If you are 30 years old (male) and you wish to provide $3,000 a month payable to your family in the event of premature death, the annual premium payable is:
20 year Family Income policy: $484
30 year Family Income policy: $1,068
The family income is payable for the remainder of the term. You can reduce your cost by 50%, when you select a 20 year policy, instead of a 30 year policy.
You can take the insurance to provide a higher benefit by paying a proportionately higher premium.
In my view, a 20 year policy is probably suitable for most people.
Friday, February 29, 2008
Buying insurance on a limited budget
If you are a male at 30 years and have a limited budget of $600 a year for life insurance and you wish to provide for your family in the event of premature death during the next 30 years, you have the following options:
a) Level term, covers $182,000
b) Decreasing term, covers $486,000 reducing gradually over 30 year
c) Family income of $1,685 payable monthly for remainder of 30 years (initial cover is $606,000)
Option (a) provides the same amount in the event of premature death. Option (b) and (c) provides a higher amount in the event of death during the earlier years, and a lower amount in the later years.
You also have the option to buy a whole life policy and get a sum assured of $30,000. This covers you for the whole of life and accumulates a cash value (i.e. some savings).
Which option do you prefer?
a) Level term, covers $182,000
b) Decreasing term, covers $486,000 reducing gradually over 30 year
c) Family income of $1,685 payable monthly for remainder of 30 years (initial cover is $606,000)
Option (a) provides the same amount in the event of premature death. Option (b) and (c) provides a higher amount in the event of death during the earlier years, and a lower amount in the later years.
You also have the option to buy a whole life policy and get a sum assured of $30,000. This covers you for the whole of life and accumulates a cash value (i.e. some savings).
Which option do you prefer?
Surrender a life policy
Dear Sir,
Your Blog is much useful to many people. Unfortunately I have not come across before taking many of my insurance plan. Most of them were taken without having prior knowledge about it.
I have Company X Endowment policy under my wife's name taken 3 years back. I need to surrender it. Is it possible to do it now? If so, how much I may be getting in return?
I do not need this plan as I am now in out of Singapore. My current employer is covering insurance for whole family in this country. I was in Singapore for the past 7 years.
REPLY
I hope that this FAQ can answer your question:
http://www.tankinlian.com/faq/exist.html
You should ask Company X to quote you the cash value now, and in 5 years time, so that you can make the correct decision.
Your Blog is much useful to many people. Unfortunately I have not come across before taking many of my insurance plan. Most of them were taken without having prior knowledge about it.
I have Company X Endowment policy under my wife's name taken 3 years back. I need to surrender it. Is it possible to do it now? If so, how much I may be getting in return?
I do not need this plan as I am now in out of Singapore. My current employer is covering insurance for whole family in this country. I was in Singapore for the past 7 years.
REPLY
I hope that this FAQ can answer your question:
http://www.tankinlian.com/faq/exist.html
You should ask Company X to quote you the cash value now, and in 5 years time, so that you can make the correct decision.
Big losses in AIG
From www.bloomberg.com
American International Group Inc., the largest insurer by assets, said Joseph Cassano will step down from running the financial products unit after $11.1 billion in losses on guarantees sold to fixed-income investors.
Cassano's retirement is effective March 31, Chief Executive Officer Martin Sullivan said today in a conference call. He will serve as a consultant through the year, Sullivan said.
AIG reported the biggest quarterly loss in its 89-year history yesterday after writing down the value of so-called credit-default swaps. The New York-based company said for the first time in yesterday's statement that realized losses on the portfolio "could be material'' to quarterly earnings. The fourth-quarter net loss was $5.29 billion.
NOTE: AIG is the parent company of AIA (American International Assurance) in Singapore.
American International Group Inc., the largest insurer by assets, said Joseph Cassano will step down from running the financial products unit after $11.1 billion in losses on guarantees sold to fixed-income investors.
Cassano's retirement is effective March 31, Chief Executive Officer Martin Sullivan said today in a conference call. He will serve as a consultant through the year, Sullivan said.
AIG reported the biggest quarterly loss in its 89-year history yesterday after writing down the value of so-called credit-default swaps. The New York-based company said for the first time in yesterday's statement that realized losses on the portfolio "could be material'' to quarterly earnings. The fourth-quarter net loss was $5.29 billion.
NOTE: AIG is the parent company of AIA (American International Assurance) in Singapore.
Shuttle service to MRT station
I took a taxi to visit KK Hospital. The fare was $18. I learned later, that KK Hospital operates a shuttle to transport their employees and patients to the two nearby MRT stations.
Rather than have an organisation run a separate shuttle service, it will be more efficient to have feeder services that serve many public and commercial buildings within 2 kms of each MRT station.
I hope that Land Transport Authority will allow small bus operators to operate these feeder services. If these services are well publicised, more people will take the train instead of relying on expensive taxis.
Rather than have an organisation run a separate shuttle service, it will be more efficient to have feeder services that serve many public and commercial buildings within 2 kms of each MRT station.
I hope that Land Transport Authority will allow small bus operators to operate these feeder services. If these services are well publicised, more people will take the train instead of relying on expensive taxis.
Theft of cash cards from cars
I read in the newspaper of the high rate of theft of cash cards from cars.
About two years back, I discussed with some senior people in LTA to allow car owners to opt to pay ERP charges through a monthly bill. This is similar to paying for telephone charges based on actual usage. It should be easy for the ERP gantry gates to identify the vehicles that have incurred ERP charges and bill the owners on a monthly bill.
This has the following advantages:
1. Reduce the time taken by the owner to top up the cash cards
2. Reduce the risk of theft of cash cards.
At that time, the LTA officials explained to me on why the concept was not feasible. (I do not agree with their view). As they were not keen to explore an alternative. I decided not to pursue the matter. With the high rate of theft of cash cards, perhaps LTA will now review this matter?
About two years back, I discussed with some senior people in LTA to allow car owners to opt to pay ERP charges through a monthly bill. This is similar to paying for telephone charges based on actual usage. It should be easy for the ERP gantry gates to identify the vehicles that have incurred ERP charges and bill the owners on a monthly bill.
This has the following advantages:
1. Reduce the time taken by the owner to top up the cash cards
2. Reduce the risk of theft of cash cards.
At that time, the LTA officials explained to me on why the concept was not feasible. (I do not agree with their view). As they were not keen to explore an alternative. I decided not to pursue the matter. With the high rate of theft of cash cards, perhaps LTA will now review this matter?
Thursday, February 28, 2008
Family Income Policy
A family income policy pays a monthly income for the remainder of the term, in the event of premature death of the policyholder.
For example, a male at age 30 can take a 30 year policy to provide a family income of $3,000 a month for an annual premium payable of $1,068 (based on my benchmark).
If death occurs at the start, the policy pays $3,000 a month for the 30 years, or a total of $1,080,000 (i.e. more than $1 million). If death occurs at end of 10 years, the income benefit is payable for 20 years (total of $720,000). If death occurs at the end of 20 years, the benefit if payable for 10 years (total of $360,000). If premature death does not occur, the policy expires at the end of 30 years, without any cash value.
The policy can be taken to provide a lower monthly benefit at a proportionately reduced premium. For example, the premium payable for a monthly benefit of $1,500 is $534.
The advantages of this policy are:
1. It provides a very large benefit at an afforable premium
2. It pays a monthly income, so the family does not have to worry about investing a lump sum payment.
3. The policyholder can invest the savings in a low cost, diversified investment fund to earn a higher return, compared to a whole life policy.
For example, a male at age 30 can take a 30 year policy to provide a family income of $3,000 a month for an annual premium payable of $1,068 (based on my benchmark).
If death occurs at the start, the policy pays $3,000 a month for the 30 years, or a total of $1,080,000 (i.e. more than $1 million). If death occurs at end of 10 years, the income benefit is payable for 20 years (total of $720,000). If death occurs at the end of 20 years, the benefit if payable for 10 years (total of $360,000). If premature death does not occur, the policy expires at the end of 30 years, without any cash value.
The policy can be taken to provide a lower monthly benefit at a proportionately reduced premium. For example, the premium payable for a monthly benefit of $1,500 is $534.
The advantages of this policy are:
1. It provides a very large benefit at an afforable premium
2. It pays a monthly income, so the family does not have to worry about investing a lump sum payment.
3. The policyholder can invest the savings in a low cost, diversified investment fund to earn a higher return, compared to a whole life policy.
Term insurance replaces loss of earnings
Dear Mr. Tan,
My insurance adviser said that a term insurance policy will expire at the end of the term and after that, I will not have any more life insurance coverage. She said that it is better to take a whole life policy, as it provides coverage for the whole of life. I am undecided. What is your advice?
REPLY
Most people need life insurance to cover the loss of earnings in the event of premature death. They need the life insurance policy coverage only during their working life. The policy pays a benefit to replace the lost income and take care of the family needs when the children are still young.
When a person retires from work, there is no need for life insurance, as there is no lost earnings to be covered.
If you take up a term insurance policy, you pay a premium of about one-tenth of a whole life policy. This allows you to take a larger sum assured and protect your family more adequately. You need life insurance up to age 65 only.
You will find that a decreasing term insurance to be suitable for your needs. The sum assured starts at a high amount and decreases each year over the term. The premium is less than half of a level term insurance policy. You only need to pay about 5% of the premium for a comparable whole life policy.
Although the sum assured decreases each year, it is adequate for the family as the children have grown one year older, and need to be financially supported for a shorter period. The family would have accumulated one more year of savings with each passing year.
For example, a male at age 30 who takes a whole life policy to cover $300,000 has to pay a monthly premium of $500. This person can take a 20 year term insurance policy covering the same amount for a monthly premim of only $50. For a decreasing term insurance policy, the premium is about $25 a month.
If he takes a 30 year term insurance policy, the premium will be about $100 (for level term) and $50 (for decreasing term). They are much lower than the premium for a whole life policy.
There is another policy, called the family income policy, that pays the benefit as a monthly sum (say $3,000 a month) for the remainder of the term. I shall explain this policy in more detail separately.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
My insurance adviser said that a term insurance policy will expire at the end of the term and after that, I will not have any more life insurance coverage. She said that it is better to take a whole life policy, as it provides coverage for the whole of life. I am undecided. What is your advice?
REPLY
Most people need life insurance to cover the loss of earnings in the event of premature death. They need the life insurance policy coverage only during their working life. The policy pays a benefit to replace the lost income and take care of the family needs when the children are still young.
When a person retires from work, there is no need for life insurance, as there is no lost earnings to be covered.
If you take up a term insurance policy, you pay a premium of about one-tenth of a whole life policy. This allows you to take a larger sum assured and protect your family more adequately. You need life insurance up to age 65 only.
You will find that a decreasing term insurance to be suitable for your needs. The sum assured starts at a high amount and decreases each year over the term. The premium is less than half of a level term insurance policy. You only need to pay about 5% of the premium for a comparable whole life policy.
Although the sum assured decreases each year, it is adequate for the family as the children have grown one year older, and need to be financially supported for a shorter period. The family would have accumulated one more year of savings with each passing year.
For example, a male at age 30 who takes a whole life policy to cover $300,000 has to pay a monthly premium of $500. This person can take a 20 year term insurance policy covering the same amount for a monthly premim of only $50. For a decreasing term insurance policy, the premium is about $25 a month.
If he takes a 30 year term insurance policy, the premium will be about $100 (for level term) and $50 (for decreasing term). They are much lower than the premium for a whole life policy.
There is another policy, called the family income policy, that pays the benefit as a monthly sum (say $3,000 a month) for the remainder of the term. I shall explain this policy in more detail separately.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
Comparing Anticipation and Revosave
COMMENT POSTED IN MY BLOG
Despite the fact Mr Tan has repeatedly said he delivered products that give good value, he designed the Anticipation plan when there were better value products like Endowment around. Anticipation is Revosave's predecessor. Personally, I find this an irony. I hope Mr Tan do not take offence in me bringing up this blunt fact.
REPLY
Here are the facts.
1. The Anticipation plan was designed 25 years ago.
2. It pays a lower rate of commission compared to similar plans in the market
3. It offered an attractive return to the policyholder, more than 4% per annum
4. The return on Anticipation is similar to Endowment plan, as the payout is every 3 years.
I am not familiar with the Revosave plan. Some people said that it offers a poor return, which is much lower than the Endowment plan. It is also quite confusing to the customer. I would not have designed such a product, as it goes against my belief on what is good value for the customer.
In today's environment, it is better to invest in a low cost, diversified fund. The saving plan is more flexible. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Despite the fact Mr Tan has repeatedly said he delivered products that give good value, he designed the Anticipation plan when there were better value products like Endowment around. Anticipation is Revosave's predecessor. Personally, I find this an irony. I hope Mr Tan do not take offence in me bringing up this blunt fact.
REPLY
Here are the facts.
1. The Anticipation plan was designed 25 years ago.
2. It pays a lower rate of commission compared to similar plans in the market
3. It offered an attractive return to the policyholder, more than 4% per annum
4. The return on Anticipation is similar to Endowment plan, as the payout is every 3 years.
I am not familiar with the Revosave plan. Some people said that it offers a poor return, which is much lower than the Endowment plan. It is also quite confusing to the customer. I would not have designed such a product, as it goes against my belief on what is good value for the customer.
In today's environment, it is better to invest in a low cost, diversified fund. The saving plan is more flexible. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Wednesday, February 27, 2008
Changi Airport
Changi Airport is an excellent example of forward planning - probably among the best in Singapore.
When they build Terminal 1 nearly 20 years ago, there were already plans for terminal 2 and terminal 3.
The gates in terminal were were identified as C and D. When terminal 2 was built 10 years later, the games were identified by E and F. Terminal 3 is recently completed. The gates are identified by A and B. These letters have been reserved for terminal 3 for 20 years.
Through this forward planning, the gates are identified in the right sequence, from A to F.
The signage in the airports are also among the best Singapore. It is easy to get around Changi airport. In contrast, many other large buildings and MRT stations in Singapore in Singapore have poor signages.
When they build Terminal 1 nearly 20 years ago, there were already plans for terminal 2 and terminal 3.
The gates in terminal were were identified as C and D. When terminal 2 was built 10 years later, the games were identified by E and F. Terminal 3 is recently completed. The gates are identified by A and B. These letters have been reserved for terminal 3 for 20 years.
Through this forward planning, the gates are identified in the right sequence, from A to F.
The signage in the airports are also among the best Singapore. It is easy to get around Changi airport. In contrast, many other large buildings and MRT stations in Singapore in Singapore have poor signages.
MAS Consultation Paper
Mr. Tan,
What is the key proposal that you will send on the MAS consultation paper?
REPLY
My key message is:
1. MAS requires the board and senior management to "put consumer interest first".
2. However, these parties are also required by their shareolders to "increase shareholder value", i.e make more profit for shareholders
3. More profit for shareholders mean more charges (and lower returns) to customers
4. As consumers will not pay higher charges, the life insurance company has to hide them, i.e. not transparent
5. It is difficult for the board and senior management to balance this conflict of interests
6. It is not realistic to expect that consumers can be eduated sufficiently to identify good financial products from bad ones.
7. MAS needs a new approach to look at safeguard the interest of consumers
I will be suggesting a new approach.
What is the key proposal that you will send on the MAS consultation paper?
REPLY
My key message is:
1. MAS requires the board and senior management to "put consumer interest first".
2. However, these parties are also required by their shareolders to "increase shareholder value", i.e make more profit for shareholders
3. More profit for shareholders mean more charges (and lower returns) to customers
4. As consumers will not pay higher charges, the life insurance company has to hide them, i.e. not transparent
5. It is difficult for the board and senior management to balance this conflict of interests
6. It is not realistic to expect that consumers can be eduated sufficiently to identify good financial products from bad ones.
7. MAS needs a new approach to look at safeguard the interest of consumers
I will be suggesting a new approach.
Inflation in Saudi Arabia
I met someone from Saudi Arabia at a conference in Bahrain. I asked him if the economy in Saudi Arabia is booming due to the revenue from the high oil prices.
He said that the cost of living has increased sharply. Many ordinary people are finding it difficult to cope, as their wages have not gone up to the same extent as the cost of living.
I looks like the problem is the same in most countries, namely, the inflation is too high this year.
He said that the cost of living has increased sharply. Many ordinary people are finding it difficult to cope, as their wages have not gone up to the same extent as the cost of living.
I looks like the problem is the same in most countries, namely, the inflation is too high this year.
Tuesday, February 26, 2008
Fair treatment of policyholders
Dear Mr. Tan,
Thank you for your explanation about the anticipated endowment policy. Based on your example, the policyholder is worse off, as he has to pay an additional premium and get back only a part of it (after deducting expenses) as the annual cash benefit.
MAS has published guidelines on the fair treatment of policyholders. In your opinion, will the board and senior management get into trouble by selling this type of product, as the policyholder appears to be worse off?
What about the insurance advisers who sell this type of product? Are they in breach of their duty to give good advice?
REPLY
In my view, it will be difficult for the board, senior management or insurance adviser to explain how this product is better for customers, compared to an ordinary endowment policy.
In the past, insurance companies have the leeway to design products that are pay high commission for agents, make good profit for their shareholders, but give poor value to the policyholders. This may change with the new MAS requirement.
This is just my guess. I do not know how MAS intends to implement the new regulations. We have to wait and see the future developments.
Thank you for your explanation about the anticipated endowment policy. Based on your example, the policyholder is worse off, as he has to pay an additional premium and get back only a part of it (after deducting expenses) as the annual cash benefit.
MAS has published guidelines on the fair treatment of policyholders. In your opinion, will the board and senior management get into trouble by selling this type of product, as the policyholder appears to be worse off?
What about the insurance advisers who sell this type of product? Are they in breach of their duty to give good advice?
REPLY
In my view, it will be difficult for the board, senior management or insurance adviser to explain how this product is better for customers, compared to an ordinary endowment policy.
In the past, insurance companies have the leeway to design products that are pay high commission for agents, make good profit for their shareholders, but give poor value to the policyholders. This may change with the new MAS requirement.
This is just my guess. I do not know how MAS intends to implement the new regulations. We have to wait and see the future developments.
Bahrain
Bahrain has a population of 800,000. It is an island nation, slightly bigger than Singapore in physical size. The capital is Manana. The cost of living is high. Taxi and hotel fares are about 150% to 200% of similar prices in Singapore.
Dubai Airport
I transit through Dubai Airport before morning on the way to and from Bahrain. On both occasions, Dubai Airport is packed. It is more than twice as busy as Changi Airport. Many of the passengers had to sit on the floor, as the chairs are all taken.
Many people use Dubai Airport to transit to other cities in the Middle East. They go to work in the booming Middle East couniires. Thanks to the high oil price and the new found wealth.
Many people use Dubai Airport to transit to other cities in the Middle East. They go to work in the booming Middle East couniires. Thanks to the high oil price and the new found wealth.
Loss of No Claim Discount
Dear Mr. Tan,
Last year, my insurance company settled a third party claim without my consent. They penalised me on my No Claim Discount. I find this to be unfair. How can I take up this matter?
REPLY
The No Claim Discount is given only if the insurance company did not pay any claim during the past year. If there is a third party claim, the insurance contract specify that the NCD will be lost.
The only way to keep the NCD is for you to pay the claim from the third party. You can ask your insurance company about the amount of the claim, and decide if you wish to bear it.
The insurance company will protect the interest of its policyholder. They will reject the third party claim if their own policyholder is not liable. They will only pay the third party claim if, based on the circumstance of the accident, their policyholder is likely to be at fault. They use standard market protocol to determine the party at fault.
If you feel strongly against the payment, you can ask the mangement to review their claim and see if they have paid the third party claim wrongly. After the review, you have to take their decision as final.
Last year, my insurance company settled a third party claim without my consent. They penalised me on my No Claim Discount. I find this to be unfair. How can I take up this matter?
REPLY
The No Claim Discount is given only if the insurance company did not pay any claim during the past year. If there is a third party claim, the insurance contract specify that the NCD will be lost.
The only way to keep the NCD is for you to pay the claim from the third party. You can ask your insurance company about the amount of the claim, and decide if you wish to bear it.
The insurance company will protect the interest of its policyholder. They will reject the third party claim if their own policyholder is not liable. They will only pay the third party claim if, based on the circumstance of the accident, their policyholder is likely to be at fault. They use standard market protocol to determine the party at fault.
If you feel strongly against the payment, you can ask the mangement to review their claim and see if they have paid the third party claim wrongly. After the review, you have to take their decision as final.
Expertise in claim settlement
Insurance performs two important functions:
a) Pay for cost of claims
b) Handle the settlement of the claims
The insurance company should have expertise on the following:
a) The best source for treating a sickness
b) Quality and cost effectiveness in handling a repair
c) Determining the party who is liable for the accident
A lay person will find it difficult to handle these matters, as they encounter it only rarely. The claims officer handle claims every day and is able to build up an expertise in dealing with these matters efficiently.
If you have to make a claim for motor repair, medical treatment or determine liability, it is better to report immediate to the insurance company and let the claims officer handle this matter for you.
It is also important for the insurance company to have claim officers who are competent in handling these matters, insted of depending only on paperwork.
Tip: Leave the specialised matters to the experts.
a) Pay for cost of claims
b) Handle the settlement of the claims
The insurance company should have expertise on the following:
a) The best source for treating a sickness
b) Quality and cost effectiveness in handling a repair
c) Determining the party who is liable for the accident
A lay person will find it difficult to handle these matters, as they encounter it only rarely. The claims officer handle claims every day and is able to build up an expertise in dealing with these matters efficiently.
If you have to make a claim for motor repair, medical treatment or determine liability, it is better to report immediate to the insurance company and let the claims officer handle this matter for you.
It is also important for the insurance company to have claim officers who are competent in handling these matters, insted of depending only on paperwork.
Tip: Leave the specialised matters to the experts.
Monday, February 25, 2008
Planning for early retirement
Hi Mr. Tan,
I read alot about your advice and would like to seek your advice as follow:
I am xx years old and my wife is xx. we have 2 children. Both my wife and I earn an average of S$xxx,000 a year. We plan to retire at xx years old and take on a less stressful job. Our financial status as follow: (details removed).
Please advise if we retire at xx years old. As I am a simple man, I don't need to have a car and can even down-grade to a smaller HDB flat. I am assuming that I can live up to age 65 years old, thereafter my kids will take on the responsibilities of looking after us. We have plenty of insurance coverage for me and hospitalisation coverage for whole family.
REPLY
I suggest that you read the following FAQs in by website, and talk to a financial adviser. Be willing to pay a fee for their advice and time.
http://www.tankinlian.com/faq/retirement.html
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/
I read alot about your advice and would like to seek your advice as follow:
I am xx years old and my wife is xx. we have 2 children. Both my wife and I earn an average of S$xxx,000 a year. We plan to retire at xx years old and take on a less stressful job. Our financial status as follow: (details removed).
Please advise if we retire at xx years old. As I am a simple man, I don't need to have a car and can even down-grade to a smaller HDB flat. I am assuming that I can live up to age 65 years old, thereafter my kids will take on the responsibilities of looking after us. We have plenty of insurance coverage for me and hospitalisation coverage for whole family.
REPLY
I suggest that you read the following FAQs in by website, and talk to a financial adviser. Be willing to pay a fee for their advice and time.
http://www.tankinlian.com/faq/retirement.html
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/
Endowment policy with regular payout
Hi Mr. Tan,
Insurers in Malaysia have introduced periodical-income endowment policies, which are called anticipated endowments. Currently, most anticipated endowments in the market pay out the guaranteed income annually, after a period of 10 years or so. Some even have shorten the period to every two years. The guarantee income payable ranges from 4% to 8%. eg.PRUcash, Do we have the same kind of insurance policy in Singapore?
REPLY
Many insurance companies have anticipated endowment policies, which have been sold in Singapore over the past 30 years. The annual payout comes from your premium. After deducting the high charges, the return on the anticipated endowment policy is poor.
Here is a simple example. An endowment policy requires a monthly premium of (say) $500. An anticipated endowment policy that requires a payout of (say) $2,400 may require a monthly premium of (say) $730. An monthly saving of $200 is needed to fund the payout of $2,400. But the additional premium is more than $200 as part of it goes to pay the expenses, including the agent's commission.
An endowment policy gives a poor return due to the high expenses. An anticipated endowment policy is worse. It is better to save the additional premium in a saving account to avoid the unnecessary charges.
Insurers in Malaysia have introduced periodical-income endowment policies, which are called anticipated endowments. Currently, most anticipated endowments in the market pay out the guaranteed income annually, after a period of 10 years or so. Some even have shorten the period to every two years. The guarantee income payable ranges from 4% to 8%. eg.PRUcash, Do we have the same kind of insurance policy in Singapore?
REPLY
Many insurance companies have anticipated endowment policies, which have been sold in Singapore over the past 30 years. The annual payout comes from your premium. After deducting the high charges, the return on the anticipated endowment policy is poor.
Here is a simple example. An endowment policy requires a monthly premium of (say) $500. An anticipated endowment policy that requires a payout of (say) $2,400 may require a monthly premium of (say) $730. An monthly saving of $200 is needed to fund the payout of $2,400. But the additional premium is more than $200 as part of it goes to pay the expenses, including the agent's commission.
An endowment policy gives a poor return due to the high expenses. An anticipated endowment policy is worse. It is better to save the additional premium in a saving account to avoid the unnecessary charges.
Education Plan
Dear Mr. Tan,
I recently bought an education policy for my son. The agent said that it is the best way to save for his future education. What are the advantages of this policy, compared to your recommendation to save in an investment fund?
REPLY
The advantages of the education policy are:
a) It forces you to make regular savings over the term of the policy
b) In the event of premature death of the parent, the guaranteed sum assured plus bonus is payable (which is higher than the total savings)
The advantages of the investment fund are:
a) The maturity payout is likely to be 10% to 20% higher than the education policy
b) It gives greater flexibility
c) You can insure against premature death through a low cost decreasing term insurance.
In today's environment (comparing the cost and benefits of both options), it is better to save through a low cost investment fund, and buy term insurance to cover premature death.
If you buy an education policy, compare the return from various insurance companies and choose one that gives a higher return, due to lower expenses.
I recently bought an education policy for my son. The agent said that it is the best way to save for his future education. What are the advantages of this policy, compared to your recommendation to save in an investment fund?
REPLY
The advantages of the education policy are:
a) It forces you to make regular savings over the term of the policy
b) In the event of premature death of the parent, the guaranteed sum assured plus bonus is payable (which is higher than the total savings)
The advantages of the investment fund are:
a) The maturity payout is likely to be 10% to 20% higher than the education policy
b) It gives greater flexibility
c) You can insure against premature death through a low cost decreasing term insurance.
In today's environment (comparing the cost and benefits of both options), it is better to save through a low cost investment fund, and buy term insurance to cover premature death.
If you buy an education policy, compare the return from various insurance companies and choose one that gives a higher return, due to lower expenses.
Logic9 (Sudoku)
I have updated the puzzles in my Logic9 website, i.e.
http://www.tankinlian.com
The new website has the following featues:
1. More puzzles at each of 4 levels
2. All the puzzles have a unique solution and can be solved logically
3. You can work at "very easy" level and move up to "difficult" level
4. You can select the same puzzle to practice and build up your capability
5. You can choose other symbols, such as "flowers" to train your right brain.
Try it
http://www.tankinlian.com/logic9/
http://www.tankinlian.com/logic9/playLogic9.asp
http://www.tankinlian.com
The new website has the following featues:
1. More puzzles at each of 4 levels
2. All the puzzles have a unique solution and can be solved logically
3. You can work at "very easy" level and move up to "difficult" level
4. You can select the same puzzle to practice and build up your capability
5. You can choose other symbols, such as "flowers" to train your right brain.
Try it
http://www.tankinlian.com/logic9/
http://www.tankinlian.com/logic9/playLogic9.asp
Intelligent Lifts
I saw intelligent lifts in a new office building in Bahrain. The user keys in the number of the floor and the display on the panel shows the specific lift that is being despatched to you.
The computer system for the lifts is able to group several people visiting the same floor and direct them to a specific lift. This reduces the number of floors that the lift has to stop.
It is the first time that I have seen a lift operated in this manner.
The computer system for the lifts is able to group several people visiting the same floor and direct them to a specific lift. This reduces the number of floors that the lift has to stop.
It is the first time that I have seen a lift operated in this manner.
Hedge against inflation
Hi Mr. Tan,
Inflation in Singapore is building up to 4.5 % to 5.5%. What financial products should I invest in to earn a return over inflation?
I am interested to invest in the stock market. Which stocks should i invest in to have a good and steady dividend yield?
REPLY
If you are investing for the long term (i.e. 10 years or longer), it is best to invest in a low cost, diversified investment fund. Equities provide the a good hedge against inflation. The return from equities should be more than the rate of inflation.
I suggest that you invest in the STI ETF. Read this FAQ: http://www.tankinlian.com/faq/savings.html
Inflation in Singapore is building up to 4.5 % to 5.5%. What financial products should I invest in to earn a return over inflation?
I am interested to invest in the stock market. Which stocks should i invest in to have a good and steady dividend yield?
REPLY
If you are investing for the long term (i.e. 10 years or longer), it is best to invest in a low cost, diversified investment fund. Equities provide the a good hedge against inflation. The return from equities should be more than the rate of inflation.
I suggest that you invest in the STI ETF. Read this FAQ: http://www.tankinlian.com/faq/savings.html
Insurance for a baby
Dear Mr. Tan,
I am planing to buy insurance for my baby. There are so many plans in themarket and I am so confused.
My baby is 16 month old. I want to buy insurance to cover critical illness and provide investment return and saving, to be withdrawn at the age of 19. If I return to China earlier, can we withdraw all of the money with interest?
REPLY
I suggest that you buy MediShield plan to cover medical expenses for your baby. It covers the cost of treatment for critical illness as well.
You should save for the baby in a low cost diversified investment fund. You can withdraw your savings at any time, based on the market value of the investments, without suffering any penalty. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I am planing to buy insurance for my baby. There are so many plans in themarket and I am so confused.
My baby is 16 month old. I want to buy insurance to cover critical illness and provide investment return and saving, to be withdrawn at the age of 19. If I return to China earlier, can we withdraw all of the money with interest?
REPLY
I suggest that you buy MediShield plan to cover medical expenses for your baby. It covers the cost of treatment for critical illness as well.
You should save for the baby in a low cost diversified investment fund. You can withdraw your savings at any time, based on the market value of the investments, without suffering any penalty. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Ask for quotes from a few insurance companies
Hi Mr. Tan,
I recently asked a insurance company to quote me for term insurance for critical illness. I was given the following quotation. My profile : 39 years old, non-smoker, perfect health. Term insurance for critical illness : $300,000 for 30 years. The insurer quote me $274 per month. It seems very high after referring to your table. Is this the market rate for term assurrance for critical illness?
REPLY
Some insurance agents quote high premium rates for term insurance, as they wish to get you to buy whole life policies.
I suggest that you ask a few insurance companies to quote the short term critical illness insuance for you. You can get their contact number from this FAQ: http://www.tankinlian.com/faq/termd.html.
Perhaps you should ask for 20 or 25 years and reduce the coverage to $50,000 for the critical illness plan and insure $250,000 under a decreasing term insurance. Read this FAQ:
http://www.tankinlian.com/faq/choice.html
You can ask NTUC Income to quote you the Living benefit under the Family Insurance policy.
I recently asked a insurance company to quote me for term insurance for critical illness. I was given the following quotation. My profile : 39 years old, non-smoker, perfect health. Term insurance for critical illness : $300,000 for 30 years. The insurer quote me $274 per month. It seems very high after referring to your table. Is this the market rate for term assurrance for critical illness?
REPLY
Some insurance agents quote high premium rates for term insurance, as they wish to get you to buy whole life policies.
I suggest that you ask a few insurance companies to quote the short term critical illness insuance for you. You can get their contact number from this FAQ: http://www.tankinlian.com/faq/termd.html.
Perhaps you should ask for 20 or 25 years and reduce the coverage to $50,000 for the critical illness plan and insure $250,000 under a decreasing term insurance. Read this FAQ:
http://www.tankinlian.com/faq/choice.html
You can ask NTUC Income to quote you the Living benefit under the Family Insurance policy.
Income Benefit
When you buy life insurance to protect your family, do you prefer that the benefit be paid to your family in a lump sum or in monthly installments?
I think that most people will answer is "both". It is useful to have a lump sum of say $50,000 and a monthly income benefit of $2,000 for 20 years. It may be useful if both of these sums are adjusted by say 2% each year, so that can offset inflation.
I think that most people will answer is "both". It is useful to have a lump sum of say $50,000 and a monthly income benefit of $2,000 for 20 years. It may be useful if both of these sums are adjusted by say 2% each year, so that can offset inflation.
Insurance and 4-D
What is the difference between buying insurance and buying 4-D?
In both cases, you pay a small amount and have the chance to win a large amount if certain events happen.
When you buy insurance, you hope that the insured event does not happen. You are happy to pay the premium as a "cost". When you buy 4-D, you hope that your number appears, and you can win the prize.
In both cases, you pay a small amount and have the chance to win a large amount if certain events happen.
When you buy insurance, you hope that the insured event does not happen. You are happy to pay the premium as a "cost". When you buy 4-D, you hope that your number appears, and you can win the prize.
Liability insurance
1. There are several types of liability insurance policies:
a) Public liability
b) Worker's compensation
c) Product liabilty
d) Professional liability
2. The motor insurance policy provides third party liabilty cover. If the owner drives carelessly and caused an accident, the third party can claim for compensation for the repair of the vehicle or for injuries.
3. The home insurance policy provides third party liability cover. If an accident occurs in your home due to a unsafe cnditon, the injured person can claim for compensation. This will be paid under the policy.
4. An employer is required to buy worker's compensation insurance to cover injuries to their employees that occurs in the course of work. This insurance will pay the employee for medical expenses and loss of wages.
5. A product manufacturer has to product liability insurance to cover claims from customers who are injured by defects in your product.
6. A lawyer, doctor, accountant or other professional may be sued for compensation for losses to the client caused by neglect of duty or wrong advice. This will be covered under a professional indemnity insurance.
a) Public liability
b) Worker's compensation
c) Product liabilty
d) Professional liability
2. The motor insurance policy provides third party liabilty cover. If the owner drives carelessly and caused an accident, the third party can claim for compensation for the repair of the vehicle or for injuries.
3. The home insurance policy provides third party liability cover. If an accident occurs in your home due to a unsafe cnditon, the injured person can claim for compensation. This will be paid under the policy.
4. An employer is required to buy worker's compensation insurance to cover injuries to their employees that occurs in the course of work. This insurance will pay the employee for medical expenses and loss of wages.
5. A product manufacturer has to product liability insurance to cover claims from customers who are injured by defects in your product.
6. A lawyer, doctor, accountant or other professional may be sued for compensation for losses to the client caused by neglect of duty or wrong advice. This will be covered under a professional indemnity insurance.
Sunday, February 24, 2008
Research Activities
Dr. Lee Kum Tatt’s articles on the above subject has attracted many comments. One of these comments and the reply is given in his blog www.leekumtatt.blogspot.com.
The Need to Live and Work in Harmony
In a small multiracial and multi religious country like Singapore, the need for its people to live and work harmoniously and in peace cannot be overemphasized.
Dr. & Mrs. Lee Kum Tatt (LKT) have always attracted many volunteers and others to cooperate with them throughout their lives for the benefit of Singapore.
How did they do that? Here are some accounts of what made them do what they did. Read their story in www.leekumtatt.blogspot.com
Dr. & Mrs. Lee Kum Tatt (LKT) have always attracted many volunteers and others to cooperate with them throughout their lives for the benefit of Singapore.
How did they do that? Here are some accounts of what made them do what they did. Read their story in www.leekumtatt.blogspot.com
Fair Dealing Outcomes
I will be working with Dr. Money to submit our views to this MAS consultation paper:
http://www.mas.gov.sg/news_room/press_releases/2008/MAS_seeks_comments_on_Guidelines_on_Board_and_Senior_Management_Responsibility_for_Delivering_Fair_Dealing_Outcomes_to_Consumers.html
I invite suggestions for this paper.
http://www.mas.gov.sg/news_room/press_releases/2008/MAS_seeks_comments_on_Guidelines_on_Board_and_Senior_Management_Responsibility_for_Delivering_Fair_Dealing_Outcomes_to_Consumers.html
I invite suggestions for this paper.
Bahrain
I will be travelling to Bahrain tonight and will return on Wednesday. Bahrain means "two seas" in Arabic.
Concept of term insurance
Term insurance is a contract where you pay a premium and hope that you do not have to make a claim.
For example, assume that for a group of working people, an average of 2 in 1,000 people will die each year due to accidents or illness. The participants can each contribute $200 into the pool to pay $100,000 to the family of the person who passes away.
Each person hopes that he will not be the person who makes a claim and that his contribution helps the family of the unfortunate person.
The life insurance company enters into the picture to provide a service to the 1,000 people. The company needs to have a loading of about 30% to cover the expenses and the cost of capital to support the pool (in case there is more than one claim in a certain year). Each participant pays a premium of $260. This is a fair loading to the true cost of insurance.
Many insurance companies offer other product that requires a high premium of $2,000 to $5,000 to cover $100,000, but provide some cash value (i.e. partial refund of the premium). However, most of these product are still too expensive, as a large part of the premium is used to pay commission and other expenses. The expense charges are likely to be more than the total premium payable under the term insurance.
It is better to pay a fair premium for the term insurance and hope that you do not make a claim.
For example, assume that for a group of working people, an average of 2 in 1,000 people will die each year due to accidents or illness. The participants can each contribute $200 into the pool to pay $100,000 to the family of the person who passes away.
Each person hopes that he will not be the person who makes a claim and that his contribution helps the family of the unfortunate person.
The life insurance company enters into the picture to provide a service to the 1,000 people. The company needs to have a loading of about 30% to cover the expenses and the cost of capital to support the pool (in case there is more than one claim in a certain year). Each participant pays a premium of $260. This is a fair loading to the true cost of insurance.
Many insurance companies offer other product that requires a high premium of $2,000 to $5,000 to cover $100,000, but provide some cash value (i.e. partial refund of the premium). However, most of these product are still too expensive, as a large part of the premium is used to pay commission and other expenses. The expense charges are likely to be more than the total premium payable under the term insurance.
It is better to pay a fair premium for the term insurance and hope that you do not make a claim.
Support for new life insurance company
Hi Mr. Tan,
I follow your blog and appreciate your insights into insurance and other social topics. Your recent posting on the New Life Insurance Comany set me thinking.
Why don't you start a new insurance company with investors or start a cooperative like before based on your concept stated in your blog? Actually, I was also wondering why you didn't convert INCOME to this form when you were the CEO? The concept is completely in line with INCOME being an NTUC supported cooperative!
Give them a run for their money. I for one would certainly be interested in buying policies from the company.
REPLY
I hope that your suggestion will materialise in one or two years' time. I also hope that many people, like you, will support it. I tried to introduce some elements of this strategy when I was in NTUC Income. It was stated in another posting in my blog.
I follow your blog and appreciate your insights into insurance and other social topics. Your recent posting on the New Life Insurance Comany set me thinking.
Why don't you start a new insurance company with investors or start a cooperative like before based on your concept stated in your blog? Actually, I was also wondering why you didn't convert INCOME to this form when you were the CEO? The concept is completely in line with INCOME being an NTUC supported cooperative!
Give them a run for their money. I for one would certainly be interested in buying policies from the company.
REPLY
I hope that your suggestion will materialise in one or two years' time. I also hope that many people, like you, will support it. I tried to introduce some elements of this strategy when I was in NTUC Income. It was stated in another posting in my blog.
Saturday, February 23, 2008
Paying benefits by installments
Dear Mr. Tan,
I am covered under term life, whole life, living and endowment with NTUC & Great Eastern. I intend to arrange the payout to beneficiaries in form of monthly instalments similar to annuity instead of lump sum in event of death. However, both insurance companies rejected such arrangement without giving any reason.
My wife is not savvy in financial management and investment. I prefer to provide them with a steady regular incomes in event of claim. NTUC suggested that claimant buy to a new annuity with the payout. I am not sure whether my wife will take my advice or not. This is within my control. Please advise me what feasible actions can take.
REPLY
You have made a sensible request. More people should be thinking like you. I am quite sad that the two insurance companies are not able to meet your request.
The next best thing is for you to write a request to be lodged with the insurance companies, and to educate your wife about this arrangement. When the time comes, your wife may authorise the insurance company to act accordingly.
If I can think of any better idea later, I shall tell you later.
I am covered under term life, whole life, living and endowment with NTUC & Great Eastern. I intend to arrange the payout to beneficiaries in form of monthly instalments similar to annuity instead of lump sum in event of death. However, both insurance companies rejected such arrangement without giving any reason.
My wife is not savvy in financial management and investment. I prefer to provide them with a steady regular incomes in event of claim. NTUC suggested that claimant buy to a new annuity with the payout. I am not sure whether my wife will take my advice or not. This is within my control. Please advise me what feasible actions can take.
REPLY
You have made a sensible request. More people should be thinking like you. I am quite sad that the two insurance companies are not able to meet your request.
The next best thing is for you to write a request to be lodged with the insurance companies, and to educate your wife about this arrangement. When the time comes, your wife may authorise the insurance company to act accordingly.
If I can think of any better idea later, I shall tell you later.
A new life insurance company?
Dear Mr. Tan,
I have been reading your recommendation to "Buy Term and invest the difference". If you were to run a life insurance company today, what products will you offer to the public? Will you be able to get agents to sell the low cost Term insurance?
REPLY
I will offer the following products:
a) Term insurance (level and decreasing Term up to age 65)
b) Critical illness cover, up to age 65
c) Personal accident insurance
d) Medical expenses and daily benefit
e) Travel insurance
f) Low cost, diversified investment fund (equity, bonds, currencies)
All of these products will be offered directly through the Internet or call center. The public can attend educational talks on investment and insurance. Basic financial planning advice will be provided by salaried consultants for a modest fee of $50 to $100. The customer has to visit the consultant in the office.
I hope that the public will welcome this new insurance company, should it be set up in one or two years' time.
I have been reading your recommendation to "Buy Term and invest the difference". If you were to run a life insurance company today, what products will you offer to the public? Will you be able to get agents to sell the low cost Term insurance?
REPLY
I will offer the following products:
a) Term insurance (level and decreasing Term up to age 65)
b) Critical illness cover, up to age 65
c) Personal accident insurance
d) Medical expenses and daily benefit
e) Travel insurance
f) Low cost, diversified investment fund (equity, bonds, currencies)
All of these products will be offered directly through the Internet or call center. The public can attend educational talks on investment and insurance. Basic financial planning advice will be provided by salaried consultants for a modest fee of $50 to $100. The customer has to visit the consultant in the office.
I hope that the public will welcome this new insurance company, should it be set up in one or two years' time.
Review of existing policies
Dear Mr. Tan,
Thanks for your blog and your insurance tips, they are very helpful to us laymen. I have the following policies with NTUC Income: (details of four policies are provided).
Do they give value for money? Do you recommend me to terminate them? Should I switch to Term for any of them? If you like, you can also put these examples in your blog to for illustration.
REPLY
I suggest that you write to NTUC Income and ask for the following information for each of your policies:
a) Cash value when you terminate the policy now
b) Cash value in 5 years time
c) Premium payable for the next 5 years
d) Amount of coverage provided by each policy.
You will be able to make a better decision, when you get the relevant figures. You can show the figures to me, and I will help you to make a decision.
Read this FAQ:
http://www.tankinlian.com/faq/exist.html
Thanks for your blog and your insurance tips, they are very helpful to us laymen. I have the following policies with NTUC Income: (details of four policies are provided).
Do they give value for money? Do you recommend me to terminate them? Should I switch to Term for any of them? If you like, you can also put these examples in your blog to for illustration.
REPLY
I suggest that you write to NTUC Income and ask for the following information for each of your policies:
a) Cash value when you terminate the policy now
b) Cash value in 5 years time
c) Premium payable for the next 5 years
d) Amount of coverage provided by each policy.
You will be able to make a better decision, when you get the relevant figures. You can show the figures to me, and I will help you to make a decision.
Read this FAQ:
http://www.tankinlian.com/faq/exist.html
Low cost products
Dear Mr. Tan,
Why are you recommeding "Buy Term and invest the remainder" now, when you are no longer heading NTUC Income. Why did you not recommend this approach earlier?
REPLY
NTUC Income introduced the low cost investment fund, called the Combined Fund in 2003. It introduced the family insurance plan, which provides low cost riders (to cover death, critical illness and medical benefits) earlier. The low cost term insurance, called i-Term, was introduced around 2005 or 2006.
These products were sold by the insurance agents who wanted to give good value to the policyholders.
The traditional insurance products, such as whole life and endowment policies, introduced during my tenure offered reasonably good value, compared to similar products in the market. This was possible because of our low cost structure.
These were done during my tenure as CEO. I left NTUC Income on 1 April 2007. I am not sure if the new management of NTUC Income still abide by these values. You have to judge by yourself.
Why are you recommeding "Buy Term and invest the remainder" now, when you are no longer heading NTUC Income. Why did you not recommend this approach earlier?
REPLY
NTUC Income introduced the low cost investment fund, called the Combined Fund in 2003. It introduced the family insurance plan, which provides low cost riders (to cover death, critical illness and medical benefits) earlier. The low cost term insurance, called i-Term, was introduced around 2005 or 2006.
These products were sold by the insurance agents who wanted to give good value to the policyholders.
The traditional insurance products, such as whole life and endowment policies, introduced during my tenure offered reasonably good value, compared to similar products in the market. This was possible because of our low cost structure.
These were done during my tenure as CEO. I left NTUC Income on 1 April 2007. I am not sure if the new management of NTUC Income still abide by these values. You have to judge by yourself.
Keep your savings in CPF up to the caps
Dear Mr. Tan,
I recently got approached by a friend working in an investment company to invest my CPF ordinary account into equities and fixed income plans and my CPF special account in endowment insurance.
As the government plans to cap the amount in 1st April, she advises that I invest 90% of what I have so far in both accounts and leave enough to pay off fees incurred. Is this advisable?
REPLY
It is better to leave your money in the CPF to earn the attractive interest rate and bonus paid by the government. After 1 April, you can consider investing the excess (above the caps eligible for bonus interest) in low cost investment funds.
Do not take the advice of your friend as you will be incurring high sales charges, and will get a poor return on the investments (after the charges).
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I recently got approached by a friend working in an investment company to invest my CPF ordinary account into equities and fixed income plans and my CPF special account in endowment insurance.
As the government plans to cap the amount in 1st April, she advises that I invest 90% of what I have so far in both accounts and leave enough to pay off fees incurred. Is this advisable?
REPLY
It is better to leave your money in the CPF to earn the attractive interest rate and bonus paid by the government. After 1 April, you can consider investing the excess (above the caps eligible for bonus interest) in low cost investment funds.
Do not take the advice of your friend as you will be incurring high sales charges, and will get a poor return on the investments (after the charges).
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Motor Car Insurance
Dear Mr. Tan,
What are the types of insurance that I can buy to insure my motor car? What is the difference in the premium payable? What is excess and no-claim discount?
REPLY
You have three options to insure your car:
1) comprehensive
2) third party, fire and theft (TPFT)
3) third party only (TPO)
There are three main types of losses covered by a motor insurance policy:
a) damage to your car caused by accidents
b) loss of your car due to fire and theft
c) liability to third party for an accident caused by you.
The comprehensive policy covers (a), (b) and (c). The TPFT policy covers (b) and (c) only. The TPO policy covers (c) only.
Most owners insure their cars under comprehensive cover. If the car is old and has small market value, they may insure under TPFT or TPO cover.
The premium payable on a car depends on a few factors. The premium for TPFT and TPO covers are about 65% and 50% of the comprehensive premium.
The "excess" is the amount that you have to co-pay for any claim. The insurance company will pay the amount that is above the "excess".
The owner enjoys a no-claim discount if there is no claim during the year. The discount starts at 10% after one year, and increases by another 10% for each subsequent year, until it reaches 50%. If there is a claim, the discount is reduced by 30% or goes back to 0%.
For more details:
http://www.tankinlian.com/faq/car.html
What are the types of insurance that I can buy to insure my motor car? What is the difference in the premium payable? What is excess and no-claim discount?
REPLY
You have three options to insure your car:
1) comprehensive
2) third party, fire and theft (TPFT)
3) third party only (TPO)
There are three main types of losses covered by a motor insurance policy:
a) damage to your car caused by accidents
b) loss of your car due to fire and theft
c) liability to third party for an accident caused by you.
The comprehensive policy covers (a), (b) and (c). The TPFT policy covers (b) and (c) only. The TPO policy covers (c) only.
Most owners insure their cars under comprehensive cover. If the car is old and has small market value, they may insure under TPFT or TPO cover.
The premium payable on a car depends on a few factors. The premium for TPFT and TPO covers are about 65% and 50% of the comprehensive premium.
The "excess" is the amount that you have to co-pay for any claim. The insurance company will pay the amount that is above the "excess".
The owner enjoys a no-claim discount if there is no claim during the year. The discount starts at 10% after one year, and increases by another 10% for each subsequent year, until it reaches 50%. If there is a claim, the discount is reduced by 30% or goes back to 0%.
For more details:
http://www.tankinlian.com/faq/car.html
Educating the public
Dear Mr. Tan,
I see that you are educating the public on the pluses and negatives about the various insurance subjects and stock market situation.
Hopefully with the more educated and wider public attention, public would start cancelling their policies and redirect their savings else where, like I did. This will put pressure on the insurance companies to come clean.
I see that you are educating the public on the pluses and negatives about the various insurance subjects and stock market situation.
Hopefully with the more educated and wider public attention, public would start cancelling their policies and redirect their savings else where, like I did. This will put pressure on the insurance companies to come clean.
Friday, February 22, 2008
Early repayment of housing loan
Hi Mr. Tan
I am a regular visitor to your blog.I have a private housing loan with a bank. I can make a partial or full payment after 3 years. I am considering the following options at the end of 3 years:
(a) Do a partial payment and continue to pay the same monthly payment from CPF OA
(b) Do a full payment using cash and CPF OA
(c) Do a full payment from CPF OA
What is your advice?
REPLY:
What is the interest rate on your loan at the end of 3 years, based on their current board rate?
What is the balance of your loan at the end of 3 years?
What is the amount of monthly repayment?
What is the rate of return on your cash savings?
You need these figures to calculate the options that work best for you.
I am a regular visitor to your blog.I have a private housing loan with a bank. I can make a partial or full payment after 3 years. I am considering the following options at the end of 3 years:
(a) Do a partial payment and continue to pay the same monthly payment from CPF OA
(b) Do a full payment using cash and CPF OA
(c) Do a full payment from CPF OA
What is your advice?
REPLY:
What is the interest rate on your loan at the end of 3 years, based on their current board rate?
What is the balance of your loan at the end of 3 years?
What is the amount of monthly repayment?
What is the rate of return on your cash savings?
You need these figures to calculate the options that work best for you.
Tax Benefits in Life Insurance Products
Dear Mr. Tan,
You mentioned that the high cost in life insurance products reduces the yield and gives a poor return to the consumer. Does this situation apply to the developed countries as well? If so, why are the consumers there, who are more sophisticated, still buying the high cost life insurance policies?
REPLY
You will find countries in three broad categories:
1) In some countries such as USA, Australia and France, there are tax benefits in buying certain types of life insurance products. These tax benefits offset the high cost of the products and still give an attractive return to the consumer.
2) In some countries such as Malaysia, the regulator set certain limits on the marketing costs. This ensure that the products give reasonably fair value to the consumers.
3) In countries such as Singapore, the marketing cost is too high and there is virtually no tax benefit to offset it. It is better to buy Term insurance and invest the remainder in a low cost investment fund.
You mentioned that the high cost in life insurance products reduces the yield and gives a poor return to the consumer. Does this situation apply to the developed countries as well? If so, why are the consumers there, who are more sophisticated, still buying the high cost life insurance policies?
REPLY
You will find countries in three broad categories:
1) In some countries such as USA, Australia and France, there are tax benefits in buying certain types of life insurance products. These tax benefits offset the high cost of the products and still give an attractive return to the consumer.
2) In some countries such as Malaysia, the regulator set certain limits on the marketing costs. This ensure that the products give reasonably fair value to the consumers.
3) In countries such as Singapore, the marketing cost is too high and there is virtually no tax benefit to offset it. It is better to buy Term insurance and invest the remainder in a low cost investment fund.
Refund of premium
Dear Mr. Kin Lian Tan,
I have a Living policy. I decided to terminate it, but the premium I paid until April 30. I have contacted the insurance company, but it seems that it is impossible to get back unused premium. Is it fair?
REPLY
They will pay you a cash value, which is lower than the premiums that you have paid. The difference goes to pay the expenses, commission, mortality charges and profit margin.
You can compare the cash value against the projected amount that was shown to you at the time that you bought the policy. You should get back the guaranteed cash value and some or all of the non-guaranteed value.
There is no refund for any unexpired portion of the current year's premium.
I have a Living policy. I decided to terminate it, but the premium I paid until April 30. I have contacted the insurance company, but it seems that it is impossible to get back unused premium. Is it fair?
REPLY
They will pay you a cash value, which is lower than the premiums that you have paid. The difference goes to pay the expenses, commission, mortality charges and profit margin.
You can compare the cash value against the projected amount that was shown to you at the time that you bought the policy. You should get back the guaranteed cash value and some or all of the non-guaranteed value.
There is no refund for any unexpired portion of the current year's premium.
Keep your money in CPF Special Account
Mr. Tan
I have some money in my CPF Special Account and wish to invest it. Previously I have invested in Company X's Selector II in China for 7 years. After 7 years, I did not make any money compare to 4% interest in CPF.
I would like to hear your advice in investing the special account as my ordinary account is kept for my housing loan.
REPLY
Keep your money in the special account. It pays interest at 4% (plus bonus at 1% on the first $40,000) and is risk free.
You should take risk only for your personal savings or the ordinary account, where the opportunity cost is 1% or 2.5% only.
I have some money in my CPF Special Account and wish to invest it. Previously I have invested in Company X's Selector II in China for 7 years. After 7 years, I did not make any money compare to 4% interest in CPF.
I would like to hear your advice in investing the special account as my ordinary account is kept for my housing loan.
REPLY
Keep your money in the special account. It pays interest at 4% (plus bonus at 1% on the first $40,000) and is risk free.
You should take risk only for your personal savings or the ordinary account, where the opportunity cost is 1% or 2.5% only.
Financial contagion
Dear Mr. Tan KL,
As you are well aware of the on-going credit crunch in the USA with credit defaults rising, subPrime losses mounting, big financial institutions being forced to write off billions of dollars from their balance sheets.
Do you see this as a growing contagion? Will it spread to Asia? Will financial institutions in Asia such as NTUC Income (which I believe currently has a "A" rating) suffer from such contagion ?
REPLY
The experts do not know. I do not know either. I think that the Fed chairman also does not know. He said that the losses have probably been recognised, but still no one knows.
As you are well aware of the on-going credit crunch in the USA with credit defaults rising, subPrime losses mounting, big financial institutions being forced to write off billions of dollars from their balance sheets.
Do you see this as a growing contagion? Will it spread to Asia? Will financial institutions in Asia such as NTUC Income (which I believe currently has a "A" rating) suffer from such contagion ?
REPLY
The experts do not know. I do not know either. I think that the Fed chairman also does not know. He said that the losses have probably been recognised, but still no one knows.
Keep your existing policy
Dear Mr. Tan,
Four years ago, I bougt a 25 year saving plan as follows:
Sum assured: $10,000
No. of years of Premiums Payable :25
Monthly Premium: $70
Maturity Benefits: $16,581
Projected rate of return: 4.75%
I am considering to terminate my savings plan insurance. I wish to buy Term insurance and invest the savings in bonds or unit trust. What is your advice?
REPLY
My advice is for you to keep this policy. My reasons are:
1. It is quite small
2. You have probably incurred the upfront expenses already
3. The projected return of 4.75% is quite attractive.
You will need additional insurance within the next few years, as your current sum assured is quite low. When you are ready to invest more, you can buy Term insurance and invest the difference in a diversified, low cost fund, such as the STI ETF.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Four years ago, I bougt a 25 year saving plan as follows:
Sum assured: $10,000
No. of years of Premiums Payable :25
Monthly Premium: $70
Maturity Benefits: $16,581
Projected rate of return: 4.75%
I am considering to terminate my savings plan insurance. I wish to buy Term insurance and invest the savings in bonds or unit trust. What is your advice?
REPLY
My advice is for you to keep this policy. My reasons are:
1. It is quite small
2. You have probably incurred the upfront expenses already
3. The projected return of 4.75% is quite attractive.
You will need additional insurance within the next few years, as your current sum assured is quite low. When you are ready to invest more, you can buy Term insurance and invest the difference in a diversified, low cost fund, such as the STI ETF.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Term insurance covers critical illness
Hi Mr. Tan,
Does NTUC have a term insurance that covers critical illness? Two years ago, I bought I-term. I checked with the NTUC consultant and he says that NTUC do not have term insurance for critical illness, thus I ended buying the Living policy...
REPLY
You can buy a Living Benefit which is like a Term insurance that covers critical illness. It comes as part of the Family Policy.
More details here:
http://www.tankinlian.com/faq/choice.html
Does NTUC have a term insurance that covers critical illness? Two years ago, I bought I-term. I checked with the NTUC consultant and he says that NTUC do not have term insurance for critical illness, thus I ended buying the Living policy...
REPLY
You can buy a Living Benefit which is like a Term insurance that covers critical illness. It comes as part of the Family Policy.
More details here:
http://www.tankinlian.com/faq/choice.html
Savings for your child
Dear Mr. Tan,
I have two boys. Since birth, I have been depositing their ang baos into their saving accounts. I was wondering if there are any better way of growing their money (in a long term) so that they can use it for their education in future.
REPLY
I hope that, in the near future, there will be low cost investment funds. If you are investing for the long term, the risk is reduced considerably and you will get a much higher return.
For the time being, it appears that the saving account is the best way to keep the savings.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I have two boys. Since birth, I have been depositing their ang baos into their saving accounts. I was wondering if there are any better way of growing their money (in a long term) so that they can use it for their education in future.
REPLY
I hope that, in the near future, there will be low cost investment funds. If you are investing for the long term, the risk is reduced considerably and you will get a much higher return.
For the time being, it appears that the saving account is the best way to keep the savings.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Thursday, February 21, 2008
Commission on high cost policies
Dear Mr. Tan,
How much does a life insurance agent earn by selling the so-called "high cost" life insurance policies, such as whole life or critical illness?
REPLY
It is better to look at the total cost to the customer, as there are three layers which earn commission on the life insurance policies that is sold to the customer. For most whole life or critical illness policy, the total commission paid is 160% of the annual premium.
If you pay $300 a month towards a life insurance policy, the total commission that is deducted from your policy is 160% of $3,600 or a total of $5,760. About two-third of this amount goes to the agent that sells the policy to you. The remaining one third goes to the upper two layers. This amount is taken away over the first three years of the policy.
Some insurance companies operate at lower cost. The commission that is taken away from your policy is less than 160%.
How much does a life insurance agent earn by selling the so-called "high cost" life insurance policies, such as whole life or critical illness?
REPLY
It is better to look at the total cost to the customer, as there are three layers which earn commission on the life insurance policies that is sold to the customer. For most whole life or critical illness policy, the total commission paid is 160% of the annual premium.
If you pay $300 a month towards a life insurance policy, the total commission that is deducted from your policy is 160% of $3,600 or a total of $5,760. About two-third of this amount goes to the agent that sells the policy to you. The remaining one third goes to the upper two layers. This amount is taken away over the first three years of the policy.
Some insurance companies operate at lower cost. The commission that is taken away from your policy is less than 160%.
Insurance agents need to make a living
Dear Mr. Tan,
If life insurance agents sell only term insurance, how can they make a living? The commission is very small.
REPLY
Many insurance agents make a living by earning a earning a commission of $30 to $50 by selling a general insurance policy. They are able to earn an adequate income by selling a few policies a day. In their case, the customers buy from their office. They earn commission on the renewal of the policy.
It is possible for life insurance agents to make a living by selling low cost insurance, such as term, medical and accident insurance. They have to change their business model, to be similar to general insurance.
When a life insurance agent sells term insurance, the customer is likely to ask for a large protection, e.g. $300,000 and pay a premium of $300 a year. The commission can be quite adequate.
If life insurance agents sell only term insurance, how can they make a living? The commission is very small.
REPLY
Many insurance agents make a living by earning a earning a commission of $30 to $50 by selling a general insurance policy. They are able to earn an adequate income by selling a few policies a day. In their case, the customers buy from their office. They earn commission on the renewal of the policy.
It is possible for life insurance agents to make a living by selling low cost insurance, such as term, medical and accident insurance. They have to change their business model, to be similar to general insurance.
When a life insurance agent sells term insurance, the customer is likely to ask for a large protection, e.g. $300,000 and pay a premium of $300 a year. The commission can be quite adequate.
Critical illness
Dear Mr. Tan,
What is a fair premium to pay for critical illness insurance?
REPLY
The claim rate is less than 0.3% a year for people between 35 to 60 years. To insure $100,000, the pure cost should be $300. If you add the administrative cost, a fair premium should be $450 a year.
Many people have to pay more than $2,000 a year under a critical illness policy. This is too much, as compared to the true cost of the risk.
Although some of the premium is used as savings to accumulate a cash value, the return from this saving is quite poor. A large part of the saving is used to pay expenses of the insurance company, including the commission to the agent.
For a child or baby, the risk of suffering a critical illness is very much lower.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
What is a fair premium to pay for critical illness insurance?
REPLY
The claim rate is less than 0.3% a year for people between 35 to 60 years. To insure $100,000, the pure cost should be $300. If you add the administrative cost, a fair premium should be $450 a year.
Many people have to pay more than $2,000 a year under a critical illness policy. This is too much, as compared to the true cost of the risk.
Although some of the premium is used as savings to accumulate a cash value, the return from this saving is quite poor. A large part of the saving is used to pay expenses of the insurance company, including the commission to the agent.
For a child or baby, the risk of suffering a critical illness is very much lower.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
Insuring a child for critical illness
Dear Mr. Tan,
An insurance agent said that it is necessary to insure a child against critical illness, as the cost of treating leukemia could be more than $20,000 and it is not covered under a Shield policy. What is your advice?
REPLY
The chance of a serious illness of this nature is extremely small, maybe less than 1 in 10,000. To insure this risk and other similar risks, the pure cost should be less than $2 a month (my guess only, as I do not have the data). The critical illness policy that you to pay a premium of $100 per month. Is it worth paying so much?
Although a Shield plan does not pay the full cost of the treatment for leukemia, it does cover a large part of the cost.
Advice: Do not over-pay on the cost of insurance. Make sure that you pay a fair premium. You need to save money for your future use also.
An insurance agent said that it is necessary to insure a child against critical illness, as the cost of treating leukemia could be more than $20,000 and it is not covered under a Shield policy. What is your advice?
REPLY
The chance of a serious illness of this nature is extremely small, maybe less than 1 in 10,000. To insure this risk and other similar risks, the pure cost should be less than $2 a month (my guess only, as I do not have the data). The critical illness policy that you to pay a premium of $100 per month. Is it worth paying so much?
Although a Shield plan does not pay the full cost of the treatment for leukemia, it does cover a large part of the cost.
Advice: Do not over-pay on the cost of insurance. Make sure that you pay a fair premium. You need to save money for your future use also.
Selecting a policy to terminate
Dear Mr. Tan Kin Lian
1) I have bought three critical illness policies at different times, more than 10 years ago. Now I wish to cancel one of the policies. Can you tell me which should I surrender – the one I bought the earliest or the latest?
2) How much of sum insured for critical illness is considered sufficient for me?
REPLY
I suggest that you ask the insurance company to quote the following to you, for each policy.
a) What is the cash value now
b) What is the estimated cash value in 5 years time
c) What is the premium payable for the next 5 years.
You will be able to make a better decision, after the above figures are available. You can read this FAQ to decide on the amount of insurance that you should have.
http://www.tankinlian.com/faq/choice.html
1) I have bought three critical illness policies at different times, more than 10 years ago. Now I wish to cancel one of the policies. Can you tell me which should I surrender – the one I bought the earliest or the latest?
2) How much of sum insured for critical illness is considered sufficient for me?
REPLY
I suggest that you ask the insurance company to quote the following to you, for each policy.
a) What is the cash value now
b) What is the estimated cash value in 5 years time
c) What is the premium payable for the next 5 years.
You will be able to make a better decision, after the above figures are available. You can read this FAQ to decide on the amount of insurance that you should have.
http://www.tankinlian.com/faq/choice.html
Wednesday, February 20, 2008
Critical illness coverage for a baby
Dear Mr. Tan,
Is it possible to buy term insurance with critical illness coverage for my newborn baby? Or must I sign up for a whole life policy to have critical illness coverage?
I am looking to cover him up to age 65. I will also be getting for him Enhanced Incomeshield (Preferred) Plan. I feel that critical illness coverage is essential even with a Shield Plan as the Shield Plan only covers hospitalisation and surgical expenses but not living expenses, which could place a heavy burden on an affected person's family if the affected person is unable to find permanent employment for an extended time. Please advise.
REPLY
My view is that it is not necessary to buy Term insurance or critical illness coverage for a baby or a child.
If you feel that this is necessary, you should be able to find an insurance agent to sell the coverage for you. The agent is likely to convince you to buy a whole life policy.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
Is it possible to buy term insurance with critical illness coverage for my newborn baby? Or must I sign up for a whole life policy to have critical illness coverage?
I am looking to cover him up to age 65. I will also be getting for him Enhanced Incomeshield (Preferred) Plan. I feel that critical illness coverage is essential even with a Shield Plan as the Shield Plan only covers hospitalisation and surgical expenses but not living expenses, which could place a heavy burden on an affected person's family if the affected person is unable to find permanent employment for an extended time. Please advise.
REPLY
My view is that it is not necessary to buy Term insurance or critical illness coverage for a baby or a child.
If you feel that this is necessary, you should be able to find an insurance agent to sell the coverage for you. The agent is likely to convince you to buy a whole life policy.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
Need a bank loan for a retail business
Hello Mr Tan
I am running a retail business in a shopping centre? In recent months, I am facing some financial issue to running the retail operation. I tried to ask the bank for a SME loan of $X. The bank rejected my application as I am low in funds with the bank. I am confused by the rejection, as I needed the loan because I am low in funds. Why is it that nobody can help? I am willing to pay interest to the bank but they refuse me. Please advise me what to do.
REPLY
This problem is outside of my expertise. I do not know how I can help. Perhaps, if the business is doing poorly, it is better to close it down, before it incurs further losses.
If the business has the prospect of being profitable, you should be able to interest investors or to convince the bank to provide a loan.
I am running a retail business in a shopping centre? In recent months, I am facing some financial issue to running the retail operation. I tried to ask the bank for a SME loan of $X. The bank rejected my application as I am low in funds with the bank. I am confused by the rejection, as I needed the loan because I am low in funds. Why is it that nobody can help? I am willing to pay interest to the bank but they refuse me. Please advise me what to do.
REPLY
This problem is outside of my expertise. I do not know how I can help. Perhaps, if the business is doing poorly, it is better to close it down, before it incurs further losses.
If the business has the prospect of being profitable, you should be able to interest investors or to convince the bank to provide a loan.
Achiever Policy
Dear Mr. Tan
Presently I am paying $x a month premium for a coverage of $Y. I am thinking of terminating the policy but there is a penalty if i cash out now. What is your advice on this? Do I wait till the 6th year whereby there will be no penalty to terminate the policy?
REPLY
You can ask the insurance company to tell you the following:
a. what is the cash value of the policy now?
b. what is the amount of penalty on terminating the policy now?
c. what is the total premiums paid up to now?
d. what is the future premiums payable in the future, until the end of the 5th year?
e. what are the charges deducted from the premium payable until the end of the 5th year?
f. what is the expected cash value at the end of the 5th year, assuming that the investments earn a gross return of 5% per annum
With the above information, it may be easier for you to make a proper decision.
Lesson: Get the relevant figures to make the correct the correct decision.
Presently I am paying $x a month premium for a coverage of $Y. I am thinking of terminating the policy but there is a penalty if i cash out now. What is your advice on this? Do I wait till the 6th year whereby there will be no penalty to terminate the policy?
REPLY
You can ask the insurance company to tell you the following:
a. what is the cash value of the policy now?
b. what is the amount of penalty on terminating the policy now?
c. what is the total premiums paid up to now?
d. what is the future premiums payable in the future, until the end of the 5th year?
e. what are the charges deducted from the premium payable until the end of the 5th year?
f. what is the expected cash value at the end of the 5th year, assuming that the investments earn a gross return of 5% per annum
With the above information, it may be easier for you to make a proper decision.
Lesson: Get the relevant figures to make the correct the correct decision.
Dear Mr. Tan,
I find your blog very interesting. I to seek your advice. Presently my income is mainly in USD which has been sliding downwards. Should I convert to Singapore dollars. What is your best course of action to prevent further exchange losses?
REPLY
It is difficult to predict the movement of currencies. If your cost of living is mainly in SGD, perhaps you should discuss with your employer to pay you in SGD, or to have some way of adjusting for the cost of living in Singapore?
Regarding your investment in USD, you can see if this FAQ is helpful to you?
http://www.tankinlian.com/faq/foreign.html
I find your blog very interesting. I to seek your advice. Presently my income is mainly in USD which has been sliding downwards. Should I convert to Singapore dollars. What is your best course of action to prevent further exchange losses?
REPLY
It is difficult to predict the movement of currencies. If your cost of living is mainly in SGD, perhaps you should discuss with your employer to pay you in SGD, or to have some way of adjusting for the cost of living in Singapore?
Regarding your investment in USD, you can see if this FAQ is helpful to you?
http://www.tankinlian.com/faq/foreign.html
Mr. Tan,
I was about to sign up a long term saving plan & ILP with an insurance company when I saw your article in Mypaper. I read your blog and found it to be really helpful. The concept of 'buy Term & invest the rest' is really impressive and make a lot of senses.
I have always been told by insurance agents to spend 15 - 20% of income for insurance. I plan to stop some of my insurance plans and change it to Term. Can you recommend a good insurance agent?
I come across many agents who always ask me to buy life & ILP. Is NTUC income different from them ?
REPLY
I believe that most agents, including those from NTUC, will try to sell ILP and life products, as they earn higher commisison.
I suggest that you visit the business center of NTUC Income and talk to the salaried consultants. I hope that they will be different, as they are not paid a commission on the sale.
I was about to sign up a long term saving plan & ILP with an insurance company when I saw your article in Mypaper. I read your blog and found it to be really helpful. The concept of 'buy Term & invest the rest' is really impressive and make a lot of senses.
I have always been told by insurance agents to spend 15 - 20% of income for insurance. I plan to stop some of my insurance plans and change it to Term. Can you recommend a good insurance agent?
I come across many agents who always ask me to buy life & ILP. Is NTUC income different from them ?
REPLY
I believe that most agents, including those from NTUC, will try to sell ILP and life products, as they earn higher commisison.
I suggest that you visit the business center of NTUC Income and talk to the salaried consultants. I hope that they will be different, as they are not paid a commission on the sale.
Tuesday, February 19, 2008
Wrong address won 4D first prize
I ordered flowers to be sent to three friends for Lunar New Year. Here is a message from my flower shop.
hi Mr Tan,
Thanks for the payment. By the way, there is a mistake with Mrs Y's address (7 instead of 3). When our delivery man found out the mistake, he went to buy 4D (Singapore Sweep Draw on 6 Feb - day of delivery) using all the numbers of the 3 addresses - 3730
Mr H, 3 xxxxxxxxxxx
Mrs Y 7 (you gave us 3) xxxxxxxxx
Dr K 30 xxxxxxxxx
The first prize was 3330 - the wrong address you wrote!
What a story...
hi Mr Tan,
Thanks for the payment. By the way, there is a mistake with Mrs Y's address (7 instead of 3). When our delivery man found out the mistake, he went to buy 4D (Singapore Sweep Draw on 6 Feb - day of delivery) using all the numbers of the 3 addresses - 3730
Mr H, 3 xxxxxxxxxxx
Mrs Y 7 (you gave us 3) xxxxxxxxx
Dr K 30 xxxxxxxxx
The first prize was 3330 - the wrong address you wrote!
What a story...
Jetstar to Kuala Lumpur
I took Jetstar to Kuala Lumpur. I paid half of the usual price. As this service started recently, many people are still not aware about it. The plane was half full, so it was comfortable.
Jetstar lands at KL International Airport. The KLIA Express train to Kuala Lumpur takes 20 minutes and cost MYR35. It is quite convenient.
The CEO of Jetstar Asia once told me that Jetstar is not a budget airline. It is a low fare airline. I agree. It is good value for money.
Jetstar lands at KL International Airport. The KLIA Express train to Kuala Lumpur takes 20 minutes and cost MYR35. It is quite convenient.
The CEO of Jetstar Asia once told me that Jetstar is not a budget airline. It is a low fare airline. I agree. It is good value for money.
High cost Investment Linked Policy
Dear Mr. Tan,
I already have an ILP for the last 3 years. However, an adviser friend told me to cancel it and use the money instead to buy term and to invest the rest in unit trusts that would yield more returns in the long term.
I have already paid $3600 to date and my current cash value is at $900 for the ILP. Do you think I should just cancel the ILP and heed her advice?
REPLY
You should compare the charges of the ILP and the unit trust going forward. You probably have incurred most of the upfront charges for the ILP, so the difference between the two options in the future is likely to be small.
You can read this FAQ to understand the charges:
http://www.tankinlian.com/faq/ilp.html
I already have an ILP for the last 3 years. However, an adviser friend told me to cancel it and use the money instead to buy term and to invest the rest in unit trusts that would yield more returns in the long term.
I have already paid $3600 to date and my current cash value is at $900 for the ILP. Do you think I should just cancel the ILP and heed her advice?
REPLY
You should compare the charges of the ILP and the unit trust going forward. You probably have incurred most of the upfront charges for the ILP, so the difference between the two options in the future is likely to be small.
You can read this FAQ to understand the charges:
http://www.tankinlian.com/faq/ilp.html
Monday, February 18, 2008
Travelling to Kuala Lumpur and Bahrain
I shall be in Kuala Lumpur for the next three days. Early next week, I shall be in Bahrain for 4 days. During these periods, my blog may have fewer postings.
Near target of 1,000 visitors
I had 974 visitors yesterday. This is just a few short of my target of 1,000 visitors. I have most visitors on Mondays, as it is after the weekend, and there is a small column in MyPaper taken from my blog.
I hope to have an average of 1,000 visitors a day. Currently, the average is still less than 800 visitors.
Do pass the word around, to get more people to visit my blog.
I hope to have an average of 1,000 visitors a day. Currently, the average is still less than 800 visitors.
Do pass the word around, to get more people to visit my blog.
Timing the market
It is difficult to time the market. Will the market drop further? It is possible. But no one knows. If it does drop further, when is a good time to invest?
Some people advice that it is better to wait for the market to drop to the bottom and wait for the rebound. But it is still difficult to catch the right time, as the market may drop again after the rebound.
Other people advice that it is better to wait for 6 to 12 months to see wait until the credit crisis is over.
My personal view is:
1. It is difficult to time the market.
2. The stockmarket has corrected to an attractive value
3. It is all right for a long term investor to start investing
4. Due to the uncertainty, the investment can be made in tranches over the next six months
I am adopting the above approach for my personal investment (of which about 50% is still in cash).
Warren Buffet is making strategic purchases at this time, as they represent good value.
All the best for your investments.
Some people advice that it is better to wait for the market to drop to the bottom and wait for the rebound. But it is still difficult to catch the right time, as the market may drop again after the rebound.
Other people advice that it is better to wait for 6 to 12 months to see wait until the credit crisis is over.
My personal view is:
1. It is difficult to time the market.
2. The stockmarket has corrected to an attractive value
3. It is all right for a long term investor to start investing
4. Due to the uncertainty, the investment can be made in tranches over the next six months
I am adopting the above approach for my personal investment (of which about 50% is still in cash).
Warren Buffet is making strategic purchases at this time, as they represent good value.
All the best for your investments.
Expense ratio of investment funds
From MAS website:
Expense Ratio (%) = (Total operating expenses * 100)/Average Net Asset Value
Operating expenses refers to all costs charged to the fund during the reporting period.
These would ordinarily include, but are not limited to:
• Management fee;
• Trustee fee;
• Administration fee;
• Accounting and Valuation fees;
• Custodian, sub-custodian and depository fees;
• Registrar fees;
• Legal and professional fees;
• Printing and distribution fees;
• Audit fee;
• Amortised expenses;
• Performance fee
• GST on expenses.
The following expenses may be excluded from the computation of the expense ratio:
• Interest expense;
• Brokerage and other transaction costs associated with the purchase and sales of investments (such as registrar charges and remittance fees);
• Foreign exchange gains and losses of the fund, whether realised orunrealised;
• Tax deducted at source or arising on income received, including withholding tax;
• Front end loads, back end loads and other costs arising on the purchase or sale of a foreign unit trust or mutual fund, including any costs arising where a Singapore feeder fund invests into an off-shore parent-fund. Such expenseswould generally be capitalised into the cost of the investment and will subsequently be reflected as a diminution in net asset value when the investment is first marked to market after purchase;
• Dividends and other distributions paid to unit-holders.
Expense Ratio (%) = (Total operating expenses * 100)/Average Net Asset Value
Operating expenses refers to all costs charged to the fund during the reporting period.
These would ordinarily include, but are not limited to:
• Management fee;
• Trustee fee;
• Administration fee;
• Accounting and Valuation fees;
• Custodian, sub-custodian and depository fees;
• Registrar fees;
• Legal and professional fees;
• Printing and distribution fees;
• Audit fee;
• Amortised expenses;
• Performance fee
• GST on expenses.
The following expenses may be excluded from the computation of the expense ratio:
• Interest expense;
• Brokerage and other transaction costs associated with the purchase and sales of investments (such as registrar charges and remittance fees);
• Foreign exchange gains and losses of the fund, whether realised orunrealised;
• Tax deducted at source or arising on income received, including withholding tax;
• Front end loads, back end loads and other costs arising on the purchase or sale of a foreign unit trust or mutual fund, including any costs arising where a Singapore feeder fund invests into an off-shore parent-fund. Such expenseswould generally be capitalised into the cost of the investment and will subsequently be reflected as a diminution in net asset value when the investment is first marked to market after purchase;
• Dividends and other distributions paid to unit-holders.
Sunday, February 17, 2008
Investing in REITS
Dear Mr. Tan,
How do I invest in REITS? Is it a fund or a stock or ETF? How to choose a good REITS to invest?
REPLY
A REIT is a stock that you can buy through the Exchange from a broker. My stockbroker has recommended some stocks to me, and I have listed them in my blog. You should make your own analysis.
How do I invest in REITS? Is it a fund or a stock or ETF? How to choose a good REITS to invest?
REPLY
A REIT is a stock that you can buy through the Exchange from a broker. My stockbroker has recommended some stocks to me, and I have listed them in my blog. You should make your own analysis.
Calculating the yield
Dear Mr Tan:
I am a faithful reader of your blog and enjoy the advices which you gave to the public. I wish to ask about the calculation of yield. I use the following formula:
$150 a month month for 21 years, total=$ 37800
Cash value = $ 61000
Yield for 21 years = (61000-37800) /37800 *100% = 61.4%
Yield per year =61.4/21= 2.9%
Is my calculation correct ?
REPLY:
The yield is calculated using a compound interest formula.
I use a financial calculator and input the following figures:
Annual savings: $1,800 (in advance)
Duration 21 years
Value on maturity: $61,000
The calculator gives me a yield of 4.5%.
If you take a regular saving of $1,800 a year and add interest at 4.5% on the increasing balance yearly, you will arrive at $61.000 at the end of 21 years.
Tip: Buy a financial calculator for $50.
I am a faithful reader of your blog and enjoy the advices which you gave to the public. I wish to ask about the calculation of yield. I use the following formula:
$150 a month month for 21 years, total=$ 37800
Cash value = $ 61000
Yield for 21 years = (61000-37800) /37800 *100% = 61.4%
Yield per year =61.4/21= 2.9%
Is my calculation correct ?
REPLY:
The yield is calculated using a compound interest formula.
I use a financial calculator and input the following figures:
Annual savings: $1,800 (in advance)
Duration 21 years
Value on maturity: $61,000
The calculator gives me a yield of 4.5%.
If you take a regular saving of $1,800 a year and add interest at 4.5% on the increasing balance yearly, you will arrive at $61.000 at the end of 21 years.
Tip: Buy a financial calculator for $50.
ETF and Unit Trust
Mr. Tan,
What is the difference between a unit trust, mutual fund and a ETF?
REPLY
A unit trust is the same as a mutual fund. They are the names used in UK and USA respectively for a fund that is traded daily based on its net asset value. If you wish to buy or sell units, the price will be determined at the end of the day.
An ETF is a fund that is traded on the stock exchange. You buy or sell shares in the fund, like any other share. It is based on the price struck between the buyers and sellers on the exchange. This price should reflect the net asset value of the fund, but it also depends on the liquidity.
Some investors have complained about the low liquidity of the STI ETF. This is a disadvantage of ETF, for long term investors. I believe that this disadvantage is being addressed within the next few months.
Some investors think that it is an advantage to be able to trade the ETF based on its prevailing price at any time. In my view, a fund should be invested for the longer term, and the daily NAV value is a better feature.
For intra-day trading, it is better to choose an individual, highly liquid stock.
What is the difference between a unit trust, mutual fund and a ETF?
REPLY
A unit trust is the same as a mutual fund. They are the names used in UK and USA respectively for a fund that is traded daily based on its net asset value. If you wish to buy or sell units, the price will be determined at the end of the day.
An ETF is a fund that is traded on the stock exchange. You buy or sell shares in the fund, like any other share. It is based on the price struck between the buyers and sellers on the exchange. This price should reflect the net asset value of the fund, but it also depends on the liquidity.
Some investors have complained about the low liquidity of the STI ETF. This is a disadvantage of ETF, for long term investors. I believe that this disadvantage is being addressed within the next few months.
Some investors think that it is an advantage to be able to trade the ETF based on its prevailing price at any time. In my view, a fund should be invested for the longer term, and the daily NAV value is a better feature.
For intra-day trading, it is better to choose an individual, highly liquid stock.
Decline in interest rate
Dear Mr. Tan,
Aviva has decided to redeem the BIGe account and return the money to the investors CPF account. Where can I invest to earn a decent return, that can offset the high rate of inflation?
REPLY
If you keep money in the bank, you earn interest at 1% to 1.5%. This is lower than the rate of inflation. Your other options are:
1. Buy equities (shares) to earn a long term yield of 6% to 8%
2. Invest in foreign currencies to earn a higher interest rate
3. Invest in REITS, which gives a good dividend yield
If you are investing for the long term, say 10 years or more, you do not have to worry about the current uncertainty. It will clear off in 6 to 12 months.
You have the option to wait before investing in equities. During this time, you will earn a low rate of interest. You have to accept it as the cost of being risk adverse. But you must be ready to move in, when the market turns.
Aviva has decided to redeem the BIGe account and return the money to the investors CPF account. Where can I invest to earn a decent return, that can offset the high rate of inflation?
REPLY
If you keep money in the bank, you earn interest at 1% to 1.5%. This is lower than the rate of inflation. Your other options are:
1. Buy equities (shares) to earn a long term yield of 6% to 8%
2. Invest in foreign currencies to earn a higher interest rate
3. Invest in REITS, which gives a good dividend yield
If you are investing for the long term, say 10 years or more, you do not have to worry about the current uncertainty. It will clear off in 6 to 12 months.
You have the option to wait before investing in equities. During this time, you will earn a low rate of interest. You have to accept it as the cost of being risk adverse. But you must be ready to move in, when the market turns.
Trust
Where will you like to place your life time savings?
1. With a company that you can trust?
2. With a company that is professionally runned with the aim to make most profit?
If you buy a life insurance policy, you have incurred a large upfront cost. You are stuck with the policy for many years, usually with a poor return. A large part of the gain goes to pay the insurance agent who sells the policy to you, and to make profit for the insurance company.
Here are the tips for consumers:
1. Invest in a financial product that have low upfront cost, such as a unit trust
2. Buy your insurance protection separately, e.g. through a Term or accident insurance policy
3. If you buy an endowment or whole life policy, choose a company that operates on low cost and is worthy of your trust.
1. With a company that you can trust?
2. With a company that is professionally runned with the aim to make most profit?
If you buy a life insurance policy, you have incurred a large upfront cost. You are stuck with the policy for many years, usually with a poor return. A large part of the gain goes to pay the insurance agent who sells the policy to you, and to make profit for the insurance company.
Here are the tips for consumers:
1. Invest in a financial product that have low upfront cost, such as a unit trust
2. Buy your insurance protection separately, e.g. through a Term or accident insurance policy
3. If you buy an endowment or whole life policy, choose a company that operates on low cost and is worthy of your trust.
Researchers
What do science-trained researchers do? Read Dr Lee Kum Tatt's blog:
www.leekumtatt.blogspot.com
www.leekumtatt.blogspot.com
Regular replacement of policy
Someone told this story in a speech. When he started work, he bought a life insurance policy from a large company.
The agent saw him every few years, and convinced him to switch to a new policy. The agent said that the new policy was "better". This was done a few times over the years.
Later, he realised that the agent took advantage of him. Every time that he changed his insurance policy, he lost on the past savings and cash value. Although he had paid his premiums for 20 years, his cash value is low.
Where did this happen? It happened in Singapore. And it happened to a well eduated person!
The agent saw him every few years, and convinced him to switch to a new policy. The agent said that the new policy was "better". This was done a few times over the years.
Later, he realised that the agent took advantage of him. Every time that he changed his insurance policy, he lost on the past savings and cash value. Although he had paid his premiums for 20 years, his cash value is low.
Where did this happen? It happened in Singapore. And it happened to a well eduated person!
Financial crisis every 10 years?
Read this article in CNN
http://money.cnn.com/2007/09/14/pf/sivy_markets.moneymag/index.htm
It seems that a crisis occurs every 10 years in USA:
1989-90 Savings and Loans crisis
1998 - Long Term Credit Management
2008 - Subprime
http://money.cnn.com/2007/09/14/pf/sivy_markets.moneymag/index.htm
It seems that a crisis occurs every 10 years in USA:
1989-90 Savings and Loans crisis
1998 - Long Term Credit Management
2008 - Subprime
Marketing to residents living nearby
Dear Mr. Tan,
I have set up a retail shop. I wish to look for the names and telephone numbers of people living in my area. I wish to carry out target marketing to get them to come to my shop. Is there a telephone book that is sorted by address?
REPLY
You can buy a CD that contain the name and telephone number of people living in a specific area, sorted by address. More details can be found at:
http://www.tankinlian.com/database/index.html
Wish you all the best in your marketing.
I have set up a retail shop. I wish to look for the names and telephone numbers of people living in my area. I wish to carry out target marketing to get them to come to my shop. Is there a telephone book that is sorted by address?
REPLY
You can buy a CD that contain the name and telephone number of people living in a specific area, sorted by address. More details can be found at:
http://www.tankinlian.com/database/index.html
Wish you all the best in your marketing.
Greed makes monkey of men
RECEIVED THIS E-MAIL:
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys at $10 each. The villagers, seeing that there were many monkeys around, went into the forest and started catching them. The man very gentlemanly bought thousands of monkeys at $10 each, but as supply started to diminish, the villagers slowed down and eventually stopped their efforts.
The man then announced that he would now buy at $20. This renewed the energy and efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further, and people started going back to their farms.
The offer was then increased to $25 each, but the supply of monkeys became so little that it was a almost a miracle to even spot a monkey, let alone catch one.
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would transact on his behalf.
In the absence of the man, the assistant assembled the villagers and told them : " Look at all these monkeys in the big cages that the man has collected. I will sell them to you at $35 each, and when the man returns from the city, you can in turn sell them to him at $50 each. Deal or no deal ? "
The excited villagers, smelling a quick-profit killer opportunity, immediately rounded up all their savings and bought all the monkeys. Then they never saw the man nor his assistant again, and there were just monkeys everywhere!
Now you have a better understanding of how "greed"makes monkey of men?
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys at $10 each. The villagers, seeing that there were many monkeys around, went into the forest and started catching them. The man very gentlemanly bought thousands of monkeys at $10 each, but as supply started to diminish, the villagers slowed down and eventually stopped their efforts.
The man then announced that he would now buy at $20. This renewed the energy and efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further, and people started going back to their farms.
The offer was then increased to $25 each, but the supply of monkeys became so little that it was a almost a miracle to even spot a monkey, let alone catch one.
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would transact on his behalf.
In the absence of the man, the assistant assembled the villagers and told them : " Look at all these monkeys in the big cages that the man has collected. I will sell them to you at $35 each, and when the man returns from the city, you can in turn sell them to him at $50 each. Deal or no deal ? "
The excited villagers, smelling a quick-profit killer opportunity, immediately rounded up all their savings and bought all the monkeys. Then they never saw the man nor his assistant again, and there were just monkeys everywhere!
Now you have a better understanding of how "greed"makes monkey of men?
Saturday, February 16, 2008
Financial product with a guaranteed return
Dear Mr. Tan,
What are your views about life insurance products that give a guaranteed return?
REPLY
Life insurance companies sell products that offer a guaranteed return. They may appear to be attractive to a risk adverse investor, but they generally give poor value to the consumer.
If interest rate goes up, due to inflation, the life insurance company makes a big profit. The consumer gets back the savings in depreciated dollars.
If insurance rate goes down, the life insurance company makes a loss. To avoid this loss, they get the insurance agent to convince the customer to switch to a new product (which usually contains some frills). The customer is not aware that the new product offers a poorer return. In addition, he has to suffer the upfront cost of the new product.
I have seen this unethical practice over the years, in several countries. Here is an example of the potential impact of a change of interest rate.
1. Take the case of a 30 year endowment policy with a guaranteed return of 4% per annum. An annual premium of $5,000 will produce a guaranteed maturity amount of $280,000.
2. If the actual interest rate earned by the fund over 30 years is 6% per annum, the premiums paid will accumulate to $395,000. The insurance company pays out the guaranteed amount of $280,000 and makes a profit of $115,000.
3. If the actual interest rate earned by the fund over 30 years is 2% per annum, the premiums will accumlate to $203,000. The insurance company should suffer a loss of $77,000. The insurance company can avoid this loss by getting the insurance agent to make the customer switch to a new product.
Lesson: If you are making regular savings in the future, it is better to invest in a transparent product, such as a low cost unit trust, and keep the return for yourself. Do not give the return away by buying a guaranted return.
If you have bought a guaranteed product, do not allow the agent or employee of the company to talk you into switching to a new product.
What are your views about life insurance products that give a guaranteed return?
REPLY
Life insurance companies sell products that offer a guaranteed return. They may appear to be attractive to a risk adverse investor, but they generally give poor value to the consumer.
If interest rate goes up, due to inflation, the life insurance company makes a big profit. The consumer gets back the savings in depreciated dollars.
If insurance rate goes down, the life insurance company makes a loss. To avoid this loss, they get the insurance agent to convince the customer to switch to a new product (which usually contains some frills). The customer is not aware that the new product offers a poorer return. In addition, he has to suffer the upfront cost of the new product.
I have seen this unethical practice over the years, in several countries. Here is an example of the potential impact of a change of interest rate.
1. Take the case of a 30 year endowment policy with a guaranteed return of 4% per annum. An annual premium of $5,000 will produce a guaranteed maturity amount of $280,000.
2. If the actual interest rate earned by the fund over 30 years is 6% per annum, the premiums paid will accumulate to $395,000. The insurance company pays out the guaranteed amount of $280,000 and makes a profit of $115,000.
3. If the actual interest rate earned by the fund over 30 years is 2% per annum, the premiums will accumlate to $203,000. The insurance company should suffer a loss of $77,000. The insurance company can avoid this loss by getting the insurance agent to make the customer switch to a new product.
Lesson: If you are making regular savings in the future, it is better to invest in a transparent product, such as a low cost unit trust, and keep the return for yourself. Do not give the return away by buying a guaranted return.
If you have bought a guaranteed product, do not allow the agent or employee of the company to talk you into switching to a new product.
Friday, February 15, 2008
Invest in the Combined Fund
Hello Mr Tan
1) I read a lot about the NTUC low cost funds on your blog. Recently, I invested through SRS as follows:-
50% in Growth Fund
50% in Singapore Equities Fund
I decided on this allocation as the stock market is at a low. What is your opinion of this allocation?
Reply: It is okay.
(2) I am not sure about how the fund works. When you say that investors can expect a higher return (say, 5%) over a long period of say, 10 - 20 years, are you referring to the difference between the offer price I pay now, versus the bid price if I should sell at that time?
Reply: This is calculated based on bid to bid price. If you deduct the bid-offer spread, it will reduce the yield by about 3%. If you invest over 10 years, the yield will be reduced by 0.3% (i.e. 3% spread over 10 years). If you invest in the STI ETF, you incur a upfront cost of only 0.3% (instead of 3%).
(3) The Combined Fund is invested as follows, Equities 70%, bonds 30%). Does NTUC Income adjust these allocations based on their experience and how the market is performing, or do I have to monitor myself and do my own switching or balancing? My concern is that I may not know the market well enough to decide on the better allocation.
Reply: NTUC Income keeps the fund invested in the above proportion and does not change the allocation. It is best that you keep invested in the fund, and do not try to make switching beween the funds.
1) I read a lot about the NTUC low cost funds on your blog. Recently, I invested through SRS as follows:-
50% in Growth Fund
50% in Singapore Equities Fund
I decided on this allocation as the stock market is at a low. What is your opinion of this allocation?
Reply: It is okay.
(2) I am not sure about how the fund works. When you say that investors can expect a higher return (say, 5%) over a long period of say, 10 - 20 years, are you referring to the difference between the offer price I pay now, versus the bid price if I should sell at that time?
Reply: This is calculated based on bid to bid price. If you deduct the bid-offer spread, it will reduce the yield by about 3%. If you invest over 10 years, the yield will be reduced by 0.3% (i.e. 3% spread over 10 years). If you invest in the STI ETF, you incur a upfront cost of only 0.3% (instead of 3%).
(3) The Combined Fund is invested as follows, Equities 70%, bonds 30%). Does NTUC Income adjust these allocations based on their experience and how the market is performing, or do I have to monitor myself and do my own switching or balancing? My concern is that I may not know the market well enough to decide on the better allocation.
Reply: NTUC Income keeps the fund invested in the above proportion and does not change the allocation. It is best that you keep invested in the fund, and do not try to make switching beween the funds.
Make regular savings in a low cost fund
Dear Mr, Tan,
I read your blog everyday as I find there is always something new to learn from the questions posed by your readers. I am interested to buy Term insurance with a critical rider.
My financial advisor has advised me that I should get a whole life policy with critical rider as once my Term policy has expired after 30 years, I could still get a critical illness and by then I would have to bear all the treatments myself. Thus a whole life policy makes sense in this case. He further argued that if I would have accumulated enough savings by then but would I want to use my hard earned money to be spent on treatment or be protected for life.
I prefer to take a Shield plan to cover critical illness, and I could invest the difference in plans to get a higher return. Overall this is more cost effective. Could you advise?
REPLY
The insurance adviser want people to buy a whole life policy, as he or she can earn a much higher commission.
My advice is to buy a 30 year Decreasing Term insurance policy and invest the difference. After 30 years, you will have more than sufficient savings for your retirement, medical and other needs (but you must have the discipline to set aside the regular savings). Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I read your blog everyday as I find there is always something new to learn from the questions posed by your readers. I am interested to buy Term insurance with a critical rider.
My financial advisor has advised me that I should get a whole life policy with critical rider as once my Term policy has expired after 30 years, I could still get a critical illness and by then I would have to bear all the treatments myself. Thus a whole life policy makes sense in this case. He further argued that if I would have accumulated enough savings by then but would I want to use my hard earned money to be spent on treatment or be protected for life.
I prefer to take a Shield plan to cover critical illness, and I could invest the difference in plans to get a higher return. Overall this is more cost effective. Could you advise?
REPLY
The insurance adviser want people to buy a whole life policy, as he or she can earn a much higher commission.
My advice is to buy a 30 year Decreasing Term insurance policy and invest the difference. After 30 years, you will have more than sufficient savings for your retirement, medical and other needs (but you must have the discipline to set aside the regular savings). Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Intimidating letter from lawyer
Dear Mr. Tan,
Three months ago, I was involved in an accident with a taxi. I was making a legal U-turn but was hit by the taxi in the opposite direction. It is just a minor accident with a slight band on our bumpers.
I just receid a letter from a lawyer acting on behalf of the taxi driver. Three weeks ago, I received a call from my car insurance company asking me if I can agree to the claims from the taxi driver. I agreed.
In the lawyer's letter, they requested a copy of my IC, insurance schedule and confirmation that I was the driver. The letter was issued based on the presumption in law that the driver was not me. Can I know why this course of action? I have no problem providing them the needed info.
REPLY
It is all right to reply to the lawyer and confirm the identity of the driver. You are not required to send photocopy of NRIC. You can tell them about the identity of your insurance company and ask them the third party lawyer to make the claim directly with them.
If you feel the lawyer is acting in an intimidating way, you can complain to the Law Society.
Three months ago, I was involved in an accident with a taxi. I was making a legal U-turn but was hit by the taxi in the opposite direction. It is just a minor accident with a slight band on our bumpers.
I just receid a letter from a lawyer acting on behalf of the taxi driver. Three weeks ago, I received a call from my car insurance company asking me if I can agree to the claims from the taxi driver. I agreed.
In the lawyer's letter, they requested a copy of my IC, insurance schedule and confirmation that I was the driver. The letter was issued based on the presumption in law that the driver was not me. Can I know why this course of action? I have no problem providing them the needed info.
REPLY
It is all right to reply to the lawyer and confirm the identity of the driver. You are not required to send photocopy of NRIC. You can tell them about the identity of your insurance company and ask them the third party lawyer to make the claim directly with them.
If you feel the lawyer is acting in an intimidating way, you can complain to the Law Society.
Identify the poisoned wine
CAN YOU SOLVE THIS PUZZLE?
A king has 1000 bottles of wine. An assasin tried to poison the wine. The king's guards caught the assasin after he poisoned only one bottle, but they did not know which bottle was poisoned.
It is known however that the poison is so powerful that even a tiny bit of the poisoned wine will kill, and it is known also that the poison will only kill after 24 hours. The king order you, his advisor, to get some of the criminals in the dungeon to test the wines for him. The king expects to find out the result the next day, essentially 24 hours after the testers drink the wine.
Now the simplest way is if 1000 criminals were available, just get them to each drink a little bit from each of the 1000 bottles. Hence, the poisoned bottle will be identified when one particular tester, out of the thousand testers, dies the following day. However, only 10 criminals is imprisoned in the dungeon on that particular day!
Is there a way to identify the poisoned bottle by the following day using only 10 testers? What is the method?"
A king has 1000 bottles of wine. An assasin tried to poison the wine. The king's guards caught the assasin after he poisoned only one bottle, but they did not know which bottle was poisoned.
It is known however that the poison is so powerful that even a tiny bit of the poisoned wine will kill, and it is known also that the poison will only kill after 24 hours. The king order you, his advisor, to get some of the criminals in the dungeon to test the wines for him. The king expects to find out the result the next day, essentially 24 hours after the testers drink the wine.
Now the simplest way is if 1000 criminals were available, just get them to each drink a little bit from each of the 1000 bottles. Hence, the poisoned bottle will be identified when one particular tester, out of the thousand testers, dies the following day. However, only 10 criminals is imprisoned in the dungeon on that particular day!
Is there a way to identify the poisoned bottle by the following day using only 10 testers? What is the method?"
Selecting a unit trust
hi Mr. Tan
I understand that ETF has an expiry time limit. I have to track the index before actually trading in it. Do you know which unit trust that tracks only STI which is suitable for long term investment?
I am keen to invest STI index, as the charges are much lower compared to unit trust. Can you advise on suitable funds for a time horizon of 20-30 years, with consistent return above 10%?
REPLY
The STI ETF is a fund. It does not have any expiry date. I do not have any information about the funds that you are looking for. You can talk to a financial adviser.
I understand that ETF has an expiry time limit. I have to track the index before actually trading in it. Do you know which unit trust that tracks only STI which is suitable for long term investment?
I am keen to invest STI index, as the charges are much lower compared to unit trust. Can you advise on suitable funds for a time horizon of 20-30 years, with consistent return above 10%?
REPLY
The STI ETF is a fund. It does not have any expiry date. I do not have any information about the funds that you are looking for. You can talk to a financial adviser.
Eldershield
Dear Mr. Tan,
I will be age 40 this year and CPF Board will soon mail me the brochures on ElderShield. You mentionedthat we should use Medisave sparingly because it is our hard-earned money and it is meant for ourfuture medical expenses.
Should I consider ElderShield; knowing a female at age 40 has to pay at least $5444 (ie $217.76 x 25 years) to get a lifetime coverage with max payout of $28800 (i.e. $400 x 72 months)?
Should I use cash instead to pay for this plan, if it is allowed?
REPLY:
It is a good idea to use cash to pay for Eldershield, if it is allowed. This allows you to earn 4% plus 1% on the money that is kept in your special account
If you have adequate savings for your retirement needs, you can buy Eldershield. I expect that more than 30% will eventually make a claim. If your savings is not sufficient, you can skip Eldershield (as it is of lower priority).
I will be age 40 this year and CPF Board will soon mail me the brochures on ElderShield. You mentionedthat we should use Medisave sparingly because it is our hard-earned money and it is meant for ourfuture medical expenses.
Should I consider ElderShield; knowing a female at age 40 has to pay at least $5444 (ie $217.76 x 25 years) to get a lifetime coverage with max payout of $28800 (i.e. $400 x 72 months)?
Should I use cash instead to pay for this plan, if it is allowed?
REPLY:
It is a good idea to use cash to pay for Eldershield, if it is allowed. This allows you to earn 4% plus 1% on the money that is kept in your special account
If you have adequate savings for your retirement needs, you can buy Eldershield. I expect that more than 30% will eventually make a claim. If your savings is not sufficient, you can skip Eldershield (as it is of lower priority).
Term insurance
Mr. Tan,
For a Term insurance, the yield is 0%. What is the benchmark to decide on a "good value" policy?
REPLY:
You should compare the cost of the Term insuance policy insuring the same amount and period. You can ask for a quotation of the premium by calling the insurance companies listed in this FAQ:
http://www.tankinlian.com/faq/termd.html
Mr. Tan,
I agree with you that Term insurance gives good value. But are you being responsible in asking people to buy Term insurance? What if the term matures and the policyholder still needs coverage? He may not be able to get the coverage because of poor health. Even if he is able to get coverage it will come at a higher cost.
REPLY
You can buy a Term insurance to cover 30 years and pay a level premium. Most people need life insurance for 30 years to cover their working life. They do not need any more life insurance after they have accumulated sufficient savings and their children have grown up. It is more important for you to have adequate insurance in the earlier years, when your children are still young. This is only possible through Term insurance. Read this FAQ:
http://www.tankinlian.com/faq/term.html
For a Term insurance, the yield is 0%. What is the benchmark to decide on a "good value" policy?
REPLY:
You should compare the cost of the Term insuance policy insuring the same amount and period. You can ask for a quotation of the premium by calling the insurance companies listed in this FAQ:
http://www.tankinlian.com/faq/termd.html
Mr. Tan,
I agree with you that Term insurance gives good value. But are you being responsible in asking people to buy Term insurance? What if the term matures and the policyholder still needs coverage? He may not be able to get the coverage because of poor health. Even if he is able to get coverage it will come at a higher cost.
REPLY
You can buy a Term insurance to cover 30 years and pay a level premium. Most people need life insurance for 30 years to cover their working life. They do not need any more life insurance after they have accumulated sufficient savings and their children have grown up. It is more important for you to have adequate insurance in the earlier years, when your children are still young. This is only possible through Term insurance. Read this FAQ:
http://www.tankinlian.com/faq/term.html
Thursday, February 14, 2008
Yield of an investment
Dear Mr. Tan,
How do I calculate the yield on an investment?
REPLY:
You can use a financial calculator.
For example, if you invest $1,000 yearly for 20 years and earn a yield of 5% per annum, you will get $34,719 at the end of 20 years.
If you enter the figures of $1,000, $34,719 and 25 years into the calculator, it will be able to compute the yield as 5%.
How do I calculate the yield on an investment?
REPLY:
You can use a financial calculator.
For example, if you invest $1,000 yearly for 20 years and earn a yield of 5% per annum, you will get $34,719 at the end of 20 years.
If you enter the figures of $1,000, $34,719 and 25 years into the calculator, it will be able to compute the yield as 5%.
Rent out your HDB flat
If you are retired, and you need a regular income, you can rent our your HDB flat and earn an income and stay with your children or friend. Here are some tips:
http://newpaper.asia1.com.sg/columnists/story/0,4136,152790,00.html
More articles from Dr. Money
http://www.tankinlian.com/drmoney/.
http://newpaper.asia1.com.sg/columnists/story/0,4136,152790,00.html
More articles from Dr. Money
http://www.tankinlian.com/drmoney/.
Impact of inflation on financial planning
Dear Mr. Tan,
With the high rate of inflation, I am not sure if my savings is sufficient for my future needs after I retire. How should I review my planning?
REPLY
You can get some guidance on this matter from this FAQ:
http://www.tankinlian.com/articles/financial.html
With the high rate of inflation, I am not sure if my savings is sufficient for my future needs after I retire. How should I review my planning?
REPLY
You can get some guidance on this matter from this FAQ:
http://www.tankinlian.com/articles/financial.html
Monday, February 11, 2008
Benchmark for Life Insurance Policy
Here is a guide to measure if your life insurance policy gives good value to you.
Calculate the yield on the policy, using your annual premium and the cash value at the end of the premium payment period.
If you get a yield of 4% or higher, the policy gives good value. If it is lower than 3.5%, the policy does not give good value (i.e. high cost).
Here is the reasoning:
1. If you invest for 20 years or longer, you can get a return of 5% or more.
2. The yield on your life insurance policy is due to the expenses and the mortality cover.
3. A significant part of the reduction in yield is used to pay marketing expenses.
4. The reduction should not exceed 1.5%
If you buy Term insurance and invest the difference, you can get a net yield of more than 4%.
Calculate the yield on the policy, using your annual premium and the cash value at the end of the premium payment period.
If you get a yield of 4% or higher, the policy gives good value. If it is lower than 3.5%, the policy does not give good value (i.e. high cost).
Here is the reasoning:
1. If you invest for 20 years or longer, you can get a return of 5% or more.
2. The yield on your life insurance policy is due to the expenses and the mortality cover.
3. A significant part of the reduction in yield is used to pay marketing expenses.
4. The reduction should not exceed 1.5%
If you buy Term insurance and invest the difference, you can get a net yield of more than 4%.
Risk Management & Insurance, SMU
I now teach a course on risk management and insurance at the Singapore Management University. Some of the points posted in this blog are taken from the text book used for my course. It gives a good description of the key concepts in risk management.
Sharp drop in AIG shares
I read a Bloomberg report that AIG shares dropped by 30 percent since the change of CEO from Hank Greenberg.
The recent drop was due to the losses on credit default swaps issued by AIG. This protects the buyer from credit defaults, e.g. due to subprime mortgages.
AIG is the parent company of AIA in Singapore. It has a AA credit rating (previously AAA), but analysts expect the rating to be further downgraded.
More details:
http://www.bloomberg.com/apps/news?pid=20601087&sid=axfNBsHVBagY&refer=home
The recent drop was due to the losses on credit default swaps issued by AIG. This protects the buyer from credit defaults, e.g. due to subprime mortgages.
AIG is the parent company of AIA in Singapore. It has a AA credit rating (previously AAA), but analysts expect the rating to be further downgraded.
More details:
http://www.bloomberg.com/apps/news?pid=20601087&sid=axfNBsHVBagY&refer=home
Visit to Jakarta
I will be visiting Jakarta for the next four days. During this time, I may have difficulty in accessing the Internet and updating my blog.
On my last visit in mid January, some people in Jakarta were worried about any possible unrest when the former president Suharto passed away. He passed away shortly thereafter, but Indonesia had been peaceful. The only problem was the heavy flooding in Jakarta.
On my last visit in mid January, some people in Jakarta were worried about any possible unrest when the former president Suharto passed away. He passed away shortly thereafter, but Indonesia had been peaceful. The only problem was the heavy flooding in Jakarta.
Best terms for a car loan
Dear Mr. Tan,
What should I look out for when buying a new car? How can we have a better deal like car insurance, car loan etc?--
REPLY:
Read this faq about motor insurance:
http://www.tankinlian.com/faq/motord.html
I suggest the following approach to get your car loan.
Ask your dealer what is being offered with the package. They usually include a car loan offered by their tied up bank.
Ask for the following:
What is the amount of the loan
What is the monthly replayment and the number of repayments
What are the additional charges (if any).
You can then call 3 other banks and ask them to offer their loan to you for the same amount of loan and number of repayments.
You can compile the differences between the offers as follows:
Amount of loan: $xx,xxxx
Nr of monthly replayments: xx repayments
X is the bank tied up with your motor car dealer. Usually, they offer the best terms (but not always).
When you have obtained the information, you can share with me.
What should I look out for when buying a new car? How can we have a better deal like car insurance, car loan etc?--
REPLY:
Read this faq about motor insurance:
http://www.tankinlian.com/faq/motord.html
I suggest the following approach to get your car loan.
Ask your dealer what is being offered with the package. They usually include a car loan offered by their tied up bank.
Ask for the following:
What is the amount of the loan
What is the monthly replayment and the number of repayments
What are the additional charges (if any).
You can then call 3 other banks and ask them to offer their loan to you for the same amount of loan and number of repayments.
You can compile the differences between the offers as follows:
Amount of loan: $xx,xxxx
Nr of monthly replayments: xx repayments
Bank Amount of Additional
monthly repayment charges
X
Y
Z
X is the bank tied up with your motor car dealer. Usually, they offer the best terms (but not always).
When you have obtained the information, you can share with me.
Term insurance rates are fixed
Dear Mr. Tan,
Question 1: Term insurance are designed to disappear as we grow older. Term insurance rates are often non guaranteed, the rates will be reviewed on a annual or a 5-yearly basis. The premium increases as we grow older. Is this correct?
Reply: You can buy a Term insurance with the rate fixed for 30 years. Read this FAQ:
http://www.tankinlian.com/faq/choice.html
Question 2: In comparison with a limited payment (maybe 20 year) whole life insurance policy, the coverage may start small, and because of it's contractual base, premiums remains constant. And sum assured increases with age (due to addition of bonus). When death occurs, the life plan will pay the full sum.
Reply: The return from a limited payment whole life is poor. This is due to the high charges deducted to pay agent's commission, expenses and profit for the insurance company. Some examples are given in my blog.
It is better to invest your savings in a separate investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Question 1: Term insurance are designed to disappear as we grow older. Term insurance rates are often non guaranteed, the rates will be reviewed on a annual or a 5-yearly basis. The premium increases as we grow older. Is this correct?
Reply: You can buy a Term insurance with the rate fixed for 30 years. Read this FAQ:
http://www.tankinlian.com/faq/choice.html
Question 2: In comparison with a limited payment (maybe 20 year) whole life insurance policy, the coverage may start small, and because of it's contractual base, premiums remains constant. And sum assured increases with age (due to addition of bonus). When death occurs, the life plan will pay the full sum.
Reply: The return from a limited payment whole life is poor. This is due to the high charges deducted to pay agent's commission, expenses and profit for the insurance company. Some examples are given in my blog.
It is better to invest your savings in a separate investment fund. Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Claim settlement service
Here is an example of the claim settlement service provided by an insurance company.
If you drive a motorcar and was involved in an accident, you may receive a letter from the other party's lawyers making a large claim for damages from you. It will be quite troublesome for you to handle the claim, as you have to deal with the following uncertainties:
1. Which party is negligent and responsible for the accident?
2. How much is the fair amount of compensation? Is the repair cost a fair price or exaggerated?
If you buy insurance, the task of claim settlement is passed to the insurance company. They have lawyers and loss adjustors to handel the negotiation and settlement. They also pay the acmount of the claim.
It is useful to have insurance to take care of these matters.
If you drive a motorcar and was involved in an accident, you may receive a letter from the other party's lawyers making a large claim for damages from you. It will be quite troublesome for you to handle the claim, as you have to deal with the following uncertainties:
1. Which party is negligent and responsible for the accident?
2. How much is the fair amount of compensation? Is the repair cost a fair price or exaggerated?
If you buy insurance, the task of claim settlement is passed to the insurance company. They have lawyers and loss adjustors to handel the negotiation and settlement. They also pay the acmount of the claim.
It is useful to have insurance to take care of these matters.
Loss control measures
Here are some examples of valuaable advice on loss control that is given by insurance companies. As they have access to experts, the advice is useful to the insured policyholders.
1. If you wish to insure a factory, the insurance company sends a surveyor to look at the housekeeping and safety measures in the factory. The surveyor will make recommendations on reducing the probability and severity of losses. If you implement the recommendations, the insurance company will offer you a lower rate to insure your risks.
2. If you insure your life, the insurance company will advise you keep to a healthy weight and control your chronic conditions. The premium loadings will be reduced.
1. If you wish to insure a factory, the insurance company sends a surveyor to look at the housekeeping and safety measures in the factory. The surveyor will make recommendations on reducing the probability and severity of losses. If you implement the recommendations, the insurance company will offer you a lower rate to insure your risks.
2. If you insure your life, the insurance company will advise you keep to a healthy weight and control your chronic conditions. The premium loadings will be reduced.
Useful functions of insurance
Insurance performs three useful functions:
a) Pooling of risks. Each policyholder pays a small premium into a pool, to be used to pay for the losses suffered by a some policyholders and the expenses of operating the pool.
b) Settlement of claims. The insurance company is experienced in handling the settlement of claims on behalf of the policyholders.
c) Loss control measures. The insurance company can advise the policyholders on measures to reduce the occurence of losses and their severity.
For these valuable functions, the policyholders are willing to pay a fair loading (of up to 35%) over the cost of claims to buy the insurance.
For example, if the average share of the claim per policyholder is $300, the policyholder is usually willing to pay $400 to buy the insurance. This allows $100 to be used to pay the expenses of operating the pool, including the useful services of claim settlement and loss control.
If the loading is more than 35% of the amount of claim, many people will find the insurance to be too costly and will prefer to be un-insured. This benchmark applies to motor, medical, fire and accident insurance.
In the case of life insurance, a different benchmark applies.
a) Pooling of risks. Each policyholder pays a small premium into a pool, to be used to pay for the losses suffered by a some policyholders and the expenses of operating the pool.
b) Settlement of claims. The insurance company is experienced in handling the settlement of claims on behalf of the policyholders.
c) Loss control measures. The insurance company can advise the policyholders on measures to reduce the occurence of losses and their severity.
For these valuable functions, the policyholders are willing to pay a fair loading (of up to 35%) over the cost of claims to buy the insurance.
For example, if the average share of the claim per policyholder is $300, the policyholder is usually willing to pay $400 to buy the insurance. This allows $100 to be used to pay the expenses of operating the pool, including the useful services of claim settlement and loss control.
If the loading is more than 35% of the amount of claim, many people will find the insurance to be too costly and will prefer to be un-insured. This benchmark applies to motor, medical, fire and accident insurance.
In the case of life insurance, a different benchmark applies.
Legal doctrines in insurance
Moral hazard: behaviour of the policyholder, who becomes less willing to spend money to prevent or reduce losses, after obtaining insurance.
Adverse selection: when policyholders are better informed about expected claims and higher risk policyholders are more likely to buy insurance, compared to lower risk policyholders.
Deductible: the amount that the insured is required to pay for the initial portion of each loss, before a claim can be made on the remaining loss.
Policy limits: the maximum amount payable by the insurance policy on the loss. The excess cannot be claimed.
Exclusions: events that are not covered under the policy, such as war or natural disaster under a property insurance policy.
Indemnity contract: pays up to the actual amount of the loss, even though the sum insured may be higher. Applies to motor and medical expense insurance, but not to life and personal accident insurance.
Insurance-t0-value: if a property has been insured for less than its actual value, the policyholder is allowed only to claim for only a proportion of each loss, and has to bear the proportion that is under-insured.
Contract of adhesion: if the standard policy wording is vague, the court will intepret the wording in favour of the policyholder, as the insurance company is expected to be more familiar with the contract and is expected to write the terms more clearly.
Reasonable expectation: the contract will be interpreted according to the expctation of a reasonable person who is not trained in law.
Adverse selection: when policyholders are better informed about expected claims and higher risk policyholders are more likely to buy insurance, compared to lower risk policyholders.
Deductible: the amount that the insured is required to pay for the initial portion of each loss, before a claim can be made on the remaining loss.
Policy limits: the maximum amount payable by the insurance policy on the loss. The excess cannot be claimed.
Exclusions: events that are not covered under the policy, such as war or natural disaster under a property insurance policy.
Indemnity contract: pays up to the actual amount of the loss, even though the sum insured may be higher. Applies to motor and medical expense insurance, but not to life and personal accident insurance.
Insurance-t0-value: if a property has been insured for less than its actual value, the policyholder is allowed only to claim for only a proportion of each loss, and has to bear the proportion that is under-insured.
Contract of adhesion: if the standard policy wording is vague, the court will intepret the wording in favour of the policyholder, as the insurance company is expected to be more familiar with the contract and is expected to write the terms more clearly.
Reasonable expectation: the contract will be interpreted according to the expctation of a reasonable person who is not trained in law.
Investment Tips for a Retiree
Hi Mr. Tan
There are many articles written about retirement planning and the investment strategy to achieve the retirement goals. However, they do not discuss the appropriate investment and draw-down strategy for retirees like myself – persons who is now faced with what to do with the money accumulated from years of saving.
I have spoke to many independent financial advisers and most of them asked me to allocate the savings into equity, balanced or bond funds according to your risk profile. Some would suggest putting part of the money into annuity.
However, given that all existing annuity plans only achieve between a return of between 3.5% to 4% returns p.a. and payment out from 62 year old, one would wonder if it is advisable to do that?
Also, in reality, bond fund is different from bonds and does not provide fixed coupons for retirees with money to live on. Moreover, judging from current market price bond funds is just as volatile as the equity funds.
You would be doing us a great service if you would write a series of articles giving practical advice on investment strategies and instruments that would benefits a retirees with various amount of saving, say $500k, $1m, $2m, investable income with a goals of 6% to 8% return?
Some of these questions retirees need answers are:
· How should I allocate my retirement funds into cash [no of mth expenses?] and the various investment instruments?
· What are the various financial instruments [UT, ETF, Annuity, property etc] for investing and where can I find them?
· Would investing in index EFT better than UT?
· What financial instrument gives better return than FD, saving account and having similar liquidity need to meet monthly expenses?
· Where else can you find articles discussing this aspect of investment planning for retirees.
REPLY
Can you read the FAQs posted in my website,
www.tankinlian.com/faq
In particular, the following FAQs:
http://www.tankinlian.com/faq/seniors.html
http://www.tankinlian.com/faq/returns.html
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/retirement.html
http://www.tankinlian.com/faq/cpf.html
Let me know if you find them to be easy to understand and helpful to answer your questions.
There are many articles written about retirement planning and the investment strategy to achieve the retirement goals. However, they do not discuss the appropriate investment and draw-down strategy for retirees like myself – persons who is now faced with what to do with the money accumulated from years of saving.
I have spoke to many independent financial advisers and most of them asked me to allocate the savings into equity, balanced or bond funds according to your risk profile. Some would suggest putting part of the money into annuity.
However, given that all existing annuity plans only achieve between a return of between 3.5% to 4% returns p.a. and payment out from 62 year old, one would wonder if it is advisable to do that?
Also, in reality, bond fund is different from bonds and does not provide fixed coupons for retirees with money to live on. Moreover, judging from current market price bond funds is just as volatile as the equity funds.
You would be doing us a great service if you would write a series of articles giving practical advice on investment strategies and instruments that would benefits a retirees with various amount of saving, say $500k, $1m, $2m, investable income with a goals of 6% to 8% return?
Some of these questions retirees need answers are:
· How should I allocate my retirement funds into cash [no of mth expenses?] and the various investment instruments?
· What are the various financial instruments [UT, ETF, Annuity, property etc] for investing and where can I find them?
· Would investing in index EFT better than UT?
· What financial instrument gives better return than FD, saving account and having similar liquidity need to meet monthly expenses?
· Where else can you find articles discussing this aspect of investment planning for retirees.
REPLY
Can you read the FAQs posted in my website,
www.tankinlian.com/faq
In particular, the following FAQs:
http://www.tankinlian.com/faq/seniors.html
http://www.tankinlian.com/faq/returns.html
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/retirement.html
http://www.tankinlian.com/faq/cpf.html
Let me know if you find them to be easy to understand and helpful to answer your questions.
Sunday, February 10, 2008
Personal Risks
Personal risks can be classified in six categories:
a) Earnings risk - unexpected decline in income due to death, sickness or unemployment
b) Medical expense risk - to recover from sickness
c) Liability risk - due to negligence, e.g. use of motor vehicle
d) Physical asset risk - loss of home, car or other property
e) Financial asset risk - decline in value of financial assets
f) Longevity risk - living too long and running out of savings
The first four types of risk can be insured. You should look for low cost insurance. This allows the remaining savings to be invested to provide for your retirement and other financial needs. You can buy life annuity to cover the risk of living too long.
a) Earnings risk - unexpected decline in income due to death, sickness or unemployment
b) Medical expense risk - to recover from sickness
c) Liability risk - due to negligence, e.g. use of motor vehicle
d) Physical asset risk - loss of home, car or other property
e) Financial asset risk - decline in value of financial assets
f) Longevity risk - living too long and running out of savings
The first four types of risk can be insured. You should look for low cost insurance. This allows the remaining savings to be invested to provide for your retirement and other financial needs. You can buy life annuity to cover the risk of living too long.
Whole life, premium payable for 25 years
Dear Mr. Tan
I learned about your blog site after reading the Edge Weekly Paper. I was intrigued by your revelation on life insurance.
I have a $50,000 whole life insurance plan with annual premium of $1,000 payable for 25 years. After 25 years, I do not need to pay any more premium, but remain insured. The cash value at the end of 25 years is $30,900 (of which about two-thirds are guaranteed). Did I get a good deal?
I have already paid two years' premium. Should I continue the policy?
REPLY
If you pay $1,000 a year for 25 years and get back a cash value of $30,900, the return is 1.6% p.a.
Alternatively, you can spend $100 a year on Term insurance and get a higher coverage. If you invest $900 a year for 25 years to earn 4.5% p.a. (not guaranteed, but quite conservative), you will get back $41,900; If you earn 4%, you will get back $39,000.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
If you write off the loss of 2 years premium (which you have already paid), the yield on $1,000 for 23 years with a return of $30,900 is 2.4%. It is still low, but probably all right. I suggest that you keep this policy.
Lesson: Avoid high cost life insurance, where a large part of your premium is taken away to pay charges. If you are already committed, it is better to keep the policy.
I learned about your blog site after reading the Edge Weekly Paper. I was intrigued by your revelation on life insurance.
I have a $50,000 whole life insurance plan with annual premium of $1,000 payable for 25 years. After 25 years, I do not need to pay any more premium, but remain insured. The cash value at the end of 25 years is $30,900 (of which about two-thirds are guaranteed). Did I get a good deal?
I have already paid two years' premium. Should I continue the policy?
REPLY
If you pay $1,000 a year for 25 years and get back a cash value of $30,900, the return is 1.6% p.a.
Alternatively, you can spend $100 a year on Term insurance and get a higher coverage. If you invest $900 a year for 25 years to earn 4.5% p.a. (not guaranteed, but quite conservative), you will get back $41,900; If you earn 4%, you will get back $39,000.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
If you write off the loss of 2 years premium (which you have already paid), the yield on $1,000 for 23 years with a return of $30,900 is 2.4%. It is still low, but probably all right. I suggest that you keep this policy.
Lesson: Avoid high cost life insurance, where a large part of your premium is taken away to pay charges. If you are already committed, it is better to keep the policy.
Saturday, February 9, 2008
Avoid high cost plans
Hi Mr Tan
I happen to visit your blog while gathering information about investment and insurance. It's a very informative blog. You have provided us a greater insight to insurance and investment.
I am now 26 years old. I met an an agent recently with the intention to buy a whole life and Term insurance. She recommended two plans. I found the premium to be rather high and there are a lot of uncertainties with respect to the critical illness coverage. (Other details deleted)
REPLY
I usually advise people to buy Term insurance and invest the difference. You can read the following FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html
You should avoid whole life or endowment policies, as the charges are too high and the policies give a poor return.
I happen to visit your blog while gathering information about investment and insurance. It's a very informative blog. You have provided us a greater insight to insurance and investment.
I am now 26 years old. I met an an agent recently with the intention to buy a whole life and Term insurance. She recommended two plans. I found the premium to be rather high and there are a lot of uncertainties with respect to the critical illness coverage. (Other details deleted)
REPLY
I usually advise people to buy Term insurance and invest the difference. You can read the following FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html
You should avoid whole life or endowment policies, as the charges are too high and the policies give a poor return.
Questions from a Young Person
Hi Mr. Tan,
1) I joined the workforce recently. I plan to start saving $100 a month. Can you recommend any cash value insurance, unit trust or bonds?
Reply:
It is better to buy Term insurance and to invest your savings in a diversified, low cost fund. Read this FAQ: http://www.tankinlian.com/faq/savings.html
You should avoid a cash value policy, as the cost is high and takes away too much of your savings.
2) I currently hold two life term insurance policy, i.e. the Dependent Protection policy and a Term policy bought while under National Service. Can a person claim under two or more life term insurance if a mishap occurs?
Reply:
You can claim on all of your life insurance policies, including the two Term policy that you mentioned above. Life insurance is a valued policy and is not subject to the principle of indemnity (which applies to motor and medical insurance). The principle of indemnity limit your claims to the actual expenses that you have incurred.
3) Can a person invest in shares without a stock broker?
Reply:
You have to buy shares through a stockbroker. The commission is low, i.e. 0.3% only.
1) I joined the workforce recently. I plan to start saving $100 a month. Can you recommend any cash value insurance, unit trust or bonds?
Reply:
It is better to buy Term insurance and to invest your savings in a diversified, low cost fund. Read this FAQ: http://www.tankinlian.com/faq/savings.html
You should avoid a cash value policy, as the cost is high and takes away too much of your savings.
2) I currently hold two life term insurance policy, i.e. the Dependent Protection policy and a Term policy bought while under National Service. Can a person claim under two or more life term insurance if a mishap occurs?
Reply:
You can claim on all of your life insurance policies, including the two Term policy that you mentioned above. Life insurance is a valued policy and is not subject to the principle of indemnity (which applies to motor and medical insurance). The principle of indemnity limit your claims to the actual expenses that you have incurred.
3) Can a person invest in shares without a stock broker?
Reply:
You have to buy shares through a stockbroker. The commission is low, i.e. 0.3% only.
Subscribe to:
Posts (Atom)
:.
