such policy, ie without refund, right now.
When I bought my annuity, it projects a bonus of 2 to 2.75 % yearly. Can it exceed 2.75% in good years?
MY REPLY:
The two annuity policies that you bought gave good value. Although the guaranteed interest rate is around 2.5%, you will enjoy a variable bonus that is likely to increase the net return to around 5% per annum. The actual bonus depends on the investment yield in each year. It can exceed 2.75% in good years.
If you look at the illustration given to you at the time that you bought the annuity, you will see that the payout is projected to increase over the years due to the addition of the bonus.
Most people bought the annuity with the refund feature. Although it pays a slightly lower return, it is still quite attractive. It will take a few more years before people are familiar with the concept of the "no refund" annuity.
I advise you to keep these two annuity policies. They give good value. The Straits Times will soon be publishing another article about why the participating annuity is suitable for today's environment.
Your blogspot is really helpful to the public. I have also been reading your recent articles on annuities in the Straits Times with great interest.
I have two annuities, both participating but with a refund feature, if I die within 15 years or less.
Upon reading your recommendation I asked my NTUC income agent if I could switch to a non refund policy and thus obtain increased monthly payouts. He said there is no such policy, ie without refund, right now.
When I bought my annuity, it projects a bonus of 2 to 2.75 % yearly. Can it exceed 2.75% in good years?
MY REPLY:
The two annuity policies that you bought gave good value. Although the guaranteed interest rate is around 2.5%, you will enjoy a variable bonus that is likely to increase the net return to around 5% per annum. The actual bonus depends on the investment yield in each year. It can exceed 2.75% in good years.
If you look at the illustration given to you at the time that you bought the annuity, you will see that the payout is projected to increase over the years due to the addition of the bonus.
Most people bought the annuity with the refund feature. Although it pays a slightly lower return, it is still quite attractive. It will take a few more years before people are familiar with the concept of the "no refund" annuity.
I advise you to keep these two annuity policies. They give good value. The Straits Times will soon be publishing another article about why the participating annuity is suitable for today's environment.
Rewards of investing in a Life Annuity
A few people told me that they liked the article published in the Straits Times about the rewards of investing in a life annuity.
The original text of my article is posted here.
The original text of my article is posted here.
Charming Brussells
I am now in Brussels, Belgium to attend an international insurance conference.
The weather is wonderful. It is Autumn and very pleasant. The city is charming.
The weather is wonderful. It is Autumn and very pleasant. The city is charming.
FAQs on Life Insurance
Question: I bought a 20-year Endowment Policy which just matured. The maturity value is much lower than what was projected when the agent pitched the sale 20 years ago - very disappointed! Projection should be more realistic, otherwise people lose trust in buying insurance.
Reply: The projection was based on the conditions at that time. Subsequently, interest rate fell. It impacted on the bonuses paid on the policy. We are still in a low interest rate environment.
Question: I have two single premium insurance , one maturiing next year and another the following year.
Reply: They should give you a return of 3% to 4% yearly. It should be quite satisfactory.
Question: I bought a whole Life Policy ten years ago. Another agent told me that I should not have bought this policy as payout upon death is very high but surrender value is low. I have no dependents, so payout upon death is not important to me. What should I do - continue holding this policy, or surrender it now at a loss, or hold it until breakeven then surrender the policy?
Reply: If you do not need the insurance, you can terminate it and receive a cash value. Read this FAQ before you decide.
Question: ElderShield - I was advised by an NTUC Income agent to give up this policy as the claim is low and under very strict requirements. Now with the improved version, is it good to take up this insurance again?
Reply: If you have sufficient savings, you do not need this insurance. You can draw on your savings to cover your needs, instead of depending on Eldershield.
Question: Dependent Protection Insurance Scheme (formerly under CPF) - is it really necessary for people like me who have no dependents? Should I give this up?
Reply: You can give up this insurance, if you do not have any dependents. I terminate this insurance as I have sufficient savings at this time to meet the needs of my family.
Question: I bought a Shield Plan to cover hospitalisation and surgical expenses, as IncomeShield did not provide the "as charged" option. Later, NTUC Income offered the "as charged" option. Should I switch to NTUC Income now since the premium is lower?
Reply: You can switch over to NTUC Income. It should offer similar coverage at a lower cost.
Question: Please advise if I have missed out on any other type of insurance which I should have.
Reply: You can read the FAQs in this website.
Reply: The projection was based on the conditions at that time. Subsequently, interest rate fell. It impacted on the bonuses paid on the policy. We are still in a low interest rate environment.
Question: I have two single premium insurance , one maturiing next year and another the following year.
Reply: They should give you a return of 3% to 4% yearly. It should be quite satisfactory.
Question: I bought a whole Life Policy ten years ago. Another agent told me that I should not have bought this policy as payout upon death is very high but surrender value is low. I have no dependents, so payout upon death is not important to me. What should I do - continue holding this policy, or surrender it now at a loss, or hold it until breakeven then surrender the policy?
Reply: If you do not need the insurance, you can terminate it and receive a cash value. Read this FAQ before you decide.
Question: ElderShield - I was advised by an NTUC Income agent to give up this policy as the claim is low and under very strict requirements. Now with the improved version, is it good to take up this insurance again?
Reply: If you have sufficient savings, you do not need this insurance. You can draw on your savings to cover your needs, instead of depending on Eldershield.
Question: Dependent Protection Insurance Scheme (formerly under CPF) - is it really necessary for people like me who have no dependents? Should I give this up?
Reply: You can give up this insurance, if you do not have any dependents. I terminate this insurance as I have sufficient savings at this time to meet the needs of my family.
Question: I bought a Shield Plan to cover hospitalisation and surgical expenses, as IncomeShield did not provide the "as charged" option. Later, NTUC Income offered the "as charged" option. Should I switch to NTUC Income now since the premium is lower?
Reply: You can switch over to NTUC Income. It should offer similar coverage at a lower cost.
Question: Please advise if I have missed out on any other type of insurance which I should have.
Reply: You can read the FAQs in this website.
Invest in a life annuity - Options
Dear Mr Tan,
Your article on Reward of Buying a Life Annuity at 65 published in the Straits Times on 24 September was very well and clearly written. It is very easy for a layman to understand. Thanks a lot for taking the effort to write the article.
I had been approached by at least two NTUC Income agents on this type of annuity but I didn't see any benefit in it as the monthly payout is very low.
Is it possible to put in a higher amount and get a higher monthly payout? I understand that there is a maximum amount that we can put in, is this true?
Can I convert my Living policy into an annuity at age 65 and also invest my minimum sum in an annuity. Can I receive two payouts from two annuity policies?
MY REPLY:
You can invest a larger sum. There is no limit to the amount of investment. The payout will be proportionate to the amount invested.
The commercial terms may be different from the example that I used for educational purpose. Do study them before you decide to buy the annuity.
It is better to keep the CPF Minimum Sum in the retirement account in the CPF until you are age 65, to enjoy the higher interest rate payable by the CPF. You can decide to buy the life annuity at that time, depending on the commercial terms available then.
If you buy two annuities, you can get two payouts. There is no restriction.
Your article on Reward of Buying a Life Annuity at 65 published in the Straits Times on 24 September was very well and clearly written. It is very easy for a layman to understand. Thanks a lot for taking the effort to write the article.
I had been approached by at least two NTUC Income agents on this type of annuity but I didn't see any benefit in it as the monthly payout is very low.
Is it possible to put in a higher amount and get a higher monthly payout? I understand that there is a maximum amount that we can put in, is this true?
Can I convert my Living policy into an annuity at age 65 and also invest my minimum sum in an annuity. Can I receive two payouts from two annuity policies?
MY REPLY:
You can invest a larger sum. There is no limit to the amount of investment. The payout will be proportionate to the amount invested.
The commercial terms may be different from the example that I used for educational purpose. Do study them before you decide to buy the annuity.
It is better to keep the CPF Minimum Sum in the retirement account in the CPF until you are age 65, to enjoy the higher interest rate payable by the CPF. You can decide to buy the life annuity at that time, depending on the commercial terms available then.
If you buy two annuities, you can get two payouts. There is no restriction.
Earn $2,000 monthly after retirement
Ask the simple questions
I give talks on financial matters. I always advice my attendees on the following approach towards financial products:
1. Ask a few simple questions
2. What is the cost?
3. What are the benefits?
4. What are the charges?
5. What is the yield?
6. Why is the yield so high, or so low?
Ask the adviser to explain in simple language, so that you can understand it. If it is too complicated, you should distrust and reject the product.
Lesson: Do not be shy to ask the simple, relevant questions, and to reject any product that is not clear to you.
1. Ask a few simple questions
2. What is the cost?
3. What are the benefits?
4. What are the charges?
5. What is the yield?
6. Why is the yield so high, or so low?
Ask the adviser to explain in simple language, so that you can understand it. If it is too complicated, you should distrust and reject the product.
Lesson: Do not be shy to ask the simple, relevant questions, and to reject any product that is not clear to you.
Life Manager Plus
Dear Mr Tan,
Recently I bought a insurance plan called Life Manager Plus. It is my first time to buy the insurance.
I need to pay S$300 a month premium for sum insured of S$100K for Death, Critical Illness and Total and Permanent Disability.
I am thinking of reducing the premium to $150 and invest $150 on my own. What is your advice?
MY REPLY:
Ask the agent to give you the following:
1. What is the upfront charge for investing in this product?
2. What percentage of your premium is invested?
3. What is the expense ratio of the fund?
4. What are the charges for the death cover?
I suggest that you read this FAQ:
http://www.tankinlian.com/faq/fptips.html
Recently I bought a insurance plan called Life Manager Plus. It is my first time to buy the insurance.
I need to pay S$300 a month premium for sum insured of S$100K for Death, Critical Illness and Total and Permanent Disability.
I am thinking of reducing the premium to $150 and invest $150 on my own. What is your advice?
MY REPLY:
Ask the agent to give you the following:
1. What is the upfront charge for investing in this product?
2. What percentage of your premium is invested?
3. What is the expense ratio of the fund?
4. What are the charges for the death cover?
I suggest that you read this FAQ:
http://www.tankinlian.com/faq/fptips.html
Life Annuity at 65
Dear Mr Tan
Where do I buy the annuity@65 mentioned on 23/9/07?
MY REPLY:
The life annuity is presented for educational purpose, to compare with fixed payment over 20 or 30 years. It is not available commercially now.
The life annuity that is commercially available now are based on different features.
Where do I buy the annuity@65 mentioned on 23/9/07?
MY REPLY:
The life annuity is presented for educational purpose, to compare with fixed payment over 20 or 30 years. It is not available commercially now.
The life annuity that is commercially available now are based on different features.
Sunday, September 23, 2007
Fixed monthly sum under an annuity
Question: If I buy an annuity that pays out a fixed monthly sum over a lifetime (say 30 years or longer), will I lose out if interest rate and inflation increases in the future?
If you buy an annuity that pays a fixed monthly sum, the interest rate and payout is locked in for all the future years.
If interest rate falls, you continue to get the fixed monthly sum and is not affected by the lower interest rate. If interest rate incrases, you will not enjoy the higher interest rate.
Question: Should I take the risk of locking in the payout for all the future years?
In my personal view, it is better to buy a participating. It guarantees a lower payout and distributes a bonus that depends on the yield earned in the future. The bonus is not guaranteed and can be nil in some years. It is likely to vary between 0 to 4% yearly.
The payout under this annuity is low in the initial years, but will increase in subsequent years with the bonus.
If you buy this type of participating annuity, it is important that you choose an insurance company that distributes a large part of the investment gain to the annuitants, and not one that tries to maximise profits for their shareholders.
If you buy an annuity that pays a fixed monthly sum, the interest rate and payout is locked in for all the future years.
If interest rate falls, you continue to get the fixed monthly sum and is not affected by the lower interest rate. If interest rate incrases, you will not enjoy the higher interest rate.
Question: Should I take the risk of locking in the payout for all the future years?
In my personal view, it is better to buy a participating. It guarantees a lower payout and distributes a bonus that depends on the yield earned in the future. The bonus is not guaranteed and can be nil in some years. It is likely to vary between 0 to 4% yearly.
The payout under this annuity is low in the initial years, but will increase in subsequent years with the bonus.
If you buy this type of participating annuity, it is important that you choose an insurance company that distributes a large part of the investment gain to the annuitants, and not one that tries to maximise profits for their shareholders.
Annuity with refund
Question: Is it better to buy a life annuity with refund or without refund?
If you buy a life annuity without refund, you get a higher monthly payout. If you choose an annuity with refund, you get a lower payout. The reduction depends on the type of refund.
For example, you can buy a life annuity that guarantees payment for 20 years. In the event of death within 20 years, the refund is 20 years of payment less the payment that has already been received.
For this type of annuity, the reduction is estimated to be about 20%.
Do you prefer to get 20% more, under a "no refund" annuity, or 20% less under a "with refund" annuity?
If you are in fairly satisfactory health and is not aware of any serious medical condition, it is better to buy a "no refund" annuity and get a higher payment.
If you are in poor health, it is better to buy a "with refund" annuity and get a lower payment, or to buy a annuity that pays for a fixed number of years.
If you buy a life annuity without refund, you get a higher monthly payout. If you choose an annuity with refund, you get a lower payout. The reduction depends on the type of refund.
For example, you can buy a life annuity that guarantees payment for 20 years. In the event of death within 20 years, the refund is 20 years of payment less the payment that has already been received.
For this type of annuity, the reduction is estimated to be about 20%.
Do you prefer to get 20% more, under a "no refund" annuity, or 20% less under a "with refund" annuity?
If you are in fairly satisfactory health and is not aware of any serious medical condition, it is better to buy a "no refund" annuity and get a higher payment.
If you are in poor health, it is better to buy a "with refund" annuity and get a lower payment, or to buy a annuity that pays for a fixed number of years.
Premium for Life Annuity at 65
Dear Mr Tan
Will the insurance premium for life annuity at 65 be very high and most old folks will not find it attractive?
MY REPLY
The correct way is to look at the yield under a life annuity for a given amount of investment. Here is the yield for a male at age 65 investing $100,000:
* The yield includes a consumption of the initial capital.
The above figures assume a yield of 4% and does not impose any loading for expenses or profit. They are provided for educcational puropse and do not reflect the commercial terms available in the market.
Will the insurance premium for life annuity at 65 be very high and most old folks will not find it attractive?
MY REPLY
The correct way is to look at the yield under a life annuity for a given amount of investment. Here is the yield for a male at age 65 investing $100,000:
Monthly Yield *
Payable for 20 years $601 7.2%
Payable for 30 years $473 5.7%
Payable for life - no refund $619 7.4%
Payable for life - with refund $498 6.0%
* The yield includes a consumption of the initial capital.
The above figures assume a yield of 4% and does not impose any loading for expenses or profit. They are provided for educcational puropse and do not reflect the commercial terms available in the market.
Life Annuity at 65
The Government plans to introduce a Longevity insurance that pays $300 a month to a person from age 85 to a life time. Between 65 to 85, they will draw a monthly sum from their retirement account.
Many people do not like the idea of the Longevity insurance, as it pays out only from 85 and the payment is too small (and will be further depleted by inflation).
In my view, it is better for the Government to encourage people to buy a life annuity at 65, using the CPF minimum sum. Here are the advantages:
* The life annuity will give them a steady income payable for a lifetime.
* They do not have to worry about managing their retirement account for 20 years and be subject to a fluctuating interest rate that is pegged to the yield on Government bonds. They will also not suffer a drop in their income when they reach age 85.
If the life annuity is administered by the Central Provident Fund and the annuity payout is calculated using an interest rate of 4%, the payout can be quite attractive. These life annuitants should be exempted from the longevity annuity.
Many people do not like the idea of the Longevity insurance, as it pays out only from 85 and the payment is too small (and will be further depleted by inflation).
In my view, it is better for the Government to encourage people to buy a life annuity at 65, using the CPF minimum sum. Here are the advantages:
* The life annuity will give them a steady income payable for a lifetime.
* They do not have to worry about managing their retirement account for 20 years and be subject to a fluctuating interest rate that is pegged to the yield on Government bonds. They will also not suffer a drop in their income when they reach age 85.
If the life annuity is administered by the Central Provident Fund and the annuity payout is calculated using an interest rate of 4%, the payout can be quite attractive. These life annuitants should be exempted from the longevity annuity.
Saturday, September 22, 2007
China stocks are too expensive
There is a report in the Straits Times on Saturday. It mentioned that some of the China stocks are traded in Hongkong and in Shanghai. The price in Shanghai can be up to 9 times of the price in Hongkong. This shows how highly priced it can be.
If you invest in a China fund, are you paying too high a price for these stocks? Will it continue to go higher? Or will it head for a crash?
I prefer to buy these stocks in Hongkong at a fraction of the price in China. When more people in China buy the Hongkong stocks (which are relatively cheap compared to China), the price differential should narrow.
However, the prices in Hongkong may still be too high (based on price earning ratio), compared to stocks in other parts of the world.
Lesson: If you do not know the market, it is best to avoid investing in the over-priced stocks.
If you invest in a China fund, are you paying too high a price for these stocks? Will it continue to go higher? Or will it head for a crash?
I prefer to buy these stocks in Hongkong at a fraction of the price in China. When more people in China buy the Hongkong stocks (which are relatively cheap compared to China), the price differential should narrow.
However, the prices in Hongkong may still be too high (based on price earning ratio), compared to stocks in other parts of the world.
Lesson: If you do not know the market, it is best to avoid investing in the over-priced stocks.
Choose the right fund
Dear Mr Tan,
There are so many investment funds in the market. How do I make the right choice? Should I chooce the China and Indian funds that are likely to do well over the next few years? Any advice?
MY REPLY:
Choose a large, well diversified fund fund that have low upfront and annual expenses. Preferably, chooose an indexed funds, such as the STI ETF (exchange traded fund) or the S&P 500 fund (in America).
Invest 80% of your savings in these funds. For the remaining 20%, you can choose the fund that appears to be exciting, such as the China or India fund. However, you must select carefully, as the stocks in China are now too highly expensive.
There are so many investment funds in the market. How do I make the right choice? Should I chooce the China and Indian funds that are likely to do well over the next few years? Any advice?
MY REPLY:
Choose a large, well diversified fund fund that have low upfront and annual expenses. Preferably, chooose an indexed funds, such as the STI ETF (exchange traded fund) or the S&P 500 fund (in America).
Invest 80% of your savings in these funds. For the remaining 20%, you can choose the fund that appears to be exciting, such as the China or India fund. However, you must select carefully, as the stocks in China are now too highly expensive.
Educate the customers
Many insurance products are too complicated. The agent does not spend time to explain the product to the policyholder. They are trained to sell the products to the customer, using emotive reasons.
As a result, many policyholders, including those that are well educated, do not understand the product that they have bought.
This is an unsatisfactory state of affairs. It has been the case for many decades.
I personally share some of the blame for this state of affairs, as I had been involved in running an insurance company for 30 years. At least, I tried to offer simple products at low cost that give better value to the customers. And I did try to give simple explanatory leaflets.
I hope that, in the future, the insurance industry will put more effort in the following:
1. simplify the product
2. educate the customers
3. empower customers to select the product that best suit their needs.
4. reduce the upfront and operating costs, and disclose them to the customers.
As a result, many policyholders, including those that are well educated, do not understand the product that they have bought.
This is an unsatisfactory state of affairs. It has been the case for many decades.
I personally share some of the blame for this state of affairs, as I had been involved in running an insurance company for 30 years. At least, I tried to offer simple products at low cost that give better value to the customers. And I did try to give simple explanatory leaflets.
I hope that, in the future, the insurance industry will put more effort in the following:
1. simplify the product
2. educate the customers
3. empower customers to select the product that best suit their needs.
4. reduce the upfront and operating costs, and disclose them to the customers.
Friday, September 21, 2007
Need for financial discipline
Dear Mr Tan,
You advocate the strategy of buy term and invest the rest in your blog.
While I personally practise this as well, I wish to add a word of caution as well.
This strategy is not suitable for everyone. People who are spendthrifts may not be able to execute this strategy well. People who are naturally risk-adverse (to the point they avoid risk) are not suited too.
Another group who is more 'greedy' should not use this strategy as well. This is because they will not win in the emotional game of investment. It is likely their investment portfolio will be overly focused and carry too much unsystematic risks.
I hope you can add this word of caution in your blog and spur some discussion on this topic.
My worry is that people may just read your blog and make a decision without a deeper assessment of whether they can execute buy term and invest the rest well.
MY REPLY:
Thank you. Let me see how to encourage people to exercise more financial discipline.
A life insurance policy (such as whole life or endowment) is supposed to force people to have the financial discipline. But, it has not worked well.
If the policyholder is not able to continue paying the premium, the policy will lapse, and they will lose part or all of their savings. A high percentage of policies does not reach the maturity date, causing loss to the policyholders.
In my view, the solution is:
* educate the consumer
* design products with low upfront load and low expense ratio
* offer terms that are fair to consumers.
The Central Provident Fund fits into this criteria.
You advocate the strategy of buy term and invest the rest in your blog.
While I personally practise this as well, I wish to add a word of caution as well.
This strategy is not suitable for everyone. People who are spendthrifts may not be able to execute this strategy well. People who are naturally risk-adverse (to the point they avoid risk) are not suited too.
Another group who is more 'greedy' should not use this strategy as well. This is because they will not win in the emotional game of investment. It is likely their investment portfolio will be overly focused and carry too much unsystematic risks.
I hope you can add this word of caution in your blog and spur some discussion on this topic.
My worry is that people may just read your blog and make a decision without a deeper assessment of whether they can execute buy term and invest the rest well.
MY REPLY:
Thank you. Let me see how to encourage people to exercise more financial discipline.
A life insurance policy (such as whole life or endowment) is supposed to force people to have the financial discipline. But, it has not worked well.
If the policyholder is not able to continue paying the premium, the policy will lapse, and they will lose part or all of their savings. A high percentage of policies does not reach the maturity date, causing loss to the policyholders.
In my view, the solution is:
* educate the consumer
* design products with low upfront load and low expense ratio
* offer terms that are fair to consumers.
The Central Provident Fund fits into this criteria.
Thursday, September 20, 2007
Longevity insurance - What are the Options?
The Straits Times published my article in their Review section on 21 September 2007.
I explained the increasing life expectancy and the high proportion of people that will survive to 85 and 95. This is higher than what most people think.
I estimated the cost at age 55 of buying the longevity insurance which pays $300 a month from age 85 for the rest of the lifetime, as follows:
With refund: the original sum is refunded (without interest) on death of annuitant
Increasing payout: the amount increase by 2% yearly from the time of purchase.
I recommend to buy the increasing annuity, with no refund for those who do not have any serious medical problem. For those who are in poor health, they should buy the increasing annuity with full refund.
I explained the increasing life expectancy and the high proportion of people that will survive to 85 and 95. This is higher than what most people think.
I estimated the cost at age 55 of buying the longevity insurance which pays $300 a month from age 85 for the rest of the lifetime, as follows:
Male Female
No increase, no refund $6,818 $ 8,759
No increase, with refund $9,824 $11,594
Increase by 2% yearly, no refund $15,137 $19,548
Increase by 2% yearly, with refund $28,923 $32,991
With refund: the original sum is refunded (without interest) on death of annuitant
Increasing payout: the amount increase by 2% yearly from the time of purchase.
I recommend to buy the increasing annuity, with no refund for those who do not have any serious medical problem. For those who are in poor health, they should buy the increasing annuity with full refund.
Life annuity pays out more
A life annuity can provide a better lifetime income, compared to a fixed term annuity.
A male at age 65 can invest $150,000 in the following:
If he choose a fixed term annuity (20 or 30 years), he will get a monthly payout of $902 or $709 respectively. The money will run out at the end of the fixed term. In the event of death during the term, there is some money remaining that can be paid to the estate.
There is a 52% chance of surving to 85 years and 24% to 95 years.
If he choose a life annuity (with no refund on death), he can get a monthly payout of $929. This payout continues for as long as he lives, but there will be no refund on death.
He can get a bigger payout payable for a potentially longer period under a life annuity. This is possible because those who die earlier leave behind the balance of their money in the fund to pay to those who live longer. This is "pooling of longevity risk".
He can opt to buy an annuity that gives a refund on death during the first 20 years of the balance of 20 years payment. The monthly payout is $827, which is 11% less than the "no refund" annuity.
A female at age 65 can invest $150,000 in the following:
The payout under the life annuity is lower, as a female is expected to live longer than a male.
Disclaimer: These figures are based on an interest rate of 4% and the population mortality rates, with adjustment for future reduction in mortality. It ignores expenses and profit margin.
This is written to educate the public about the principles of life annuity. They may not reflect the commercial terms that may be offered by an annuity provider.
I used an interest rate of 4% to calcuate the annuity as it is the same interest rate paid by CPF on the retirement account. I hope that CPF can be convinced to offer a life annuity using the same interest rate. There is no additional cost to the CPF. This may make the life annuity to be more attractive.
A male at age 65 can invest $150,000 in the following:
Payable for 20 years $902
Payable for 30 years $709
Payable for life - no refund $929
Payable for life - with refund $827
If he choose a fixed term annuity (20 or 30 years), he will get a monthly payout of $902 or $709 respectively. The money will run out at the end of the fixed term. In the event of death during the term, there is some money remaining that can be paid to the estate.
There is a 52% chance of surving to 85 years and 24% to 95 years.
If he choose a life annuity (with no refund on death), he can get a monthly payout of $929. This payout continues for as long as he lives, but there will be no refund on death.
He can get a bigger payout payable for a potentially longer period under a life annuity. This is possible because those who die earlier leave behind the balance of their money in the fund to pay to those who live longer. This is "pooling of longevity risk".
He can opt to buy an annuity that gives a refund on death during the first 20 years of the balance of 20 years payment. The monthly payout is $827, which is 11% less than the "no refund" annuity.
A female at age 65 can invest $150,000 in the following:
Payable for 20 years $902
Payable for 30 years $709
Payable for life - no refund $747
Payable for life - with refund $728
The payout under the life annuity is lower, as a female is expected to live longer than a male.
Disclaimer: These figures are based on an interest rate of 4% and the population mortality rates, with adjustment for future reduction in mortality. It ignores expenses and profit margin.
This is written to educate the public about the principles of life annuity. They may not reflect the commercial terms that may be offered by an annuity provider.
I used an interest rate of 4% to calcuate the annuity as it is the same interest rate paid by CPF on the retirement account. I hope that CPF can be convinced to offer a life annuity using the same interest rate. There is no additional cost to the CPF. This may make the life annuity to be more attractive.
Does an independent adviser give better value?
Someone frequently posted comments in my blog arguing that an independent financial adviser have a better range of products to offer to the client, compared to a tied agent.
In my view, this is not a priority. More importantly, it is the integrity of the adviser that counts.
Does the adviser (i.e. tied or independent) act ethically in looking after the best interest of the client? Or does the adviser push a product that earns the highest commission?
Within any company, there is a range of products. Some offer better value to the client and pays less commission to the adviser. Others pay higher commission. Which product does the adviser recommend?
When I was in charge of NTUC Income, I made sure that all the products offer good value to the customers, and a fair rate of commission to the agent. Most of the agents recommended these good value products, even today.
In my view, this is not a priority. More importantly, it is the integrity of the adviser that counts.
Does the adviser (i.e. tied or independent) act ethically in looking after the best interest of the client? Or does the adviser push a product that earns the highest commission?
Within any company, there is a range of products. Some offer better value to the client and pays less commission to the adviser. Others pay higher commission. Which product does the adviser recommend?
When I was in charge of NTUC Income, I made sure that all the products offer good value to the customers, and a fair rate of commission to the agent. Most of the agents recommended these good value products, even today.
Purchase additional insurance
Dear Mr Tan,
I wish to seek your advise on whether I should take up a Limited Living Policy to which I need not pay any premiums after 20 years of retaining the policy. I still enjoy the protection and returns.
Currently I am holding a Foundation policy and a Pioneer policy from NTUC Income. I had this feeling that I was not insured enough so I contacted an agent who ecommended the Limited Living Policy.
I am now seeking your advice whether should I be going ahead with this policy.
MY REPLY:
Please read this FAQ.
In my view, it is better to buy term insurance and invest the difference in an investment fund, such as the combined fund of NTUC Income.
You can ask the adviser to show the difference in return under both options. You can make a more informed decision.
I wish to seek your advise on whether I should take up a Limited Living Policy to which I need not pay any premiums after 20 years of retaining the policy. I still enjoy the protection and returns.
Currently I am holding a Foundation policy and a Pioneer policy from NTUC Income. I had this feeling that I was not insured enough so I contacted an agent who ecommended the Limited Living Policy.
I am now seeking your advice whether should I be going ahead with this policy.
MY REPLY:
Please read this FAQ.
In my view, it is better to buy term insurance and invest the difference in an investment fund, such as the combined fund of NTUC Income.
You can ask the adviser to show the difference in return under both options. You can make a more informed decision.
Wednesday, September 19, 2007
Write a will
I gave this suggestion to attendees at my educational talk.
1. Write a will. It will help your family to sort out your financial affairs when you pass away.
2. If you are not sure about your final intention, you can write an interim will now and replace it with a new will later, if your circumstances change. A will can be revoked by a new will.
3. If you do not write a will, it is all right. Usually, the family members will decide on how to distribute the assets through mutual agreement.
4. If there a dispute among the family members (without a will), the estate can be distributed according to the Law on Intestacy.
More importantly, an elderly parent should involve your family members early, in managing the assets, i.e investments and properties. This allows the family members to identify the assets and manage them easlily, following the death of the parent.
1. Write a will. It will help your family to sort out your financial affairs when you pass away.
2. If you are not sure about your final intention, you can write an interim will now and replace it with a new will later, if your circumstances change. A will can be revoked by a new will.
3. If you do not write a will, it is all right. Usually, the family members will decide on how to distribute the assets through mutual agreement.
4. If there a dispute among the family members (without a will), the estate can be distributed according to the Law on Intestacy.
More importantly, an elderly parent should involve your family members early, in managing the assets, i.e investments and properties. This allows the family members to identify the assets and manage them easlily, following the death of the parent.
Distribute your assets early
I give this advice to attendees at my educational talk.
If a parent has more than sufficient assets for his or her future needs, the parent can distribute some of your assets to the family members early, rather than wait till the parent passes away.
This is how it can be done.
1. Assume a parent has $1 million of assets. Many middle income parents have this sum, inclusive of the value of a property.
2. Take $500,000 to buy a life annuity. It should give the parent more than sufficient for future needs.
3. Keep $150,000 in liquid form for emergency needs.
4. Distribute $350,000 to the children now (when they reach, say, 25 years)
The parent can vary the amounts according to the personal circumstances and the amount of the assets.
The advantages of this arrangement are:
1. No need to pay estate duty.
2. The money is more useful to the adult children now, rather than many years later (on death of the parent).
If the parent does not wish to give a lump sum to a child at 25, the parent can buy a fixed term annuity to pay the money over a period of say, 10 years.
Some attendees told me that they have not thought about this idea before, but they will like to consider it.
If a parent has more than sufficient assets for his or her future needs, the parent can distribute some of your assets to the family members early, rather than wait till the parent passes away.
This is how it can be done.
1. Assume a parent has $1 million of assets. Many middle income parents have this sum, inclusive of the value of a property.
2. Take $500,000 to buy a life annuity. It should give the parent more than sufficient for future needs.
3. Keep $150,000 in liquid form for emergency needs.
4. Distribute $350,000 to the children now (when they reach, say, 25 years)
The parent can vary the amounts according to the personal circumstances and the amount of the assets.
The advantages of this arrangement are:
1. No need to pay estate duty.
2. The money is more useful to the adult children now, rather than many years later (on death of the parent).
If the parent does not wish to give a lump sum to a child at 25, the parent can buy a fixed term annuity to pay the money over a period of say, 10 years.
Some attendees told me that they have not thought about this idea before, but they will like to consider it.
Reaching age 55
Dear Mr Tan
I will be reaching 55 years old this November. I was encouraged to buy into NTUC Income's annuity by a friend early this year.
However, with all these new govt policies coming out on the deferred bonus and interest rate on CPF, may I seek your advice whether I should still go for Income's annuity or not? I really appreciate your expert advice on this.
MY REPLY:
It is better to keep your money in the CPF retirement account to enjoy 4% plus 1%.
You can decide at a later date, when you are 62 years old, whether to invest in a life annuity from NTUC Income.
I will be reaching 55 years old this November. I was encouraged to buy into NTUC Income's annuity by a friend early this year.
However, with all these new govt policies coming out on the deferred bonus and interest rate on CPF, may I seek your advice whether I should still go for Income's annuity or not? I really appreciate your expert advice on this.
MY REPLY:
It is better to keep your money in the CPF retirement account to enjoy 4% plus 1%.
You can decide at a later date, when you are 62 years old, whether to invest in a life annuity from NTUC Income.
Coverage under Medishield and hospitalisation plan
Hi Mr Tan,
My husband is covered under the Government's Medishield plan. He is also covered under my company's hospitalisation plan for which I pay only 50% of the premium. Is this double insurance? Should I continue to insure him under my company's plan?
REPLY
There is double insurance for Medishield and the hospitalisation plan.
I suggest that you ask the insurer to explain to you the extent of the overlap. If the overlap is significant, there is no point for you to pay two premium. If the overlap is minor, then it is all right to keep the hospitalisation plan (as you only pay 50% of the premium).
You can see if the deductible under Medishield is covered adequately by the hospitalsiation plan.
My husband is covered under the Government's Medishield plan. He is also covered under my company's hospitalisation plan for which I pay only 50% of the premium. Is this double insurance? Should I continue to insure him under my company's plan?
REPLY
There is double insurance for Medishield and the hospitalisation plan.
I suggest that you ask the insurer to explain to you the extent of the overlap. If the overlap is significant, there is no point for you to pay two premium. If the overlap is minor, then it is all right to keep the hospitalisation plan (as you only pay 50% of the premium).
You can see if the deductible under Medishield is covered adequately by the hospitalsiation plan.
Selecting a Shield plan
COMMENT POSTED IN MY BLOG
The situation is between the gap in Shield Plan for the Deductible and Co-insurance that is difficult to balance. The other scenario is one has employer benefit, and Shield Plan acts as a backup.
Shield Plan is a primary need. If one has not other coverage, look at covering the Deductible and Co-insurance. Insurers like Ntuc Income has Plus Rider that covers the Deductible and Co-insurance gap nicely.
Then again, some people do a low plan, example Plan Basic and seek private hospital care, then there will be a different scenario.
Some time it is difficult to decide on type of level of coverage unless one is sure which type of medical care one will need. Generally, most will be comfortable in B1 or B2 government restructured hospital care.
Most parents will prefer private hospital care for their young children. Some ladies, like privacy when come to woman's problem and sough private medical care.
Unless one is able to be firm on the need, some time overlapping cover may be useful in such situation.
But example if one has Plan Preferred with Rider, this will cover mostly all types of care, as this is private hospital level of plan.
Thomas Phua
The situation is between the gap in Shield Plan for the Deductible and Co-insurance that is difficult to balance. The other scenario is one has employer benefit, and Shield Plan acts as a backup.
Shield Plan is a primary need. If one has not other coverage, look at covering the Deductible and Co-insurance. Insurers like Ntuc Income has Plus Rider that covers the Deductible and Co-insurance gap nicely.
Then again, some people do a low plan, example Plan Basic and seek private hospital care, then there will be a different scenario.
Some time it is difficult to decide on type of level of coverage unless one is sure which type of medical care one will need. Generally, most will be comfortable in B1 or B2 government restructured hospital care.
Most parents will prefer private hospital care for their young children. Some ladies, like privacy when come to woman's problem and sough private medical care.
Unless one is able to be firm on the need, some time overlapping cover may be useful in such situation.
But example if one has Plan Preferred with Rider, this will cover mostly all types of care, as this is private hospital level of plan.
Thomas Phua
Tuesday, September 18, 2007
Avoid over-lapping insurance policies
Take this example of a policyholder who has two medical insurance policies:
1. A Shield policy that pays 90% of the hospital bill in excess of $1,000.
2. A medical policy that pays 100% of the bill up to $5,000
The policyholder incurs a hospital bill for $8,000. The claimable amount is:
1. Shield policy: 90% of (8,000 - $1000) = $6,500
2. Medical policy: $5,000
The policyholder can only claim up to the bill of $8,000, i.e. $5,000 from the medical plan and $3,000 from the Shield plan. But, he had to pay a full premium for each policy.
It is better to avoid over-insurance through two over-lapping policies.
1. A Shield policy that pays 90% of the hospital bill in excess of $1,000.
2. A medical policy that pays 100% of the bill up to $5,000
The policyholder incurs a hospital bill for $8,000. The claimable amount is:
1. Shield policy: 90% of (8,000 - $1000) = $6,500
2. Medical policy: $5,000
The policyholder can only claim up to the bill of $8,000, i.e. $5,000 from the medical plan and $3,000 from the Shield plan. But, he had to pay a full premium for each policy.
It is better to avoid over-insurance through two over-lapping policies.
Pooling of risks
Insurance works on the principle of pooling of risks.
Take an example. There are 100,000 houses in a community. Each year, an average of 100 houses are totally destroyed by fire or other perils. The chance of a total loss is 1 in 1000 houses.
Each owner cannot take the risk of a total loss of his house. Suppose all the owners agree to participate in an insurance scheme, they only need to pay a pure premium of $1 to cover every $1,000 of the value of the property. A property worth $300,000 will need a premium of $300.
The insurance company will probably add a loading to the premium to cover the operating expenses and a profit margin, say $450. Each owner will probably find that it is worth paying a premium to cover the risk.
The insurance policy usually cover other losses as well, such as partial loss or damage caused by flood, burglary and other perils.
The insurance company will work out the total claims based on its past claim experience, and compute a premium rate for every $1,000 of insured value. A loading is added (for expenses and profit) to obtain the gross premium charged to the policyholder.
In practice, the risks are divided into separate groups according to the likelihood of a claim, to obtain the premium rate for each group.
Take an example. There are 100,000 houses in a community. Each year, an average of 100 houses are totally destroyed by fire or other perils. The chance of a total loss is 1 in 1000 houses.
Each owner cannot take the risk of a total loss of his house. Suppose all the owners agree to participate in an insurance scheme, they only need to pay a pure premium of $1 to cover every $1,000 of the value of the property. A property worth $300,000 will need a premium of $300.
The insurance company will probably add a loading to the premium to cover the operating expenses and a profit margin, say $450. Each owner will probably find that it is worth paying a premium to cover the risk.
The insurance policy usually cover other losses as well, such as partial loss or damage caused by flood, burglary and other perils.
The insurance company will work out the total claims based on its past claim experience, and compute a premium rate for every $1,000 of insured value. A loading is added (for expenses and profit) to obtain the gross premium charged to the policyholder.
In practice, the risks are divided into separate groups according to the likelihood of a claim, to obtain the premium rate for each group.
Insure against big losses
You should buy insurance against a big loss with a small chance of occurence. Look at these two cases:
Case 1:
Potential loss is $100,000. Chance of occurence is 1%. Expected cost of claim is $1,000. Premium (allowing for expense and profit margin) is $1,500.
Case 2:
Potential loss is $2,000. Chance of occurence is 50%. Expected cost of claim is $1,000. Premium (allowing for expense and profit margin) is $1,500.
Analysis:
For case 1, you cannot afford to bear a loss of $100,000. So, it is worthwhile to pay a premium of $1,500 to cover this risk.
For case 2, you can afford a loss of $2,000. It is not worthwhile for you to pay a premium of $1,500 to cover this risk, as you have to pay $500 more than the expected cost of claim (of $1,000).
It is not necessary to take insurance against small losses. It is better to bear this risk on your own.
An example is the deductible under a Shield plan. It is not necessary for you to buy insurance for this deductible, as you can take this risk on your own (or pay out of Medisave savings).
Case 1:
Potential loss is $100,000. Chance of occurence is 1%. Expected cost of claim is $1,000. Premium (allowing for expense and profit margin) is $1,500.
Case 2:
Potential loss is $2,000. Chance of occurence is 50%. Expected cost of claim is $1,000. Premium (allowing for expense and profit margin) is $1,500.
Analysis:
For case 1, you cannot afford to bear a loss of $100,000. So, it is worthwhile to pay a premium of $1,500 to cover this risk.
For case 2, you can afford a loss of $2,000. It is not worthwhile for you to pay a premium of $1,500 to cover this risk, as you have to pay $500 more than the expected cost of claim (of $1,000).
It is not necessary to take insurance against small losses. It is better to bear this risk on your own.
An example is the deductible under a Shield plan. It is not necessary for you to buy insurance for this deductible, as you can take this risk on your own (or pay out of Medisave savings).
Monday, September 17, 2007
People are living longer
Based on the mortality rates in 2005, the life expectancy at 65 is 17.7 years for males and 20.7 years for females.
Over the past 25 years, the mortality rates have been falling by an average of 3% yearly.
If this trend continues, and there is every reason to believe that it will, the life expectancy at 65 is expected to increase to 23.4 years for males and 27.5 years for females.
52% of males at 65 are expected to live to 85 years and 24% to 95 years. The proportion for females are 65% and 32% respectively.
Note: The calculations are based on the mortality rates taken from the population, with projection for future improvement in mortality.
Over the past 25 years, the mortality rates have been falling by an average of 3% yearly.
If this trend continues, and there is every reason to believe that it will, the life expectancy at 65 is expected to increase to 23.4 years for males and 27.5 years for females.
52% of males at 65 are expected to live to 85 years and 24% to 95 years. The proportion for females are 65% and 32% respectively.
Based on death rates Allow for decline in
in 2005 death rate, 3% yearly
75yrs 85yrs 95yrs 75yrs 85yrs 95yrs
Male 77% 39% 7% 80% 52% 24%
Female 87% 53% 11% 88% 65% 32%
Note: The calculations are based on the mortality rates taken from the population, with projection for future improvement in mortality.
Funds with Low Upfront Charge
In America, you can invest in "no-load" funds. They do not have any upfront charge. 100% of your money is invested.
In Singapore, the usual upfront charge is 3% to 5%. Some unit trusts offer promotions that reduce the upfront charge to less than 2%.
I like to ask visitors to my blog to submit a comment. Are you aware of any unit trust that offer a upfront charge of 2% or lower? Give the following details: name of unit trust, distributor, website, upfront charge, expense ratio, size of fund.
In Singapore, the usual upfront charge is 3% to 5%. Some unit trusts offer promotions that reduce the upfront charge to less than 2%.
I like to ask visitors to my blog to submit a comment. Are you aware of any unit trust that offer a upfront charge of 2% or lower? Give the following details: name of unit trust, distributor, website, upfront charge, expense ratio, size of fund.
Diversification and liquidity
Which will yield a better return over the next 20 years?
* STI ETF
* Genting International Shares
* Freehold private property
REPLY:
I prefer the STI ETF as it is well diversified (compared to an individual share) and has better liquidity (compared to a freehold property).
* STI ETF
* Genting International Shares
* Freehold private property
REPLY:
I prefer the STI ETF as it is well diversified (compared to an individual share) and has better liquidity (compared to a freehold property).
Retirement Planning
Dear Mr Tan,
I am in my early 50s and have $300,000 in my CPF ordinary account. What is your advice for my retirement planning?
REPLY
I suggest that you invest your CPF ordinary account in a large, well diversified, low cost investment fund.
You can select the following:
* STI ETF traded on the Singapore Exchange
* Combined fund from NTUC Income
As the stockmarket is at a high level, you should make this investment in lots over the next 12 months. Read this FAQ.
I am in my early 50s and have $300,000 in my CPF ordinary account. What is your advice for my retirement planning?
REPLY
I suggest that you invest your CPF ordinary account in a large, well diversified, low cost investment fund.
You can select the following:
* STI ETF traded on the Singapore Exchange
* Combined fund from NTUC Income
As the stockmarket is at a high level, you should make this investment in lots over the next 12 months. Read this FAQ.
Education in Singapore.
Education is an important issue to everyone. What we are depends on how well educated we are vis a vis the opportunities given to us or how we get out of the rut we sometimes find ourselves in.
Dr. & Mrs. Lee Kum Tatt have both spent a good part of their lives in various capacities educating themselves, their family members, our fellow citizens and others. They are going to share with us some of their inspiring experiences in education. You can read about this in Dr. Lee’s blog.
Dr. & Mrs. Lee Kum Tatt have both spent a good part of their lives in various capacities educating themselves, their family members, our fellow citizens and others. They are going to share with us some of their inspiring experiences in education. You can read about this in Dr. Lee’s blog.
Sunday, September 16, 2007
Questons on Life and medical insurance
Q: My medical bill is covered by the Government. I am on the pension scheme. Should I be covered for Medishield under CPF?
If you are covered for medical benefits by the Government for a lifetime, there is no need for you to buy Medishield or any of the private Shield plan. You can save on the premium.
I understand that the Government scheme may require you to make a small co-payment for some of the charges. This co-payment is small and can be paid out of your savings. There is no point in buy a Shield plan to cover the small co-payment, as the premium charged is out of proportion to the coverage that is provided.
Q: I have a whole life policy. I am 35 years old. Should I liquidate and convert to a term assurance?
It is better for you to keep the whole life policy, as you have already incurred the upfront expenses that is deducted to pay the commission to the agent.
In the future, you may have to increase your life insurance protection. At that time, it is better to buy a term insurance or a decreasing term insurance for the additional cover.
Q: I bought a Living and a Career policy from NTUC Income What is the best time to redeem these policies?
I suggest that you continue this policy until your retirement date. At that time, you can decide on how best to deal with these policies. You can read the tips contained in paragraph 10 in this FAQ.
If you are covered for medical benefits by the Government for a lifetime, there is no need for you to buy Medishield or any of the private Shield plan. You can save on the premium.
I understand that the Government scheme may require you to make a small co-payment for some of the charges. This co-payment is small and can be paid out of your savings. There is no point in buy a Shield plan to cover the small co-payment, as the premium charged is out of proportion to the coverage that is provided.
Q: I have a whole life policy. I am 35 years old. Should I liquidate and convert to a term assurance?
It is better for you to keep the whole life policy, as you have already incurred the upfront expenses that is deducted to pay the commission to the agent.
In the future, you may have to increase your life insurance protection. At that time, it is better to buy a term insurance or a decreasing term insurance for the additional cover.
Q: I bought a Living and a Career policy from NTUC Income What is the best time to redeem these policies?
I suggest that you continue this policy until your retirement date. At that time, you can decide on how best to deal with these policies. You can read the tips contained in paragraph 10 in this FAQ.
Questions on Investing in funds
Q: I invested in a China equity and balanced fund. What are the prospects after the Beijing Olypmics?
Share prices in China, traded through the Shanghai exchange, are too expensive. For many shares, the price in Shanghai is more than two times of the price of the same share traded in Hong Kong. It is too speculative. Be careful.
Q: How can I buy government bonds?
You can buy government bonds through a bank or stockbroker. You can get information about the price and yields of government bonds from the MAS website.
https://secure.sgs.gov.sg/apps/fda/sgsBenchmarkIssuesForm.jsp
The current yields are:
5 year 2.44%
10 year 2.7%
15 year 3.09%
20 year 3.24%
Remember. If you invest in government bonds, the yield is locked up for the period. You will not enjoy any future increase in yield. But, you will not suffer any future reduction.
Q: Is it better to invest in a fund using single or regular premiums?
Many insurance companies levy higher charges for investing in regular premiums. It is usually better to invest with single premiums, including recurring single premiums, to enjoy the lower charges.
If the fund have the same charges for single and regular premium, it does not matter which mode you choose.
Q: How can I invest in Singapore equity? Global equity?
NTUC Income has several funds with low expense ratios. You can ask their insurance adviser or visit their business center to talk to a salaried consultant. See the link on the right of my blog.
You may be able to find some unit trusts with low expense ratios as well. A financial adviser can help you.
Q: Is it a good time to invest now? Should I wait for the peak to be over?
It is difficult to make this judgement. I find the current level to be rather high, and am willing to wait for a lower level. In the meantime, I have my savings in short term deposits to earn 2%.
Usually, the stockmarket performs well during the last quarter of the year. I will probably invest early next month.
Q: My financial adviser says that it is good to switch investments (without any charge) to maximise my return. Is this true?
It is usually difficult to make this type of decision. If you do, take a long term view. Do not switch just a few percent change in the unit price of the fund. In a voltile market, the price can change by up to 10% or more, without affecting the underlying trend.
Most people invest for the long term, and do not bother about making the switches.
Q: I like to invest in a fund. How do I find a reliable broker?
NTUC Income has several funds with low expense ratios. You can ask their insurance adviser or visit their business center to talk to a salaried consultant. See the link on the right of my blog.
You may be able to find some unit trusts with low expense ratios as well. A financial adviser can help you.
Share prices in China, traded through the Shanghai exchange, are too expensive. For many shares, the price in Shanghai is more than two times of the price of the same share traded in Hong Kong. It is too speculative. Be careful.
Q: How can I buy government bonds?
You can buy government bonds through a bank or stockbroker. You can get information about the price and yields of government bonds from the MAS website.
https://secure.sgs.gov.sg/apps/fda/sgsBenchmarkIssuesForm.jsp
The current yields are:
5 year 2.44%
10 year 2.7%
15 year 3.09%
20 year 3.24%
Remember. If you invest in government bonds, the yield is locked up for the period. You will not enjoy any future increase in yield. But, you will not suffer any future reduction.
Q: Is it better to invest in a fund using single or regular premiums?
Many insurance companies levy higher charges for investing in regular premiums. It is usually better to invest with single premiums, including recurring single premiums, to enjoy the lower charges.
If the fund have the same charges for single and regular premium, it does not matter which mode you choose.
Q: How can I invest in Singapore equity? Global equity?
NTUC Income has several funds with low expense ratios. You can ask their insurance adviser or visit their business center to talk to a salaried consultant. See the link on the right of my blog.
You may be able to find some unit trusts with low expense ratios as well. A financial adviser can help you.
Q: Is it a good time to invest now? Should I wait for the peak to be over?
It is difficult to make this judgement. I find the current level to be rather high, and am willing to wait for a lower level. In the meantime, I have my savings in short term deposits to earn 2%.
Usually, the stockmarket performs well during the last quarter of the year. I will probably invest early next month.
Q: My financial adviser says that it is good to switch investments (without any charge) to maximise my return. Is this true?
It is usually difficult to make this type of decision. If you do, take a long term view. Do not switch just a few percent change in the unit price of the fund. In a voltile market, the price can change by up to 10% or more, without affecting the underlying trend.
Most people invest for the long term, and do not bother about making the switches.
Q: I like to invest in a fund. How do I find a reliable broker?
NTUC Income has several funds with low expense ratios. You can ask their insurance adviser or visit their business center to talk to a salaried consultant. See the link on the right of my blog.
You may be able to find some unit trusts with low expense ratios as well. A financial adviser can help you.
Questions on Overseas property
Q: What do you think about investing in land in UK. Is it safe? Are the returns good?
I am not familiar with the UK property market. I read that the property values have increased to a high level over the recent years. There are also reports about the inability of home owners to repay their mortgages, similar to the sub-prime problem in America.
Be careful. It is best to avoid investing in an asset that you are not familiar with. It is more risky, if you are investing overseas.
Q: I am interested to invest in an apartment in Australia. I can get a return of 10%. Is this a good investment?
I understand that property values in Australia have increased significantly in recent years. Is the price too high now?
If you invest in an overseas property, you must be aware of the following:
* It may be difficult to find a tenant.
* The property may be vacant for part of the year.
* You have to deduct the agent fees and other expenses from the rental income.
* Many people find the additional expenses to be costly and a hassle.
If you have a family member that is using the apartment for a few years to stay in, it may make the property more attractive. At least, you can save on the rental that you have to pay for a rented property. But, you have to consider what to do after that period.
Be careful. It is best to avoid investing in an asset that you are not familiar with. It is more risky, if you are investing overseas.
I am not familiar with the UK property market. I read that the property values have increased to a high level over the recent years. There are also reports about the inability of home owners to repay their mortgages, similar to the sub-prime problem in America.
Be careful. It is best to avoid investing in an asset that you are not familiar with. It is more risky, if you are investing overseas.
Q: I am interested to invest in an apartment in Australia. I can get a return of 10%. Is this a good investment?
I understand that property values in Australia have increased significantly in recent years. Is the price too high now?
If you invest in an overseas property, you must be aware of the following:
* It may be difficult to find a tenant.
* The property may be vacant for part of the year.
* You have to deduct the agent fees and other expenses from the rental income.
* Many people find the additional expenses to be costly and a hassle.
If you have a family member that is using the apartment for a few years to stay in, it may make the property more attractive. At least, you can save on the rental that you have to pay for a rented property. But, you have to consider what to do after that period.
Be careful. It is best to avoid investing in an asset that you are not familiar with. It is more risky, if you are investing overseas.
Questions on Life Annuity
Q: What is the monthly payment for $400,000 to buy an annuity, with capital refund and without capital refund?
Some typical rates can be obtained here.
Q: Does the medical history affect the payout under an annuity?
The insurance company assume that all annuitants are in good health and have a longer lifespan. You should buy a life annuity only if you are of fairly good health.
If you are in poor health, you should not buy a life annuity, as you are likely to receive the payout over a shorter lifespan.
Q: Is there any difference due to timing?
If you buy a non-participating annuity, the payout that you get may vary according to the prevailing interest rate at the time of purchase.
For a participating annuity, the payout is likely to be the same, as the investment yield will be reflected in the bonus payable on the annuity.
Q: Why does a male get a higher payout from an annuity, compared to a female?
A female annuitant has a longer lifespan, and will receive a lower payout, compared to a male annuitant.
Q: I give $500 to my parents monthly. Is there a better way to stretch my money for my parents?
If you have a capital sum, you can buy a fixed term or life annuity for your parent. It may offer you a better return, compared to short term interest rate.
Q: Is it better to buy an annuity at 55 or at 65?
It depends on your personal needs. If you buy the annuity at 55, you will get a lower payout as the annuity will be paid for a longer period. If you wait until 65, you get a higher payout.
Some typical rates can be obtained here.
Q: Does the medical history affect the payout under an annuity?
The insurance company assume that all annuitants are in good health and have a longer lifespan. You should buy a life annuity only if you are of fairly good health.
If you are in poor health, you should not buy a life annuity, as you are likely to receive the payout over a shorter lifespan.
Q: Is there any difference due to timing?
If you buy a non-participating annuity, the payout that you get may vary according to the prevailing interest rate at the time of purchase.
For a participating annuity, the payout is likely to be the same, as the investment yield will be reflected in the bonus payable on the annuity.
Q: Why does a male get a higher payout from an annuity, compared to a female?
A female annuitant has a longer lifespan, and will receive a lower payout, compared to a male annuitant.
Q: I give $500 to my parents monthly. Is there a better way to stretch my money for my parents?
If you have a capital sum, you can buy a fixed term or life annuity for your parent. It may offer you a better return, compared to short term interest rate.
Q: Is it better to buy an annuity at 55 or at 65?
It depends on your personal needs. If you buy the annuity at 55, you will get a lower payout as the annuity will be paid for a longer period. If you wait until 65, you get a higher payout.
Talk to teachers on Managing your Finances
I gave a talk to teachers about Managing your Finances. there was a lively "question and answer" session.
More than 20 questions were submitted by the participants covering insurance, investments, overseas properties, life annuity.
I have answered them at the talk. I have also posted these questions and provided the answers in separate postings on this blog.
More than 20 questions were submitted by the participants covering insurance, investments, overseas properties, life annuity.
I have answered them at the talk. I have also posted these questions and provided the answers in separate postings on this blog.
Waive legal fees of $45,000
COMMENT POSTED IN MY BLOG:
It is indeed commendable and magnanimous of NTUC Income CEO to waive the $45K against a Mr. Lock. (I am confident that Mr. Tan Kin Lian would have done that too. He did it many times during his tenor).
It is an act of compassion. It is far more power than all the marketing efforts and money spent in the recent months to repackage Income's image. It has demonstrated that it cares for the people, the policyholders. Indeed it is well capitalised and kudos to the CEO.
I am sure the consuming public will be touched by this. It will be deeply etched in the their mind. This is a new positioning and revolutionary. I am one who has been critical of Income is also touched.
MY COMMENTS:
I am not familiar with the facts of this case, so my comments may be out of context.
I read from the newspaper report that it was Mr Lock who took the case against NTUC Income. He was represented by his lawyer.
I do not know why it was necessary for his lawyer to take this case to this extent and incur high legal fees for both parties. It was reported that Mr Lock still has to settle a legal bill of $80,000 from his lawyer.
The legal fees is clearly out of proportion to the amount of a few hundred dollars that was being claimed.
Many people were not aware about the high cost of legal fees. They engage a lawyer without thinking about the cost, in the belief that it will always be borne by the insurance company.
I hope that the waiver of the legal fees does not encourage people to continue with the old habit.
Lesson: Do not engage a lawyer for a small claim. If the matter gets complicated, the legal fees can cost a lot of money. Try to settle any dispute directly with the insurance company.
It is indeed commendable and magnanimous of NTUC Income CEO to waive the $45K against a Mr. Lock. (I am confident that Mr. Tan Kin Lian would have done that too. He did it many times during his tenor).
It is an act of compassion. It is far more power than all the marketing efforts and money spent in the recent months to repackage Income's image. It has demonstrated that it cares for the people, the policyholders. Indeed it is well capitalised and kudos to the CEO.
I am sure the consuming public will be touched by this. It will be deeply etched in the their mind. This is a new positioning and revolutionary. I am one who has been critical of Income is also touched.
MY COMMENTS:
I am not familiar with the facts of this case, so my comments may be out of context.
I read from the newspaper report that it was Mr Lock who took the case against NTUC Income. He was represented by his lawyer.
I do not know why it was necessary for his lawyer to take this case to this extent and incur high legal fees for both parties. It was reported that Mr Lock still has to settle a legal bill of $80,000 from his lawyer.
The legal fees is clearly out of proportion to the amount of a few hundred dollars that was being claimed.
Many people were not aware about the high cost of legal fees. They engage a lawyer without thinking about the cost, in the belief that it will always be borne by the insurance company.
I hope that the waiver of the legal fees does not encourage people to continue with the old habit.
Lesson: Do not engage a lawyer for a small claim. If the matter gets complicated, the legal fees can cost a lot of money. Try to settle any dispute directly with the insurance company.
Saturday, September 15, 2007
Simple facts about life annuity
There is a lot of discussion about life annuity. Here are some simple facts.
A life annuity is a contract for a customer (annuitant) to pay a lump sum into a fund and to receive a monthly payment during his or her lifetime.
The amount of the monthly payment depends on:
* The amount paid to buy the annuity
* The future yield on the investments of the fund
* The future lifespan of the annuitant
* The expenses and profit margin of the insurance company
An annuity provides two valuable services for the annuitant. It frees the annuitant from the hassle of investing the money for many years. It allows a pooling of the longevity risks, as the annuitants who die earlier leave behind the balance of their money to pay the monthly payment to the annuitants who live longer.
Should you keep your minimum sum in the Central Provident Fund or buy a life annuity? Should you buy a life annuity with your personal savings? What type of annuity should you buy?
You can get some simple facts and tips from this article.
A life annuity is a contract for a customer (annuitant) to pay a lump sum into a fund and to receive a monthly payment during his or her lifetime.
The amount of the monthly payment depends on:
* The amount paid to buy the annuity
* The future yield on the investments of the fund
* The future lifespan of the annuitant
* The expenses and profit margin of the insurance company
An annuity provides two valuable services for the annuitant. It frees the annuitant from the hassle of investing the money for many years. It allows a pooling of the longevity risks, as the annuitants who die earlier leave behind the balance of their money to pay the monthly payment to the annuitants who live longer.
Should you keep your minimum sum in the Central Provident Fund or buy a life annuity? Should you buy a life annuity with your personal savings? What type of annuity should you buy?
You can get some simple facts and tips from this article.
Future bonus of NTUC Income
Dear Mr. Tan,
From my personal experience with (name of company), I think their agents and overheads are very "well fed".
I bought their investment product. From their annual report, most or all of the funds are put into fixed income instrument. At the end of the tenor, I got less than the initial amount I put in despite that it is a guarantee product (the agent did not mention the high distribution cost upfront).
After which, I never bought or like anything from that company.
Now, with the change of CEO, I am quite worry about my future insurance bonus with NTUC Income. I think you are still the best so far.
REPLY:
I hope that NTUC Income will continue to operate on low cost, and for the benefit of its policyholders. I also have many policies with NTUC Income. So far, I do not have much concern.
From my personal experience with (name of company), I think their agents and overheads are very "well fed".
I bought their investment product. From their annual report, most or all of the funds are put into fixed income instrument. At the end of the tenor, I got less than the initial amount I put in despite that it is a guarantee product (the agent did not mention the high distribution cost upfront).
After which, I never bought or like anything from that company.
Now, with the change of CEO, I am quite worry about my future insurance bonus with NTUC Income. I think you are still the best so far.
REPLY:
I hope that NTUC Income will continue to operate on low cost, and for the benefit of its policyholders. I also have many policies with NTUC Income. So far, I do not have much concern.
Friday, September 14, 2007
A flexible product
It is advisable to invest in a flexible product which does not lock you up for many years. This product has no entry or exit charges, apart from a small transaction charge.
Examples of a flexible product:
* saving account
* short term fixed deposits
* no-load investment fund (with no exit penalty).
Examles of non-flexible products:
* traditional endowment and whole life policies
* structured products
The non-flexible products usually has high marketing costs. To recover this cost, the product has to be locked up for many years. If it is terminated early, there will be high charges.
Examples of a flexible product:
* saving account
* short term fixed deposits
* no-load investment fund (with no exit penalty).
Examles of non-flexible products:
* traditional endowment and whole life policies
* structured products
The non-flexible products usually has high marketing costs. To recover this cost, the product has to be locked up for many years. If it is terminated early, there will be high charges.
Reduction in yield
If you buy a life insurance policy, you will receive a policy illustration (comprising of several pages) that shows many figures.
You can look for an explanation of the following:
1. Total distribution cost
2. Effect of reduction
3. Reduction in yield
All insurance companies are required to provide them in a common format.
One key figure that you should study is the reduction in yield. It shows how the total distribution cost and other charges impact on your yield.
Here is an example of two plans, for 25 years, offered by the same insurance company. The gross investment yield is projected tobe 5.25% (not guaranteed).
The new product provides an annual payback of 5% of the sum assured from the second year. It has high distribution cost, which reduces the yield.
Lesson: Buy simple products that offer a better yield.
You can look for an explanation of the following:
1. Total distribution cost
2. Effect of reduction
3. Reduction in yield
All insurance companies are required to provide them in a common format.
One key figure that you should study is the reduction in yield. It shows how the total distribution cost and other charges impact on your yield.
Here is an example of two plans, for 25 years, offered by the same insurance company. The gross investment yield is projected tobe 5.25% (not guaranteed).
Reduced Reduction
yield in yield
Endowment policy 4.61% 0.64%
Endowment (new) 3.74% 1.51%
_
If you save $300 a month for 30 years, the difference is as follows:
_
Net yield Total on
maturity
4.61% p.a. $166,600
3.74% p.a. $147,500
Difference $ 19,100
The new product provides an annual payback of 5% of the sum assured from the second year. It has high distribution cost, which reduces the yield.
Lesson: Buy simple products that offer a better yield.
Selecting an investment fund
Hi
There are so many investment funds in the market. I need advice about selecting the fund to invest, but the insurance agent and adviser normally recommend only those funds that they they are engaged to sell. Can I expect to get impartial advice? I am quite confused.
REPLY
You should ask the adviser to recommend a fund that meets the following criteria:
* is a large, well diversified fund
* has low annual fee, i.e. less than 1% per annum for equity fund or 0.5% for bond fund
* have a low upfront charge (less than 3%)
* invest 100% of the monthly savings
* no exit penalties
If the adviser can recommend a suitable fund that you meets your criteria, they will be giving a useful service to you.
The adviser may not be able to recommend a fund that meets all of the above criteria. You have to take the next best choice.
I have recently decided to invest in a Vanguard fund that is based outside of the USA (to avoid US withhholding tax). It is a very large equity fund that has an annual fee of 0.35% and no upfront charge.
The STI ETF in Singapore also have similar features.
There are so many investment funds in the market. I need advice about selecting the fund to invest, but the insurance agent and adviser normally recommend only those funds that they they are engaged to sell. Can I expect to get impartial advice? I am quite confused.
REPLY
You should ask the adviser to recommend a fund that meets the following criteria:
* is a large, well diversified fund
* has low annual fee, i.e. less than 1% per annum for equity fund or 0.5% for bond fund
* have a low upfront charge (less than 3%)
* invest 100% of the monthly savings
* no exit penalties
If the adviser can recommend a suitable fund that you meets your criteria, they will be giving a useful service to you.
The adviser may not be able to recommend a fund that meets all of the above criteria. You have to take the next best choice.
I have recently decided to invest in a Vanguard fund that is based outside of the USA (to avoid US withhholding tax). It is a very large equity fund that has an annual fee of 0.35% and no upfront charge.
The STI ETF in Singapore also have similar features.
People are living longer
REVISED: People are living longer. Many people do not realise the significance of this statement.
Based on the current death rates, a male at age 65 has an average life expectancy of 16.8 years. Most people think that the chance of surviving past 81 years is about 50%. Actually, the chance is much higher.
I looked at the death rates of people in various age groups, as reported in Population Trends, published by the governemnt's Department of Statistics.
Over a period of 25 years, from 1980 to 2005, the death rate fell by about an average of 3 percent yearly. For example, the death rate for 40-45 years was 2.9 per 1000 popuation in 1980. It fell to 1.4 in 2005.
If less people die in each year, more people will live longer. If we assume that this improvement of 3% continues yearly over the next 30 years, the average life expectancy of a male at 65 is 22.7 years (as compared to the current 16.8 years). You can expect to live 6 years longer.
Here is something for you to ponder. You should plan for your CPF savings to last beyond age 85. This is why the Government wants to encourage people to buy life annuity - so that their minimum sum can stretch over a lifetime.
Based on the current death rates, a male at age 65 has an average life expectancy of 16.8 years. Most people think that the chance of surviving past 81 years is about 50%. Actually, the chance is much higher.
I looked at the death rates of people in various age groups, as reported in Population Trends, published by the governemnt's Department of Statistics.
Over a period of 25 years, from 1980 to 2005, the death rate fell by about an average of 3 percent yearly. For example, the death rate for 40-45 years was 2.9 per 1000 popuation in 1980. It fell to 1.4 in 2005.
If less people die in each year, more people will live longer. If we assume that this improvement of 3% continues yearly over the next 30 years, the average life expectancy of a male at 65 is 22.7 years (as compared to the current 16.8 years). You can expect to live 6 years longer.
Here is something for you to ponder. You should plan for your CPF savings to last beyond age 85. This is why the Government wants to encourage people to buy life annuity - so that their minimum sum can stretch over a lifetime.
Workshop uses lawyer to make the claim
Hi Mr Tan,
I did not involve in any accident since 1997 but had one recently.
I was also surprised that the workshop involved a lawyer to help get payment from the insurance company. I believe that was not the case ten years ago.
I asked the workshop owner why there is a need for lawyer and he told me that the insurance company will act promptly if they are represnted by a lawyer. If this is true then the insurance companies are responsible for this practise.
REPLY:
Singapore is one of the few countries in the world where lawyers are engaged to make the third party claim. This is expensive and wasteful.
The fault lies mainly with the insurance companies and the regulator. The insurance companies allow the bad practice to continue, and do not take any action to combat it (except for NTUC Income during my tenure).
In many countries, the regulator (ie Government) takes the lead to combat bad practice, when the insurance companies are unable or unwilling to act. They act to protect the interest of the consumers.
I did not involve in any accident since 1997 but had one recently.
I was also surprised that the workshop involved a lawyer to help get payment from the insurance company. I believe that was not the case ten years ago.
I asked the workshop owner why there is a need for lawyer and he told me that the insurance company will act promptly if they are represnted by a lawyer. If this is true then the insurance companies are responsible for this practise.
REPLY:
Singapore is one of the few countries in the world where lawyers are engaged to make the third party claim. This is expensive and wasteful.
The fault lies mainly with the insurance companies and the regulator. The insurance companies allow the bad practice to continue, and do not take any action to combat it (except for NTUC Income during my tenure).
In many countries, the regulator (ie Government) takes the lead to combat bad practice, when the insurance companies are unable or unwilling to act. They act to protect the interest of the consumers.
Expensive taxi fare
Usually, I take the MRT to Yio Chu Kang station and change to a bus to my home. The bus fare, after the transfer discount, is probably 50 cents. (I did not pay attention to the actual amount).
Today, I decided to take a taxi, as I have a few heavy bags. I thought that the taxi fare will be around $3.
I was surprised that it turned out to be $6.60 (inclusive of a peak hour charge of $2 - which I was not aware).
This will be the first and last time that I take the taxi from the MRT station to my home.
Today, I decided to take a taxi, as I have a few heavy bags. I thought that the taxi fare will be around $3.
I was surprised that it turned out to be $6.60 (inclusive of a peak hour charge of $2 - which I was not aware).
This will be the first and last time that I take the taxi from the MRT station to my home.
New products from NTUC Income
COMMENT POSTED IN MY BLOG
The extravagant splurging on ads and rebranding is going to make REVoSAVE the most expensive product ever launched.
PAYMYuni has already gone south. Going by the reception by the public it looks it was doomed from its birth. Why? It is a redressed up product with no real benefit. It's a wolf in sheep's clothings. (High commission)
An agent was promoting to me of the flexible options revosave has. I told her, money in my hand is far more flexible. I have more options.
For liquidity I can put into a money market which earns up to 3.5%
If I want to be locked away for many years I can buy a plain vanilla endowment for higher return and higher insurance coverage.
For even higher return I can invest into a RSP which charges 3% but with all my premium invested and not just 36% of my premium as in what I would have paid for revosave.
You see, I can have more to spend on my sunny days and also plenty to meet my rainy days and not forgetting to mention the insurance coverage which is higher than revosave for same premium. I have real freedom and peace of mind.
Thanks to Doc. Money, without his advice I would have been a prey also.
REPLY
Revosave is similar to (but offer a slightly better return) compared to another product that sells very well in the market.
The popularity of the earlier product may suggest that there are some features that appeal to the consumer. Some people may not be driven entirely by the return on the product.
PayMyUni is an endowment product. It gives insurance protection and a fairly satisfactory rate of return (maybe 3% or higher). It was designed during my tenure as CEO.
However, parents now have another option, i.e to invest in a low cost fund, such as the combined fund, and to buy a decreasing term insurance. Read this FAQ.
The extravagant splurging on ads and rebranding is going to make REVoSAVE the most expensive product ever launched.
PAYMYuni has already gone south. Going by the reception by the public it looks it was doomed from its birth. Why? It is a redressed up product with no real benefit. It's a wolf in sheep's clothings. (High commission)
An agent was promoting to me of the flexible options revosave has. I told her, money in my hand is far more flexible. I have more options.
For liquidity I can put into a money market which earns up to 3.5%
If I want to be locked away for many years I can buy a plain vanilla endowment for higher return and higher insurance coverage.
For even higher return I can invest into a RSP which charges 3% but with all my premium invested and not just 36% of my premium as in what I would have paid for revosave.
You see, I can have more to spend on my sunny days and also plenty to meet my rainy days and not forgetting to mention the insurance coverage which is higher than revosave for same premium. I have real freedom and peace of mind.
Thanks to Doc. Money, without his advice I would have been a prey also.
REPLY
Revosave is similar to (but offer a slightly better return) compared to another product that sells very well in the market.
The popularity of the earlier product may suggest that there are some features that appeal to the consumer. Some people may not be driven entirely by the return on the product.
PayMyUni is an endowment product. It gives insurance protection and a fairly satisfactory rate of return (maybe 3% or higher). It was designed during my tenure as CEO.
However, parents now have another option, i.e to invest in a low cost fund, such as the combined fund, and to buy a decreasing term insurance. Read this FAQ.
Lower rates of commission
COMMENT POSTED IN MY BLOG
Mr Tan,
Did you try to reduce agents' commission during your tenure with INCOME? If you tried, how effective were you? What were the challenges you faced if you tried to reduce the commissions? Why were you not able to overcome the challenges? What do you think that the present CEO can overcome those challenges?
REPLY:
During my tenure, the selling cost for NTUC Income is about half of the rate payable by other insurance companies. The agent gets lower commission. There is no over-riding commision payable to the agency manager. The advertising expenses are kept low.
Due to the low cost, the life insurance products were offered at lower premium rates, or give a better return to the consumers.
The agent can earn a satisfactory income by generating more sales, as the products are easy to sell.
Many of the current products offered by NTUC Income belong to the "old series" and still give good value, compared to similar products in the market.
I have no comments about the pracitce of the new management.
Mr Tan,
Did you try to reduce agents' commission during your tenure with INCOME? If you tried, how effective were you? What were the challenges you faced if you tried to reduce the commissions? Why were you not able to overcome the challenges? What do you think that the present CEO can overcome those challenges?
REPLY:
During my tenure, the selling cost for NTUC Income is about half of the rate payable by other insurance companies. The agent gets lower commission. There is no over-riding commision payable to the agency manager. The advertising expenses are kept low.
Due to the low cost, the life insurance products were offered at lower premium rates, or give a better return to the consumers.
The agent can earn a satisfactory income by generating more sales, as the products are easy to sell.
Many of the current products offered by NTUC Income belong to the "old series" and still give good value, compared to similar products in the market.
I have no comments about the pracitce of the new management.
High cost financial products
Dear Mr Tan
I understand that life insurance products in many other countries also involve high commission rates. This is not the case for Singapore alone. Why is this practice so common, in so many countries?
REPLY:
In many countries, the Government give tax incentives to encourage people to save for their future needs. As these incentives are quite complicated, the financial adviser has to guide the consumer on how to benefit from these incentives.
After paying the cost of the advice (ie commission or fee), the consumer will still benefit, as the cost is lower than the tax savings. The adviser is able to add value and benefit the consumer.
This situation does not apply in Singapore, as our tax rate is low and there is virtually no tax incentive for the savings. The high charges payable to the adviser become a burden to the consumer. The products are designed to hide this fact, by making it confusing to the consumer.
Lesson: When there is no tax savings, it is better to buy low cost financial products.
I understand that life insurance products in many other countries also involve high commission rates. This is not the case for Singapore alone. Why is this practice so common, in so many countries?
REPLY:
In many countries, the Government give tax incentives to encourage people to save for their future needs. As these incentives are quite complicated, the financial adviser has to guide the consumer on how to benefit from these incentives.
After paying the cost of the advice (ie commission or fee), the consumer will still benefit, as the cost is lower than the tax savings. The adviser is able to add value and benefit the consumer.
This situation does not apply in Singapore, as our tax rate is low and there is virtually no tax incentive for the savings. The high charges payable to the adviser become a burden to the consumer. The products are designed to hide this fact, by making it confusing to the consumer.
Lesson: When there is no tax savings, it is better to buy low cost financial products.
Tuesday, September 11, 2007
Life insurance commission
A senior manager of a large life insurance company in Indonesia told me that the commission rate payable on an endowment policy is 20% of the premium during the first year and 5% during the second year. The total is 25%. For whole life, it can go up to a total of 40%.
The commisison rate for regular premium unit linked business in Indoesia is higher, at about 45% in total.
I told him that the commission rate payable in Singapore for a similar product is about three times. He was surprised. He asked, "How can the product give good value to the customer?"
I have found that many countries have reduced their commission rates on life insurance products. The commisison rates in Singapore are far too high. I hope that the Singpaore market can keep up to the trends in other countries.
Note: Most of the products sold by NTUC Income have commission rates that are much lower than the market. I hope that they will be the benchmark for the other companies to follow.
The commisison rate for regular premium unit linked business in Indoesia is higher, at about 45% in total.
I told him that the commission rate payable in Singapore for a similar product is about three times. He was surprised. He asked, "How can the product give good value to the customer?"
I have found that many countries have reduced their commission rates on life insurance products. The commisison rates in Singapore are far too high. I hope that the Singpaore market can keep up to the trends in other countries.
Note: Most of the products sold by NTUC Income have commission rates that are much lower than the market. I hope that they will be the benchmark for the other companies to follow.
Sunday, September 9, 2007
Dying at home
Many old people prefer to die at home, rather than in a hospital, if they know the death is near. They know that it is costly to stay in hospital and that the medical treatment only prolong the suffering.
I spoke to the administrator of a hospital about this matter. He said that 70% of people die in the hospital, although it is beter for them to be in their home during the last days.
His hospital is able to arrange for a nurse to train the family members on how to handle the last days, and also to pay a visit the patient, when required.
One difficulty faced by the family members is finding a doctor to certify the death. They can get the family doctor to do it, if they have a regular doctor. If not, this can be quite troublesome.
He said that the funeral director can also arrange for their doctor to handle the certification.
Here is a practical advice. When the time is near, it may be better to make prior arrangement with a funeral director. They can handle the nencessary matters and reduce the stress for the family.
I spoke to the administrator of a hospital about this matter. He said that 70% of people die in the hospital, although it is beter for them to be in their home during the last days.
His hospital is able to arrange for a nurse to train the family members on how to handle the last days, and also to pay a visit the patient, when required.
One difficulty faced by the family members is finding a doctor to certify the death. They can get the family doctor to do it, if they have a regular doctor. If not, this can be quite troublesome.
He said that the funeral director can also arrange for their doctor to handle the certification.
Here is a practical advice. When the time is near, it may be better to make prior arrangement with a funeral director. They can handle the nencessary matters and reduce the stress for the family.
Motor accident - file your claim directly
If you are involved in a motor accident and wish to make a claim, you should report it directly to the insurance company, either your own or the insurer of the other vehicle.
Do not ask the workshop to handle the claim for you, as some workshop are involved in a racket and get their lawyer to file an inflated claim for you.
As you have already signed some papers to authorise the workshop and their lawyer to act for you, you are party to the fraud. If the insurer who is paying the claim challenge the claim in court, you may be liable for the legal fee, if you lose the case.
Avoid getting into this type of complication.
Do not ask the workshop to handle the claim for you, as some workshop are involved in a racket and get their lawyer to file an inflated claim for you.
As you have already signed some papers to authorise the workshop and their lawyer to act for you, you are party to the fraud. If the insurer who is paying the claim challenge the claim in court, you may be liable for the legal fee, if you lose the case.
Avoid getting into this type of complication.
100,000 visitors
Dear Mr Tan,
Congratulations!! for having 100,0000 visitors to your blog.
Once again, thank you for your timely advice on financial and insurance related matters.
Best regards
Congratulations!! for having 100,0000 visitors to your blog.
Once again, thank you for your timely advice on financial and insurance related matters.
Best regards
Thursday, September 6, 2007
High distribution cost
COMMENT POSTED IN MY BLOG
Wonder if all insurance company sell low cost, will the insurance company survive the business environment?
Is the distribution cost paying the agent commision only? What about the CEO's pay where does it come from?
So it is not fair to always lament on the commission earn by agents. What the agent earns is only part of it, distribution cost goes to pay more than agent commission.
I wonder if Mr Tan will comment on this or allow this to be posted.
REPLY:
Products that are simple and meet the real needs of the consumers can be sold with a low distribution cost. It can have a reasonable margin for all parties to earn a reasonable income.
Unfortunately, many products are designed to be complicated, costly to administer, costly to market, and give poor value to customers.
The insurance agent can easily sell these high cost products to naive customers, and earn a high commission from the sales. The managers and CEO can also earn high salaries from the high profit margin.
After the product is sold, the customer is locked in for 20 to 30 years, and can only terminate the contract at a great loss. If they keep the contract, they get a poor return from their years of savings.
I hope that businesses will be ethical and will market products that are fair and give good value to customers.
Wonder if all insurance company sell low cost, will the insurance company survive the business environment?
Is the distribution cost paying the agent commision only? What about the CEO's pay where does it come from?
So it is not fair to always lament on the commission earn by agents. What the agent earns is only part of it, distribution cost goes to pay more than agent commission.
I wonder if Mr Tan will comment on this or allow this to be posted.
REPLY:
Products that are simple and meet the real needs of the consumers can be sold with a low distribution cost. It can have a reasonable margin for all parties to earn a reasonable income.
Unfortunately, many products are designed to be complicated, costly to administer, costly to market, and give poor value to customers.
The insurance agent can easily sell these high cost products to naive customers, and earn a high commission from the sales. The managers and CEO can also earn high salaries from the high profit margin.
After the product is sold, the customer is locked in for 20 to 30 years, and can only terminate the contract at a great loss. If they keep the contract, they get a poor return from their years of savings.
I hope that businesses will be ethical and will market products that are fair and give good value to customers.
Be fair in your views
One anonymous visitor to my blog has expressed strong views against insurance agents. Some of the comments are quite rude. I have to block them.
There are some agents who are driven by commission to act against the interest of the customers.
There are many other agents who act ethically and offer the best advice to their customers. They play a useful role to help the ordinary people to save and protect their families.
Please be fair and considerate in expressing your views.
There are some agents who are driven by commission to act against the interest of the customers.
There are many other agents who act ethically and offer the best advice to their customers. They play a useful role to help the ordinary people to save and protect their families.
Please be fair and considerate in expressing your views.
Encourage more people to use public transport
The roads in Singapore are getting congested. The Government plans to extend the Electronic Road Pricing (ERP) to more roads, extend the chargeable hours and increase the charges. These measures will reduce the congestion on the road.
The Minister for Transport said that building more roads does not help to solve the congestion problem. It encourages more people to use cars and will lead to more congestion at a later date.
I agree.
Read my views in this article which was published in Straits Times one week ago.
The Minister for Transport said that building more roads does not help to solve the congestion problem. It encourages more people to use cars and will lead to more congestion at a later date.
I agree.
Read my views in this article which was published in Straits Times one week ago.
Insure against real needs
Some customers bought more insurance than they really need. They were over-sold by insurance agents who are keen to make the commission.
Here are some tips:
1. Buy insurance for the risks that you need to cover. Do not buy insurance for risks that you can shoulder on your own.
2. Buy low cost insurance. Do not bundle it with savings. Invest your savings separately.
3. Do not over-insure. Do not take several medical insurance policies. You are paying too much premium for no value. You are allowed to claim up to the amount that you spent only.
4. Find an honest adviser who help you to pay less on your insurance, and find the lowest cost.
I shall be making a separate posting to talk about the risks that you really need to insure, and the risks that you do not need to insure (i.e you can take on your own).
Here are some tips:
1. Buy insurance for the risks that you need to cover. Do not buy insurance for risks that you can shoulder on your own.
2. Buy low cost insurance. Do not bundle it with savings. Invest your savings separately.
3. Do not over-insure. Do not take several medical insurance policies. You are paying too much premium for no value. You are allowed to claim up to the amount that you spent only.
4. Find an honest adviser who help you to pay less on your insurance, and find the lowest cost.
I shall be making a separate posting to talk about the risks that you really need to insure, and the risks that you do not need to insure (i.e you can take on your own).
Life Insurance sales in France
In France, there are virtually no life insurance agents left. All the life insurance sales are carried out by the banks or by salaried employees.
The upfront sales charge is 1% or less for single premium products. The annual fee deducted from the investment fund is 0.5% for equities and 0.1% for fixed income.
These charge are very low. Life insurance gives good value to the customers.
Previously, the sales were done by life insurance agents earning a high rate of commission. When the agents were forced to disclose the high commission to the customer, resulting in no cash value for the first two years, the customers refused to buy the products.
In Singapore, the high charges are disclosed to the customers. But the customers are not aware that they have the alternative to "buy term and invest the difference". They pay the high sales charges and, when they learned about these charges later, they regret their decisions.
The upfront sales charge is 1% or less for single premium products. The annual fee deducted from the investment fund is 0.5% for equities and 0.1% for fixed income.
These charge are very low. Life insurance gives good value to the customers.
Previously, the sales were done by life insurance agents earning a high rate of commission. When the agents were forced to disclose the high commission to the customer, resulting in no cash value for the first two years, the customers refused to buy the products.
In Singapore, the high charges are disclosed to the customers. But the customers are not aware that they have the alternative to "buy term and invest the difference". They pay the high sales charges and, when they learned about these charges later, they regret their decisions.
Over selling by insurance agents
I was told that some young people bought too much life insurance. They bought policies for themselves, for their children, to save for their eduation, for their medical expenses, etc.
The total insurance premium that they have to pay takes away half of their salary. They face some financial difficulty in managing their expenses.
I was asked by their counsellor, on what are their options. If they terminate some of the policies, they would have to suffer a loss. But, if they continue, they find it difficult to cope.
Here is my frank view. The insurance adviser has over-sold and gave bad advice to the customer. The customer can make a complaint to the authorities for the bad advice, and ask for a refund of the premiums that they have paid.
I hope that the adviser is made responsible for the bad advice that has been given. Do not let them get away with it.
The total insurance premium that they have to pay takes away half of their salary. They face some financial difficulty in managing their expenses.
I was asked by their counsellor, on what are their options. If they terminate some of the policies, they would have to suffer a loss. But, if they continue, they find it difficult to cope.
Here is my frank view. The insurance adviser has over-sold and gave bad advice to the customer. The customer can make a complaint to the authorities for the bad advice, and ask for a refund of the premiums that they have paid.
I hope that the adviser is made responsible for the bad advice that has been given. Do not let them get away with it.
Keep your living policy
Dear Mr Tan
I really enjoy reading your blog. You have certainly opened up my mind especially with respect to insurance.
I have a NTUC Living policy for a sum assured of $35K. I have been paying it for 13 yrs now. The bonus is about $14K. The surrender value is $9K now.
Does it means that if I die now or come down with critical illness, I will only get the sum assured + bonues (ie $35K + $14K = $49K). I'm paying a total annual premium of $723.
On the other hand, if I buy a $50K term now, I only pay about $120 per yr. So for the same payout, I will be paying much less ($120 vs $723). It just seems too good to be true to terminate my current living policy, pay less premium and yet get the same coverage.
Thank you for your time Mr Tan, it really brings a new perspective on financial planning.
REPLY:
This is correct. You are covered for $49,000 in the event of a claim.
I suggest that you keep your living policy and take the term insurance as well, if you can afford both premuim. The living policy covers 30 dread disease and have a cash value at any time that you terminate it. The cash value increases each year.
The term policy is cheaper, but it does not have any cash value. It covers you for a specific term, i.e. 10 or 20 years. After the term, the cover ceases.
I really enjoy reading your blog. You have certainly opened up my mind especially with respect to insurance.
I have a NTUC Living policy for a sum assured of $35K. I have been paying it for 13 yrs now. The bonus is about $14K. The surrender value is $9K now.
Does it means that if I die now or come down with critical illness, I will only get the sum assured + bonues (ie $35K + $14K = $49K). I'm paying a total annual premium of $723.
On the other hand, if I buy a $50K term now, I only pay about $120 per yr. So for the same payout, I will be paying much less ($120 vs $723). It just seems too good to be true to terminate my current living policy, pay less premium and yet get the same coverage.
Thank you for your time Mr Tan, it really brings a new perspective on financial planning.
REPLY:
This is correct. You are covered for $49,000 in the event of a claim.
I suggest that you keep your living policy and take the term insurance as well, if you can afford both premuim. The living policy covers 30 dread disease and have a cash value at any time that you terminate it. The cash value increases each year.
The term policy is cheaper, but it does not have any cash value. It covers you for a specific term, i.e. 10 or 20 years. After the term, the cover ceases.
Wednesday, September 5, 2007
Career prospects for an actuary
A reader of my blog asked about the career prospects for an actuary. Here are some facts given by someone who recently qualified as an actuary.
1. It takes about 7-8 years to qualify from start
2. Most actuaries work in insurance or consulting, but actual practice is not as mathematically challenging as most people think. Programming, common-sense and business considerations are needed to be successful..
3. Starting salary for fresh grads are about $2,000 to $2,500, but can grow fast depending on passes in the actuarial examinations. Work experience is also valuable in insurance/consulting firms.
4. The demand for qualified actuaries is growing in the region. There is less demand in Singapore, as the insurance market here is small.
5. You can get more information from www.actuaries.org.sg.
6. Actuaries can work in other finance areas geared towards mathematics eg quantitative finance, investment, financial engineering. They generally earn more but their work is more stressful.
1. It takes about 7-8 years to qualify from start
2. Most actuaries work in insurance or consulting, but actual practice is not as mathematically challenging as most people think. Programming, common-sense and business considerations are needed to be successful..
3. Starting salary for fresh grads are about $2,000 to $2,500, but can grow fast depending on passes in the actuarial examinations. Work experience is also valuable in insurance/consulting firms.
4. The demand for qualified actuaries is growing in the region. There is less demand in Singapore, as the insurance market here is small.
5. You can get more information from www.actuaries.org.sg.
6. Actuaries can work in other finance areas geared towards mathematics eg quantitative finance, investment, financial engineering. They generally earn more but their work is more stressful.
People are living longer
I made a research into trend in death rates in Singapore during the 10 years from 1996 and 2006.
The death rates for each age group, falls by about 4% per year. For example, for males age 55 to 59, the death rate dropped from 17.9 per in 1996 to 11.3 in 2006.
If this trend continues, we will see some interesting situations:
1. Based on the current death rates, a male age 65 can expect to live another 17.8 years. If the rates continue to fall, the life expectancy increases to 27.3 years, i.e. 10 years more.
2. If the age-specific death rates continue to fall by 4% per year, a baby born today can expect to live to an average of 116 years. Wow!
What does this mean? It is important to have a life annuity. You will live longer than you expect!
Note. Some people think that it is not possible for death rates to continue to fall by 4% per year. It will reach a certain point and stop declining after that.
The death rates for each age group, falls by about 4% per year. For example, for males age 55 to 59, the death rate dropped from 17.9 per in 1996 to 11.3 in 2006.
If this trend continues, we will see some interesting situations:
1. Based on the current death rates, a male age 65 can expect to live another 17.8 years. If the rates continue to fall, the life expectancy increases to 27.3 years, i.e. 10 years more.
2. If the age-specific death rates continue to fall by 4% per year, a baby born today can expect to live to an average of 116 years. Wow!
What does this mean? It is important to have a life annuity. You will live longer than you expect!
Note. Some people think that it is not possible for death rates to continue to fall by 4% per year. It will reach a certain point and stop declining after that.
Tuesday, September 4, 2007
Legacy of Goh Choo San
Goh Choo San was a Singaporean, well known in the dance circles in America and was the resident chereographer of the Washington Ballet prior to his death in 1987.
The Singapore Dance Theatre is making a special performance showing the dance pieces of Goh Choo San, to commerate the 20th anniversary of his death. This will be performed at the Esplanade Theatre on Saturday, 8 pm.
If you have a free evening, come and watch this performance. Tickets are available at a modest price of less than $70.
The Singapore Dance Theatre is making a special performance showing the dance pieces of Goh Choo San, to commerate the 20th anniversary of his death. This will be performed at the Esplanade Theatre on Saturday, 8 pm.
If you have a free evening, come and watch this performance. Tickets are available at a modest price of less than $70.
Investment in a degree or continuing education
One Polytechnic graduate has asked me on August 30th whether it is worth his while in investing in a part time business degree? I have given my answers to his question.
Dr. Lee Kum Tatt, who has considerable experience especially in S & T manpower development, has volunteered to share his personal experiences. He intends to write some articles in his blog on this important subject of education and manpower development. Read about his experiences and views on this subject in his blog.
Dr. Lee Kum Tatt, who has considerable experience especially in S & T manpower development, has volunteered to share his personal experiences. He intends to write some articles in his blog on this important subject of education and manpower development. Read about his experiences and views on this subject in his blog.
Monday, September 3, 2007
Buying a HDB resale flat
Hi Mr Tan,
I need your advice on acquiring a HDB resale flat. I am considering the following options:
1) A 5-rm HDB flat in Bishan, cosing $400k. I qualify for a HDB concessionary rate of 2.6%.
2) A 4-rm flat in Bishan, costing $300K. The catch: I need to get a bank loan with floating interest rate of 4-6%.
In your opinion, which is a better decision?
REPLY:
I hope that the following figures will be useful for you to make a decision.
If you have to pay a floating interest rate at 5%, the annual repayment for a $300,000 loan is $19,515. This is almost the same as the repayment for a larger loan of $400,000 at a subsidised interest rate of 2.6%.
It may be better for you to take the 5 room flat for $400,000 at the subsidised rate. Bear in mind that the interest rate of 2.6% is subject to revision.
I need your advice on acquiring a HDB resale flat. I am considering the following options:
1) A 5-rm HDB flat in Bishan, cosing $400k. I qualify for a HDB concessionary rate of 2.6%.
2) A 4-rm flat in Bishan, costing $300K. The catch: I need to get a bank loan with floating interest rate of 4-6%.
In your opinion, which is a better decision?
REPLY:
I hope that the following figures will be useful for you to make a decision.
Loan Repayable Interest Annual
over rate repayment
$400,000 30 years 2.6% $19,367
$300,000 30 years 4% $17,349
$300,000 30 years 5% $19,515
$300,000 30 years 6% $21,794
If you have to pay a floating interest rate at 5%, the annual repayment for a $300,000 loan is $19,515. This is almost the same as the repayment for a larger loan of $400,000 at a subsidised interest rate of 2.6%.
It may be better for you to take the 5 room flat for $400,000 at the subsidised rate. Bear in mind that the interest rate of 2.6% is subject to revision.
Commission payable on life insurance product
Hi Mr Tan,
May I ask how does an insurance agent from a tied company earn? Do they have a fixed income + variable commission? How do they work? How does an independent financial advisor earn monthly?
REPLY:
The insurance agent earns entirely on commission. For most regular premium product, they earn about 100% of the annual premium (over the first few years) and their agency manager earns about 50% of the premium.
If you invest $200 a month, or $2,400 a year, you can expect about $3,600 to be taken away from your savings to pay the commission of the agent and the manager. In my view, this is too high.
The actual commission depends on the type of product and the term of premium payment.
The insurance company pays a total to the independent financial adviser a total that comprises the two levels of commission plus the cost of recruiting and training the agent.
In the case of NTUC Income, the total cost is about 40% lower than the market.
This are just my guess. I think that the figures are about right.
May I ask how does an insurance agent from a tied company earn? Do they have a fixed income + variable commission? How do they work? How does an independent financial advisor earn monthly?
REPLY:
The insurance agent earns entirely on commission. For most regular premium product, they earn about 100% of the annual premium (over the first few years) and their agency manager earns about 50% of the premium.
If you invest $200 a month, or $2,400 a year, you can expect about $3,600 to be taken away from your savings to pay the commission of the agent and the manager. In my view, this is too high.
The actual commission depends on the type of product and the term of premium payment.
The insurance company pays a total to the independent financial adviser a total that comprises the two levels of commission plus the cost of recruiting and training the agent.
In the case of NTUC Income, the total cost is about 40% lower than the market.
This are just my guess. I think that the figures are about right.
Investing CPF savings
Mr Tan,
Any advice on investing CPF savings?
REPLY:
1. Transfer the maximum amount to the special account, to earn a higher interest rate of 4 percent.
2. Keep a modest amount of your ordinary account to meet a few monthly installments of your property. Invest the remainder in a low cost, diversified equity fund, as explained in this FAQ. You are likely to earn a higher return on this fund, compared to the interest charged on your housing loan.
3. Talk to a financial adviser, to make sure that the figures are up-to-date, and correct.
Any advice on investing CPF savings?
REPLY:
1. Transfer the maximum amount to the special account, to earn a higher interest rate of 4 percent.
2. Keep a modest amount of your ordinary account to meet a few monthly installments of your property. Invest the remainder in a low cost, diversified equity fund, as explained in this FAQ. You are likely to earn a higher return on this fund, compared to the interest charged on your housing loan.
3. Talk to a financial adviser, to make sure that the figures are up-to-date, and correct.
Investing after a market correction
Dear Mr Tan,
Your posting on your blog 2 weeks ago just before the market plunged to below STI 3000 mentioned that the index may not drop to 2700. You also mentioned that Warren Buffet had started nibbling on some stocks.
I have never bought stocks during a correction but did so only because I wanted to emulate your disciplined approach to investments. I took courage and bought some blue chips at good prices. I am an investor and not a trader.
The market has somewhat recovered, although volume is rather thin. In your opinion, would you continue to buy stocks at this point or would you wait for the market to correct further? I notice corrections of 20% of the STI occur infrequently.
REPLY:
You did well. Congratulations.
I think that it is all right to continue accumulating from here. I shall be doing it myself. Let us hope that we are both right!
Your posting on your blog 2 weeks ago just before the market plunged to below STI 3000 mentioned that the index may not drop to 2700. You also mentioned that Warren Buffet had started nibbling on some stocks.
I have never bought stocks during a correction but did so only because I wanted to emulate your disciplined approach to investments. I took courage and bought some blue chips at good prices. I am an investor and not a trader.
The market has somewhat recovered, although volume is rather thin. In your opinion, would you continue to buy stocks at this point or would you wait for the market to correct further? I notice corrections of 20% of the STI occur infrequently.
REPLY:
You did well. Congratulations.
I think that it is all right to continue accumulating from here. I shall be doing it myself. Let us hope that we are both right!
Revosave
COMMENT POSTED IN MY BLOG:
I hear from sources that the REVOSAVE was actually designed during Mr Tan's term as CEO.
Perhaps Mr Tan can tell us why it was not introduced to be sold during his time and after he retired, it was promoted as a good flexible hybrid plan?
REPLY:
The source is totally incorrect. I do not design any product which (in my opinion) is complicated, has a high cost, and gives poor value to the customer.
However, I think that the Revosave is better than a similar product which is sold very well in the market. It does give a choice to the consumer.
I hear from sources that the REVOSAVE was actually designed during Mr Tan's term as CEO.
Perhaps Mr Tan can tell us why it was not introduced to be sold during his time and after he retired, it was promoted as a good flexible hybrid plan?
REPLY:
The source is totally incorrect. I do not design any product which (in my opinion) is complicated, has a high cost, and gives poor value to the customer.
However, I think that the Revosave is better than a similar product which is sold very well in the market. It does give a choice to the consumer.
Commission payable to the agent
Dear Mr Tan,
The illustration shows the Total Distribution cost, which comprises of several items.
I have been trying to get my sales person (a.k.a. financial planner) to disclose to me the commission rate that is paid to him, but it seems that his managers are unwilling to disclose such information to me.
Based on your past experience in the insurance field, is it common industry practice to only provide Total Distribution Cost in the benefit illustration?
I have also found this phrase from a website which mentioned the following:
" By law, insurance companies must reveal all costs and charges associated with the product you are buying. This includes, specifically, the distribution costs which include any commission the insurance company will pay to your adviser. These details are shown in the benefits illustration of your product."
Would you suggest that I consult MAS on this matter, since the website mentioned the phrase "by law", although so far I have not seen the details of their commission structure?
Again, thank you very much for your kind attention. My wife and I feel very much empowered by the insights you have shared in your blog.
REPLY:
I think that it is a good idea for you to consult MAS on this matter. Another organisation that you can address the matter, when it comes to a dispute, is FIDReC.
The illustration shows the Total Distribution cost, which comprises of several items.
I have been trying to get my sales person (a.k.a. financial planner) to disclose to me the commission rate that is paid to him, but it seems that his managers are unwilling to disclose such information to me.
Based on your past experience in the insurance field, is it common industry practice to only provide Total Distribution Cost in the benefit illustration?
I have also found this phrase from a website which mentioned the following:
" By law, insurance companies must reveal all costs and charges associated with the product you are buying. This includes, specifically, the distribution costs which include any commission the insurance company will pay to your adviser. These details are shown in the benefits illustration of your product."
Would you suggest that I consult MAS on this matter, since the website mentioned the phrase "by law", although so far I have not seen the details of their commission structure?
Again, thank you very much for your kind attention. My wife and I feel very much empowered by the insights you have shared in your blog.
REPLY:
I think that it is a good idea for you to consult MAS on this matter. Another organisation that you can address the matter, when it comes to a dispute, is FIDReC.
Suitable products
COMMENT POSTED IN MY BLOG:
Today, endowment and whole life products are poor performers because of low interest rate and high distribution costs and they are bad vehicles to use for investment and for accumulation for any long term goals. Over long term both these kinds of products can only return 3% to 4% which barely beat inflation. Wealth is never created this way.
For low and middle income, higher rate of return is necessary to make your hard earned money work harder otherwise 20 years down the road whatever you accumulated has the same purchasing power as it was 20 years ago.There is no improvement in real term.Your risk averseness must change. There is a necessity to take risk to get out of the poverty trap when you have the capacity.
That is the reason why you are often urged to look for good adviser to help you and not insurance salesman. An adviser who is skillful in investment can help to design a portfolio that eliminates risk over time and yet gives a decent return for you, at least 6% to 8%.
What Mr. Tan is advising is in good faith. After all he spent more than 30 years in this business and he knows what he is talking about.
Time has changed. What was good is not good today anymore. I hope Mr. Tan's well meaning advice will be heeded.
REPLY:
In my view, both of the following products are suitable, for different groups of people:
1. Low cost, diversified investment fund with the potential to earn 6% to 8% over the long term.
2. Endowment plan, e.g. from NTUC Income, that gives a return of 4% p.a. (non-guaranteed) over 20 to 30 years.
I prefer option 1, but recognise that option 2 may also be suitable for certain groups of people.
Today, endowment and whole life products are poor performers because of low interest rate and high distribution costs and they are bad vehicles to use for investment and for accumulation for any long term goals. Over long term both these kinds of products can only return 3% to 4% which barely beat inflation. Wealth is never created this way.
For low and middle income, higher rate of return is necessary to make your hard earned money work harder otherwise 20 years down the road whatever you accumulated has the same purchasing power as it was 20 years ago.There is no improvement in real term.Your risk averseness must change. There is a necessity to take risk to get out of the poverty trap when you have the capacity.
That is the reason why you are often urged to look for good adviser to help you and not insurance salesman. An adviser who is skillful in investment can help to design a portfolio that eliminates risk over time and yet gives a decent return for you, at least 6% to 8%.
What Mr. Tan is advising is in good faith. After all he spent more than 30 years in this business and he knows what he is talking about.
Time has changed. What was good is not good today anymore. I hope Mr. Tan's well meaning advice will be heeded.
REPLY:
In my view, both of the following products are suitable, for different groups of people:
1. Low cost, diversified investment fund with the potential to earn 6% to 8% over the long term.
2. Endowment plan, e.g. from NTUC Income, that gives a return of 4% p.a. (non-guaranteed) over 20 to 30 years.
I prefer option 1, but recognise that option 2 may also be suitable for certain groups of people.
Reverse mortgage
Dear Mr Tan,
A few years ago, I took a reverse mortgage from NTUC Income and draw out $1,200 a month. The value of my property has appreciated since. Who keeps the gain on the property? Is it NTUC Income?
REPLY:
Under a reverse mortgage, you are still the owner of the property. The reverse mortgage is a loan that accumulates interest.
If you decide to sell the property (which is not at a much higher value), you keep the entire amount of the property (after repaying the loan and accumulated interest on the reverse mortgage). All the property gains goes to you, as the owner.
It is a good scheme!
A few years ago, I took a reverse mortgage from NTUC Income and draw out $1,200 a month. The value of my property has appreciated since. Who keeps the gain on the property? Is it NTUC Income?
REPLY:
Under a reverse mortgage, you are still the owner of the property. The reverse mortgage is a loan that accumulates interest.
If you decide to sell the property (which is not at a much higher value), you keep the entire amount of the property (after repaying the loan and accumulated interest on the reverse mortgage). All the property gains goes to you, as the owner.
It is a good scheme!
Whole life and endowment policies sold by NTUC Income
Dear Mr Tan
I read your blog form some time. You now advise consumers to avoid the insurance products with high charges, such as endowment and whole life plans.
During the years that you were in NTUC, your agents actively sold these products. Were these products costly for customers?
REPLY:
The commissions paid to the agents on the life insurance products from NTUC Income were about 40% lower than the market.
The premiums were lower, the cash values were higher, and the return on maturity were about 10% to 15% better than similar products in the market.
Most of the products marketed by NTUC Income in the past gave reasonably good value to the consumers. They were much better than similar products offered by other insurance companies.
The conditions have changed today. I now recommend consumers to invest in low cost, diversified investment funds that give a better long term return. Read my FAQ in www.tankinlian.com/faq.
I read your blog form some time. You now advise consumers to avoid the insurance products with high charges, such as endowment and whole life plans.
During the years that you were in NTUC, your agents actively sold these products. Were these products costly for customers?
REPLY:
The commissions paid to the agents on the life insurance products from NTUC Income were about 40% lower than the market.
The premiums were lower, the cash values were higher, and the return on maturity were about 10% to 15% better than similar products in the market.
Most of the products marketed by NTUC Income in the past gave reasonably good value to the consumers. They were much better than similar products offered by other insurance companies.
The conditions have changed today. I now recommend consumers to invest in low cost, diversified investment funds that give a better long term return. Read my FAQ in www.tankinlian.com/faq.
Sunday, September 2, 2007
High cost products
TWO COMMENTS POSTED IN MY BLOG (edited)
Examples of high cost products are limited premium critical illness plans, repackaged endowment like REVOSAVE, whole life plans and regular ILPs like ID2 and other s from other insurance companies, high expense ratio ILPs.
They have high distribution cost with part of it which goes to agents as commission. Because of high cost the return is affected.
-----------------------------------------------------------------------
Since the critical year saga the insurance companies were rolling out products with limited premium on the premise that customers do not like to pay for life.
The question one should beg is "is it to the benefit of the customers"? The answer is yes and no. Yes, it benefits the high earners and the rich without their compromising their needs for high coverage. The rich never have this problem of servicing the premium.
For the poor it makes it even worse for them. Before this they were already struggling with the premium for a normal wholelife. Now the premium is even more menacing for them. Lapsing seems inevitable, just a matter of time. Why then insurance salesmen still recommend limited premium to the average income customers?
I am sure if they have done fact finding limited premium would never been recommended. As I have said insurance salesman is a salesperson. He sells with one objective, ie. to close the sale.
Does the agent bother whether the customer continues the premium for the next 20 years? He has collected the huge commission and if the customer should lapse he can sell him another one with high commission, an opportunity to make a sale.That is good strategy.
So what should be done to this type of insurance salesmen?
Examples of high cost products are limited premium critical illness plans, repackaged endowment like REVOSAVE, whole life plans and regular ILPs like ID2 and other s from other insurance companies, high expense ratio ILPs.
They have high distribution cost with part of it which goes to agents as commission. Because of high cost the return is affected.
-----------------------------------------------------------------------
Since the critical year saga the insurance companies were rolling out products with limited premium on the premise that customers do not like to pay for life.
The question one should beg is "is it to the benefit of the customers"? The answer is yes and no. Yes, it benefits the high earners and the rich without their compromising their needs for high coverage. The rich never have this problem of servicing the premium.
For the poor it makes it even worse for them. Before this they were already struggling with the premium for a normal wholelife. Now the premium is even more menacing for them. Lapsing seems inevitable, just a matter of time. Why then insurance salesmen still recommend limited premium to the average income customers?
I am sure if they have done fact finding limited premium would never been recommended. As I have said insurance salesman is a salesperson. He sells with one objective, ie. to close the sale.
Does the agent bother whether the customer continues the premium for the next 20 years? He has collected the huge commission and if the customer should lapse he can sell him another one with high commission, an opportunity to make a sale.That is good strategy.
So what should be done to this type of insurance salesmen?
Suggestion: CPF to provide investment funds
COMMENT POSTED IN MY BLOG
It would supplement the compulsory annuity if we can some control of the use of CPF fund. Currently, the control isn't good, it still gives almost free rein to the members. The capping of the usage for various purposes needs further tweaking. Example, for housing. The 120% limit is not good enough because people are buying houses bigger than they need and over stretch their fund. This leaves little or nothing for other areas like accumulation for retirement.
Members still need to grow their fund because the minimum sum for annuity just provides subsistence living.
Another area needs tweaking is using the fund for investment. As you have noticed from all reports of CPF investment very few members made profit and if they did it was just above 2.5%. If this is so, members may as well leave their fund in the CPF to grow at 2.5% without the unnecessary risk they have been taking.
I propose that CPF make it compulsory for members who wish to invest to invest directly into some life cycle funds run by CPF or approved by CPF, otherwise leave it in CPF. This is to prevent abuses, mismanagement and losses in the hands of insurance sales agents who have no idea about investing but sales. With this in place, I believe members can earn as high as 6% to 8% rate of return, easily.
Cut out all intermediaries (agents, advisers, stock brokers etc) and go direct. The saving of cost will add to the return. It has proven again and again the intermediaries have done nothing but damages.
REPLY:
I agree with this proposal, to a large extent. They are similar to my suggestion that was published in the Business Times. Read here
It would supplement the compulsory annuity if we can some control of the use of CPF fund. Currently, the control isn't good, it still gives almost free rein to the members. The capping of the usage for various purposes needs further tweaking. Example, for housing. The 120% limit is not good enough because people are buying houses bigger than they need and over stretch their fund. This leaves little or nothing for other areas like accumulation for retirement.
Members still need to grow their fund because the minimum sum for annuity just provides subsistence living.
Another area needs tweaking is using the fund for investment. As you have noticed from all reports of CPF investment very few members made profit and if they did it was just above 2.5%. If this is so, members may as well leave their fund in the CPF to grow at 2.5% without the unnecessary risk they have been taking.
I propose that CPF make it compulsory for members who wish to invest to invest directly into some life cycle funds run by CPF or approved by CPF, otherwise leave it in CPF. This is to prevent abuses, mismanagement and losses in the hands of insurance sales agents who have no idea about investing but sales. With this in place, I believe members can earn as high as 6% to 8% rate of return, easily.
Cut out all intermediaries (agents, advisers, stock brokers etc) and go direct. The saving of cost will add to the return. It has proven again and again the intermediaries have done nothing but damages.
REPLY:
I agree with this proposal, to a large extent. They are similar to my suggestion that was published in the Business Times. Read here
How to get better advice
COMMENT POSTED IN MY BLOG
I think some kind of legal precedents will help to tidy up the industry. A body to advise on legal suits against roque insurance agents like CASE (Consumer Association) at affordable fee should be set up.
Once policyholders get litigious and know their rights and where to turn to for advise, this will then make insurance agents not to play play. Their recommendations must be able to withstand close scrutiny by third party review.
However customers must be educated on financial awareness. It is not about insurance only but about many areas of their personal finances. They have to know that all their needs are always competing for attention and the right and qualified adviser can help them to sort it out and not an insurance salesman.
Insurance agents are trained to sell, push and peddle products. They don't know about financial planning. Most are looking for get rich quick scheme and insurance selling offers them this opportunity. So unless the industry is cleaned up of these unscrupulous and unethical and cheats insurance salesmen we will continue to risk engaging one. A unified effort is needed.
To start with, only engage advisers with accredited tertiary qualifications like CFP, CFA, CPA, MFP or Master of science in wealth management.
REPLY:
I agree with most of the views.
High net worth people can engage advisers with tertiary qualifications. They can benefit from savings in tax through estate and tax planning.
Ordinary people should be educated about the simple facts of investments and encouraged to buy simple, low cost products available in the market. They do not need to pay high commission to advisers who do not add value to their financial planning.
I think some kind of legal precedents will help to tidy up the industry. A body to advise on legal suits against roque insurance agents like CASE (Consumer Association) at affordable fee should be set up.
Once policyholders get litigious and know their rights and where to turn to for advise, this will then make insurance agents not to play play. Their recommendations must be able to withstand close scrutiny by third party review.
However customers must be educated on financial awareness. It is not about insurance only but about many areas of their personal finances. They have to know that all their needs are always competing for attention and the right and qualified adviser can help them to sort it out and not an insurance salesman.
Insurance agents are trained to sell, push and peddle products. They don't know about financial planning. Most are looking for get rich quick scheme and insurance selling offers them this opportunity. So unless the industry is cleaned up of these unscrupulous and unethical and cheats insurance salesmen we will continue to risk engaging one. A unified effort is needed.
To start with, only engage advisers with accredited tertiary qualifications like CFP, CFA, CPA, MFP or Master of science in wealth management.
REPLY:
I agree with most of the views.
High net worth people can engage advisers with tertiary qualifications. They can benefit from savings in tax through estate and tax planning.
Ordinary people should be educated about the simple facts of investments and encouraged to buy simple, low cost products available in the market. They do not need to pay high commission to advisers who do not add value to their financial planning.
Licencing of financial advisers
COMMENT POSTED IN MY BLOG (edited)
Dear Mr Tan,
In your opinion, is there a need for MAS to license insurance agents? For those IFAs operating in a licensed financial firm, why do they need a license individually to practice?
I feel that MAS is trying to distinguish these 2 groups of advisers but doing it slowly over time. I do hope the licensing requirements (including renewals) do help to weed out unethical advisers.
Also, i feel that there is a conflict of interest in the insurance companies trying to enforce compliance issues on their representatives and watching their bottomline.
I share your vision where advisers operate in a fee-based model and salaried advisers. Free of commissions and conflict of interests.
REPLY:
My view is:
* There is a need for MAS to licence insurance agents, and not leave it to the insurance company. Currently, MAS licence independent financial advisers only.
* There should be clear standards of products and practices that are fair for consumers. Currently, some financial products are designed to make a lot of commission for the distributor and the product issuer (i.e. the insurance company or investment bank), and give poor value to consumers (who are not knowledgeable).
* There should be stronger enforcement of the practices, to make sure that the financial advisers and act in the interest of the consumers (which is their duty anyway).
* We need standards similar to the medical and legal professions.
Dear Mr Tan,
In your opinion, is there a need for MAS to license insurance agents? For those IFAs operating in a licensed financial firm, why do they need a license individually to practice?
I feel that MAS is trying to distinguish these 2 groups of advisers but doing it slowly over time. I do hope the licensing requirements (including renewals) do help to weed out unethical advisers.
Also, i feel that there is a conflict of interest in the insurance companies trying to enforce compliance issues on their representatives and watching their bottomline.
I share your vision where advisers operate in a fee-based model and salaried advisers. Free of commissions and conflict of interests.
REPLY:
My view is:
* There is a need for MAS to licence insurance agents, and not leave it to the insurance company. Currently, MAS licence independent financial advisers only.
* There should be clear standards of products and practices that are fair for consumers. Currently, some financial products are designed to make a lot of commission for the distributor and the product issuer (i.e. the insurance company or investment bank), and give poor value to consumers (who are not knowledgeable).
* There should be stronger enforcement of the practices, to make sure that the financial advisers and act in the interest of the consumers (which is their duty anyway).
* We need standards similar to the medical and legal professions.
Save energy
When I was in Japan last week, I learned about their energy saving movement. Their offices are encouraged to set the thermostat at 28 degrees Centigrade. The outside temperate is above 30 degrees.
The male employees are encouraged to wear short sleeve shirts, called "Cool Biz". They do not wear tie and jacket.
The Japan Ministry of the Environment calculated that the annual saving in energy per household from 1 degree of efficiency (from cooling and heating) is 84.6 kilowatt.
The offices in Singapore are quite wasteful in the use of energy. Many offices are cooled down to as low as 22 degrees. The employees have to wear jackets to keep warm. Knowledgeable people tells me that 25 to 26 degrees is the right temperate.
The cost of 1 kilowatt hour is $0.20. If offices and households in Singapore can be more energy saving by 2 degrees, the annual saving could be (just a rough guess), 2 million household X 2 degrees X 84.6 kilowatt X $0.20 = $34 million. (I hope that the experts can verify my figure).
It is not only just saving of $34 million. We have to do our part to prevent global warming and climate change.
The male employees are encouraged to wear short sleeve shirts, called "Cool Biz". They do not wear tie and jacket.
The Japan Ministry of the Environment calculated that the annual saving in energy per household from 1 degree of efficiency (from cooling and heating) is 84.6 kilowatt.
The offices in Singapore are quite wasteful in the use of energy. Many offices are cooled down to as low as 22 degrees. The employees have to wear jackets to keep warm. Knowledgeable people tells me that 25 to 26 degrees is the right temperate.
The cost of 1 kilowatt hour is $0.20. If offices and households in Singapore can be more energy saving by 2 degrees, the annual saving could be (just a rough guess), 2 million household X 2 degrees X 84.6 kilowatt X $0.20 = $34 million. (I hope that the experts can verify my figure).
It is not only just saving of $34 million. We have to do our part to prevent global warming and climate change.
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