Higher interest rate for Government bonds

Dear Mr, Tan,
The past week saw the drop in price of Singapore Government bonds. What is the reason for the drop and is this the right time to buy the 10 or 15 year bonds, considering that their yield is well over 3%? Are they not better than some of the single premium products offer by insurance companies?

REPLY
I do not follow the market in Government Bonds. I suspect that the drop in price is due to a general rise in interest rate. The world may be entering a period of higher inflation, which is being reflected in the increase in interest rate.

If the level of interest rate increases further, you may see a further drop in the bond prices. I do not know if this is the right time to buy Government bonds, as it depends on whether interest rate will rise further.

Perhaps, if you buy a bond for 3 to 5 years, it may be all right. However, the yield may be lower than 3%.

Here are the yields on Singapore Government bonds, taken from the Fundsupermart website:
http://www.fundsupermart.com/main/sgs/SGShome.tpl

Maturing   Remaining  Yield
year       duration
2011         3.1 yr   1.79%
2013         5.1 yr   2.51%
2018        10.2 yr   3.38%
2022        14.2 yr   3.39%
2027        18.7 yr   3.80%

Drop in maturity benefit

Dear Mr. Tan,
You should know the implication, a new page in Singapore insurance ....

20 year ago, I bought a 25 yrs endowment with premium payments limited to 20 year from X. The maturity benefit was projected to be $24,583 with an annual premium of $500. After paying for 20 yrs, I received a statement from X stating the projected total maturity benefit is $19,810 instead of $24,583 - a 20% drop.

Since NTUC is the largest, all other insurance company will follow and I believe not only endowment policy, other policies are also affected. This will affect every citizen. I pity those agents whose customers were mostly friends and relatives.
JK

REPLY
The drop in the maturity benefit is due probably to the lower investment yield earned during the past 20 years, compared to the expected yield at the time that the policy was sold to you. Based on the revised maturity benefit, the yield is 3.9%.

I agree that the yield on this poilcy is somewhat how, compared to the yield earned by company X during the past 20 years. I hope that life insurance companies will reduce their charges and give a better yield to their customers in the future.

Reason for Restructuring of Bonus

If you like to know Income's reason for the restructuring of bonus, you can read their statement in their website: http://www.income.com.sg/

Here are some key points from the press statement issued by Income:

> We will work always with customers’ interests at heart. Every decision we take is calculated to protect their interests individually and as a whole. What we seek to do is to deliver the best possible returns to policyholders, now and also in the future.

> Although special bonuses are not guaranteed, they are set to ensure that the reduction in annual bonus is fully compensated. Where the strength of the Fund and investment outlook permits, this will continue in future. Should this compensatory special bonus reduce in future due to poor investment conditions, we are committed to restoration when conditions improve.

> We will ensure that the bonus allocated to policyholders result in payouts which are fair and consistent with the experience of the fund.

I remember that these points are also reiterated in the speech given by chairman Ng Kee Choe at the annual general meeting. I believe that his full speech will be posted in the website over the next few days.

Restructuring of EV series

Dear Mr. Tan
I have just voted in your Poll that I disagree with your decision to call off the Collective Protest. I attended the annual general meeting and heard your question about the EV series, introduced recently, where the bonus has not been restructured.

Is it fair to restructure the bonus for the old series and expose the policyholders to the uncertainty, and at the same time sell new policies (i.e. EV series) on the unrestrucutred bonus? If the restructured bonus is good for the future, why is it not applied to the EV series? (Remainder of statement deleted)

I urge you to continue to lodge the Collective Protest.
MS

REPLY
I have followed up on this matter after the annual general meeting with Mr. Matthias Yao. Let us wait for his reply.

There are three products under the EV series. One has been restructured. Maybe, the other two products will be restructured next year (just my guess).

Gold Link Capital Protected Fund

Dear Mr. Tan
What are your view of this product?
> 100% Capital Protected
> 3 years
> MAX annual return 23% - 25%p.a.
> No service charge if hold until maturity
> A small portion in invested in JP MORGAN GOLD INDEX
> The balance is invested in 3 years NRID

This fund will invest in the gold market in June. What is your forecast on its performance? Is now a good time to do in Gold-LINK products?? Is commodity related funds favorable to go in at this point of time?

REPLY
I dislike all capital protected and capital guaranteed products. My reasons are stated in this FAQ:
http://www.tankinlian.com/faq/sinvest.html

If you are willing to take a risk in gold, it is best to invest in it directly, and not through a structured product. However, if you are not sure about the risk, you should stay away from it.

Personally, I find gold, oil and commodity prices to be too high, due to speculation. I avoid them at this time.

Convert Life Annuity to Cash

Dear Mr. Tan
My 61 yr old mother has a Income Life annuity purchased with CPF retirement funds. We are thinking of converting the CPF annuity to a cash annuity using cash payments (since we bought the annuity at good terms previously). Then she would have funds both in CPF (from the annuity refund) and the Life annuity, which would both offer stable returns for a retiree.

Do you know whether NTUC Income allows policy holders to convert an existing CPF annuity policy to cash annuity if we pay cash?

REPLY
You can ask Income directly. The head of life insurance is Peh Chee Keong, pehck@income.com.sg.

Capital adequacy ratio of 170%

Dear Mr Tan
I do not understand why Income change its policy?

1) Does it mean they are not making enough to pay like the old system?

2) Is it still safe to buy insurance from Income which I am consider Growth plan despite the bonus change which is lower in return? I read Saturday May 31st in Straits Times reported that such scheme was to improve Income solvency position. Will they go burst for year to come?

3) If there have decided to change the bonus plan. Why not take effect from 1 June 2008 after the AGM instead of from year 1993 which is not fair for those who bought during that year onwards. A vote for this to all policyholder to decide.

4) Yearly AGM, should they declare the special bonus that is put aside at Income but is not payable. This will give policyholder a peace of mind when their policy is due for payment as a form of some guarantee.
JT

REPLY
Income is still financially strong with a capital adequacy ratio of 170% (2006), compared to a minimum of 120%. It is quite safe to invest with Income, from this standpoint.

I hope that they will be able to earn a good yield in the future, and distribute it to the policyholders. The chairman had made a statement that the board is committed to give the best value to the policyholders. I hope that this means that the policyholder will get a better yield, compared to similar policies in the market.

Will writing service

Dear Mr Tan,
I intend to write a will and wonder if you could recommend a lawyer to me.

REPLY
I will ask Alan Chiu (achiu@income.com.sg) to help you. He manages a will writing service under NTUC Income. They have lawyers on a panel who charges a low fee for writing a standard will.

REPLY FROM ALAN CHIU
The cost of our simple Will Writing service is $160.50. This is a special price for our policyholders and Big Trumpet members.

If you are keen, kindly provide your contact number and we will ask our lawyer, to contact you directly on the details.

Transfer of Shares to Family Members

I am visiting SGX to open a share account for my family members. I will transfer some of my shares to them. The cost of transfer is $10 per account per family member. I will transfer some shares initially, and additional shares at a later date.

This will give my family members the experience of owning shares, receiving the annual report and dividend of the investee company. They can also attend the annual general meeting.

Later, they can buy their own shares, from their savings. This gives them a chance to learn about their own investments, instead of investing through a high cost life insurance policy.

I wish to post this suggestion, so that other parents who have shares accumulated during their working life, can consider to transfer some shares to their grown up children.

Uphold the cooperative values

Hi Mr. Tan,

My wife and I have got a living policy each with NTUC Income during your tenure as CEO. I have great admiration for you as a CEO because you have come across to me as the dying breed of CEOs who do not aim for Income to keep breaking new frontiers but rather give more consideration to your clients and members.

The moment I heard you are stepping down, I told my wife our policy returns will suffer as the next CEO will try all means to increase profits. Now I am proven right - the new structure is a change to the policyholders' disfavour. We have to sacrifice one per cent per annum to gamble on promised return scenarios amid greater uncertainties and the present investment experts never disclose how they will ensure the existing policy holders will not be worst off.

I support you strongly to ask for old structure as a choice for existing policy holders - otherwise the investment chief must disclose how the policy holders will not be worst off with the new structure not just for the next few years but for the length of the policy life, stating clearly all assumptions objectively.

The greatest disadvantage is to let so high weightage on the surrender year or the death year to decide all the returns of the policy. This is like a lottery and it is completely unfair to those who do not want to gamble! I am too aware that privatisation will only incur initial few years of savings in the case of clean and efficient government but will eventually become a heavy burden for lower middle income earners and below.

If even a 2.13% return cannot be guaranteed for such a long period of investment horizon, I don't know what are they doing. Very sad that even insurance companies are joining the banks in paying less than peanuts as interest.

The fear that new CEO will take NTUC Income closer to the commercial insurance companies in achieving lesser and lesser returns because of higher expense ratio but less effective investment realisations is taking shape.

I am indeed very sad and disappointed that Mr Lim Boon Heng and Mr Yao who also represent the government support the NTUC Income case. Please do not be disheartened by the less than expected response from the policy holders because many do not understand the implications of the new structure - some even may be unaware of the change. I do not know how many policyholders are affected too.

That day I was trying to give you my signature but as I was not tech savy, I failed. Surely I am not the only one and there are still many uncles and aunties who are not very familiar with internet technology.

Mr Tan, I at one time felt that NTUC Fairprice also would be going down to be another Cold Storage, until the rising economic problems facing the mainstream of Singapore saves it. I sincerely hope you could lead us to prevent NTUC Income to become like just another AIA, Prudential, etc to show that NTUC Income has arrived. NTUC Income should distinguish itself from the rest of the insurers by guaranteeing that there will always be a space for a constant consideration to be given to the policyholders in the temptation of 'commercial pyrotechnics'.

Best Regards,
HT

REPLY
Thank you for your letter. I hope that the new CEO and board will continue to uphold the cooperative values and achieve better results to give better value to the policyholders. Give them some time.

Higher risk profile of new bonus structure

Dear Mr. Tan

I attend the annual general meeting of Income. I am quite confused with the statments made by several people in the panel. They said that the bonus restructuring will allow Income to give a better return, compared to the old bonus structure. They also said Income can invest more in equity,but it will not increase the risk profile. How is this possible?

I looked at the table of the asset allocation of the life companies shown in your blog. It seems that companies with high capital adequacy ratios, such as AIA, show have low allocation to equities.

REPLY
I am also quite confused with the statements. The new bonus structure allows Income to invest in a higher proportion in equities to earn a higher yield. I am not sure if this is their intention. This will certainly increase the risk profile.

Asset shares

As more insurance companies move towards distributing more bonus as non-guranteed terminal bonus, it is important to use a method that ensures that the bonuses and cash values are fair to policyholders. This cannot be left to the discretion of the appointed actuary and the board, as the payout to the policyholder may be less than fair amount.

Many companies are now using "asset shares" to determine this payouts. I found that life insurance companies in Malaysia have adopted this concept. It is stated in this webpage:

http://www.liam.org.my/cms/layout/Printer.asp?ProductID=237&catid=13

It seems that Malaysia is ahead of Singapore in adopting this good practice, to ensure that policyholders get fair values on surrender, claim and maturity. It seems that the "asset share" method is well adopted in England, Australia and South Africa.

Management expenses

Dear Mr. Tan,
I want to support your protest against the NTUC bonus cut. The bonus cut is just benefit of the manager only, because the take all the expenses first, spend all first, then only give us back a some small portion.

Thank you for your effort. I don't think you are take credit, like others say. I think you are doing a good thing to us.

KM

REPLY
I have decided to call off the Collective Protest. I will continue to monitor the developments and make sure that the interest of the policyholders are protected. Let us leave it to the board to monitor the management expenses.

Disappointed at the outcome of Collective Protest

Dear Mr. Tan,
I am disappointed that you have withdrawn the Collective Protest. I still do not like the cut in the annual bonus, and the assurance that you have obtained on the special bonus. I begin to distrust life insurance policy, as the bonus can be changed in this manner.
J

REPLY
I understand your disappointment.

The assurances from the chairman, deputy chairman and the former NTUC secretary general is the best that I can get at this time. There is nothing much that can be achieved by moving the Collective Protest to the next stage. I do not wish to drag the matter and cause damage to the reputation of Income. If you do not accept the assurances, you can write directly to the board of Income.

I agree that life insurance policies are unsatisfactory due to the high cost and lack of transparency. For the past year, I have been advising consumers to buy term insurance for the protection and invest their savings in a low cost fund. You can select a fund that suit your risk profile, i.e. low or high risk.

Read this FAQ:
http://www.tankinlian.com/faq/savings.html

Bonus for annuitants

At the annual general meeting of Income, I asked a question about the bonus declared on life annuities. I observed that the bonus were declared to reflect an investment yield of about 5.5%. The actual investment yield earned by the life fund was 7.8% during the past 10 years. It seems to be justified for a higher bonus to be given to the annuitants.

I asked the board to consider this matter for the future, as they have already decided on the bonus declared for the current year.

Debate with Nick Dumbreck about Terminal Bonus

Hi Mr Tan,

I recently read an article by Nick Dumbreck (an independent actuarial consultant engaged by NTUC Income) about terminal bonus. I wish to send the following comments for posting in your blog.

Yew Ming

Nick Dumbreck (ND): "Limiting the build-up of guarantees enables with-profits assets to be invested more freely, with a significant proportion generally being allocated to equities - and in some cases property. These are expected to generate better returns than bonds in the long run. So a higher guarantee may result in a lower payout as compared to a policy with a lower guarantee and greater investment flexibility."

Yew Ming (YM): Let's look at the facts in the public domain. Here are the figures for the par fund in 2006 :

Company   Equity      Capital
        Allocation  Adequacy
AIA        15%         420%
Aviva      20%         320%
GE         26%         190%
Prudential 40%         280%
Income     31%         170%

Note that MAS requires 120% minimum capital ratio. At best, this gives significant amounts of sleep for senior management and their actuarial consultants.

Also, renowned economist Robert Shiller (Irrational Exuberance) has this to say : "The evidence that stocks will always outperform bonds over long time intervals simply does not exist. Moreover, even if history supported this view, we should recognise that the future will not necessarily be like the past"

And lower payouts from reversionary bonus payers (i.e. Income) compared to terminal bonus payers (i.e every other company)? I really doubt this. Income policyholders who have collected his/her policy payouts will know better.

ND: "My experience is that given the choice between a higher expected payout and a lower guaranteed minimum sum on the one hand, and a lower expected payout but a higher guaranteed minimum on the other, most policyholders would opt for the former. Indeed the basic idea behind the with-profits proposition is that guarantees are limited but policyholders participate in any profits which arise."

YM: This is an assumption made by ND about what the customers prefer. I think companies should never assume what customers want.. Simply ask, and you will know the answer.

ND: "Unfortunately it is not practical to accommodate the different aims of individual policyholders. It is for the board to decide, in the interests of policyholders collectively."

YM: How impractical is it to send a letter to the policyholder to ask him/her which bonus structure he/she prefers?

ND: "As yields on long-dated government bonds fell from over 10 per cent per annum at the beginning of the decade to less than 4.5 per cent at the end of 1998, many companies were slow to cut annual bonus rates despite having high exposure to equities in their participating funds. This led to reduced free assets, and several mutual firms were forced to demutualise to restore a satisfactory solvency position."

YM: There is NOTHING wrong with annual/reversionary bonus. The root cause of insolvencies was "companies were SLOW TO CUT annual bonus rates". Maybe because the industry wanted to illustrate high bonuses to compete for new business and targets high growth rates to impress shareholders.

ND: "Onerous benefit guarantees were a big factor behind the closure of Equitable Life, Europe's oldest mutual life company in December 2000. These examples show the importance of addressing the balance between guarantees and providing attractive returns in the long term."

YM: The real reasons for Equitable's failure are found in http://news.bbc.co.uk/2/hi/business/3547441.stm

Quoting the report - "Dubious practices, used by ALL life insurers to varying degrees was to STOP ALLOCATING BONUSES in the form of REVERSIONARY bonuses. These were guaranteed and had to be counted on the life insurer's accounts as a liability. Instead, an increasing LARGE CHUNK of the bonuses allocated to policyholders took the shaper of TERMINAL bonuses. These could be added or cut with impunity and without affecting the company's solvency - even if they did affect the value the customer EXPECTED". Unquote.

I think, the British Courts finally ruled that these terminal bonuses have to be paid, thus critically damaging the Equitable.

Reversionary bonus (after declaration) are guaranteed and thus needs to be actuarially reserved. This imposes discipline on the financial management of the insurance funds. Terminal bonus on the other hand, is an "actuarial sleight of hand". It breeds complacency and gives the senior management a false sense of security.

ND: "Switching to a lower annual bonus and higher final bonus will align to industry best practice, improve investment freedom and make it easier for the insurer to deliver yields to customers. It will also improve the resilience of the participating fund."

YM: The funny thing about "industry best practices" is the industry is often behaving like lemmings.

Quoting Warren Buffet - "the behaviour of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated".

And, we don't need to look far for evidence of lemming-like industry "best practices" e.g. subprime mortgage debacle, tech bubble, the recent global property bubbles, LTCM/Enron blow-up.

I used to view Income's management as standing independent from the sheeples (hybrid of sheeps and people).

Take for example Warren Buffet's description about one of his senior managers at Geico, Louis Simpson : "He derives no pleasure from operating with or against the crowd. He is comfortable following his own reason.".

ND: "In short, both policyholders and the insurer stand to gain from this new bonus structure. The lessons learnt from the UK market serve as a painful reminder of the potential consequences of resisting change in favour of the status quo."

YM: In short, Nick Dumbreck's misleads the uninformed public with THEORY. And we all know, theorectically the recent credit crisis is a 25-sigma event ie happening once every GOOGOLIAN years (1 with 100 zeros behind).

Lastly i wonder what percentage of Singaporean life actuaries invest/save in With-profits-Terminal bonus life insurance? I suggest that the local actuarial institute conduct a survey of this very telling statistic.

Restructuring of bonus

At the annual general meeting of Income, I pointed out that there are three groups of participating policies:

Series EV - introduced in 2007, 2008
Series LP - introduced in 1993
Other series - introduced before 1993

Only the LP series and 1 product under the EV series are subject to the restructuring. Two products under the new EV series are not being restructured.

Income has said earlier that they are not restructuring the other series, because these policies have been issued long ago. I asked the board to review the decision on the two new EV products. Why are they not subject to restructuring?

It is important that policyholders feel that they are being treated fairly and consistently.

NTUC Income - implementing the two objectives

Dear Mr. Tan,

Thank you very much for your effort in organising and representing us in this collective issue. I support your decision. However, would there be any safeguards to ensure that NTUC Income will implement the two objectives.

On another point, as a result of this collective action initiated by yourself, you have a strong following of supporters. May I request that all of us supporters stay together with Mr Tan as our spokesman as an informal group. Perhaps we can be known as the 'NTUC Income Watch Group".

Leon Khor

REPLY
Mr. Lim Boon Heng told me that this Social Enterprise Development Committee will continue to ensure that Income follows it social purpose. I will use this channel to present views on the future implementation of these two objectives.

I intend to write a paper on the use of asset shares as a measure of equitable bonus distribution. This will ensure that the bonus and cash values follow the asset shares. I hope that some actuaries within this group can help me to write this paper.

According to this concept, the insurance company has to calculate the asset share for each policy based on the premiums paid, investment income earned and deducting the expenses and mortality charges. The actual experience is used in the calculation. The insurance company can use the asset share to calculate the annual and terminal bonus payable on the policy. It should pay cash values that are quite close to the asset share of the policy, less a certain margin for its profits.

The chairman of Income has said at the annual general meeting that the board will look after the best interest of the policyholders. We can let him have a benchmark on what is the best interest of policyholders, in terms of sustainable bonuses and cash values.

Collective Protest - Settlement

I met with Mr. Lim Boon Heng and Mr. Matthias Yao today. Mr. Lim is the former secretary general of NTUC and the current chairman of the NTUC Social Enterprise Development Committee. Mr. Yao is the deputy chairman of the board of Income.

Mr. Lim assured me that Income will continue to observe its social purpose and cooperative principles and that his committee will ensure that Income continues to give good value to its policyholders.

I briefed them about the two concerns on the bonus restructure, namely:

1. To have adequate assurance on the payment of the special bonus (as it is not guaranteed)
2. To ensure that policyholders get bonuses and cash values that closely reflect the contribution to the life fund by each policy, based on the actual experience.

Both of them shared the general sentiment. They said that Income will look into ways of implementing these two objectives. This will require some time to be implemented fully.

I asked that Income give an option to the policyholder. Mr. Yao said that this has been considered, and the board has decided against it.

At the annual general meeting of Income, chairman Ng Kee Choe reaffirmed that Income will continue to look after the best interest of its policyholders. He announced three measures to deal with the concerns expressed by policyholders on the restructure of the bonus. His speech will be posted in Income's website.

I believe that these assurances are the best that can be achieved at this stage. We will not be able to achieve more by taking this collective protest to the next stage.

Hence, I have decided to withdraw the Collective Protest and will continue to monitor the developments to ensure that the policyholders interests are protected. I hope that the policyholders who submitted signatures to me will support my decision.

If any policyholder still does not accept these assurances, they can lodge the protest directly with Income.

Where Equitable Life Went Wrong

I invite readers to read this report:
http://news.bbc.co.uk/2/hi/business/3547441.stm

Dubious Practices
One device - used by all life insurers to varying degrees - was to stop allocating bonuses to customers policies in the form of "reversionary bonuses".

These were guaranteed and had to be counted on the life insurers' accounts as a liability.
Instead, an increasingly large chunk of the bonuses allocated to policyholders took the shape of "terminal" or "final" bonuses. These could be added or cut with impunity and without affecting the company's solvency - even if they did affect the value the customer expected.

Equitable never even counted part of these final bonuses as a liability.

It seems that Equitable Life declared high terminal bonuses, but did not count them as a liability. This is one cause of its collapse. The old bonus system adopted by NTUC Income is better. As each year's bonus is declared, it has to be reserved for the policyholders.

NTUC Income is not like Equitable Life

Mr. Tan,

I believe that the 'expert witness", Mr. Nick Dumbrack, engaged by NTUC to give credence to the restructuring bonus has been misled to think that NTUC 's existing bonus structure was "onerous" like the Equitable Life and he claimed that onerous bonus led to the collapse of Equitable life.

Equitable Life's collapse was NOT due to the onerous annual but due to "no annual bonus" and dubious manipulation of the final or special bonus which was 'onerous". This shows Nick Dumbrack's purpose of the ST. article was to mislead the public that NTUC could be in danger of collapse if the bonus structure is not reshaped like all others in the industry. This is half truth.

The appointed actuary, NICK Rhodes, of NTUC between 2002 to 2007 had a different view. Nick Rhodes is a British, I believe, and I am sure he is aware of the Equitable Life 's collapse. He would have warned NTUC if there was danger but then the NTUC's situation was never any where near what was practised by Equitable Life.

His testimony is that NTUC finance was stable and the special bonus was stable and because of this it was different from the rest and could deliver superior products than the other companies. If the structure is changed there will be uncertainty and policyholders will have no inkling of their cash value at any point in time.The special bonus may not be declared even because it forms part of the risky component of the life fund.

The best solution is to allow the options of opting in or out. This is the most equitable path to take.

zhummmeng

My replies to Straits Times and Today

The Straits Times and Today reported on 27 May about the discussion between me and Tan Suee Chieh to seek an amicable solution to the bonus restructure.

These reports were unfair and put me in a bad light, driven mainly by two remarks issued by Tan Suee Chieh:

1. That "my change of tone" was probably due to a better appreciation of issues behind the bonus structure. (This is not the case - and I had told Tan Suee Chieh about it earlier.)

2. That the bonus rates declared in the past years were unsustainable.

This prompted me to write the replies to the Straits times and Today, to correct the unfair and wrong impression. If the reports had been more fair to me and Tan Suee Chieh had not made the unnecessary remarks, I would not have written the replies. I would have preferred a more friendly atmosphere to resolve the issue.

Terminal Bonus cut to nil

Hi Mr. Tan,

You should quote to the press about Z cutting of terminal bonus to 0% somewhere in the early 2000. Sometimes the press is not totally transparent especially when advertising revenue is at stake. Even one of the journalist can be quoted on Z advertisement for a product.

I am surprised that the newspapers did not use Zs cancelling of terminal of bonus as a real example of what can happen and had happened to warn the public about the change of bonus structure.

I was an agent with Z then, I felt that that was downright disgusting, unethical and leaning towards abusive misrepresentation and fraud. I was surprised that MAS actually allowed Z to do that.

I hope you can use this experience to warn policyholder of how vunerable it can be especially when there is no guarantee since the press is reluctant to bring it for fear of losing advertising revenue. I apologise that I cannot identify myself as I still have my friends in Z.

Wishing you the best and thank you for the effort in warning about the repercussions of the change of bonus structure.

Inspire88

My approach towards life insurance

My savings in life insurance policies were made during the past 30 years. I keep these policies, if they continue to give a reasonable yield. I shall be discontinuing the policies that earn less than 3% p.a.

I will not be putting any new investments in a life insurance policy, as the return is poor. I do not like policies that have high terminal bonus, as a large part of the future yield is uncertain, non-transparent and beyond my control.

I am now 60 years old and my children have grown up. I do not need more any life insurance protection. I have a private Shield plan B. This is sufficient for my needs.

Poor return on maturity

Dear Mr. Tan,
May I ask if the non-guaranteed reversionary bonuses are determined by individual insurance company? Are these bonuses declarations subject to MAS regulatory control or are they depend on the “mood” of the insurance company?

I have similar situations with company Y. To our disappointment, the payouts of non guaranteed reversionary bonus for the matured policies (belonging to my wife and me) are grossly reduced to a mere 0.12% of the sum assured, instead of the 0.45% as per point of sales illustration. More unbelieving was the fact that the company declared their overall total assets investment return for 2007 was 5.7% p.a. with fixed income return of 4.9% p.a. and a strong equity portfolio investment return of 8.6%.

We feel that we are not given the fair share of the illustrated payouts of the reversionary bonus during last few years, with the strong performance of the economy and the insurance company in particular. Now, we learnt that the illustrated numbers at the point of sales are no more than a set of empty promised number.

I see no other alternatives, besides writing to the insurance company for clarifications and going to FiDREC to seek redress. Do want to learn from you on how can the interest of the policyholders be protected from the giant insurance company from either “misrepresenting” or “under declaring” their payouts to earn more from us, the commoners.

REPLY
You should write to MAS and ask them to find out the reason from company Y on your behalf. It is the duty of MAS to ensure that the insurance companies treat their policyholders fairly in respect of the declared bonuses for these type of approved products.

MAS now requires the bonus distribution to be decided by the board of directors, on the recommendation of the appointed actuary, and that the process be governed by an "internal governance policy" as set out in MAS 320.

In my view, this does not provide sufficient protection for the interest of consumers. There is a conflict of interest within the board, that represents the shareholders.

I hope that MAS will change the approach. It is better to have an independent actuary, appointed by MAS, to look at the bonus distribution and make sure that they have been declared fairly to consumers.

In the absence of adequate safeguards, it is better for the consumer to avoid investing in life insurance policies. It is better to invest in a low cost investment fund, due to its transparency. The investor will be able to keep most of the investment gains, less the transparent charges.

Tell your family and friends about your bad experience with this insurance company. It will happen, again and again. Tell them to avoid high cost life insurance products, which provides poor value. Most of your investment gains are taken away as expenses and profit, leaving you with a poor return.

A better bonus philosophy

EXTRACTS FROM STATEMENT BY
NICK RHODES, APPOINTED ACTUARY OF INCOME, 2002-2007

Income, as a Cooperative, distributes less to shareholders .... so a variable and high annual bonus can be paid, to the benefit of policyholders.

Income has managed to maintain remarkable stability in its non-guaranteed Terminal Bonus over the years - not even reducing it when STI was down at 1,300.

As a result, in my opinion, the Income bonus philosophy was much better than that adopted by competitors, since the policyholder could predict with greater certainty the value of his policy as it approached maturity.

Other companies have an inferior product - and it would be unfair to policyholders for Income to unnecessarily follow "market norms".

An amicable solution

I discussed with NTUC Income's management to seek an amicable solution that will be in the best interest of policyholders and the reputation of NTUC Income.



Tan Suee Chieh asked me not to appear to "take credit" for getting Income to make some changes. He wanted both parties to appear to "win-win". I agreed.



I am disappointed that he made a statement to the media that I changed my tone after understanding the issues behind the restructuring of the bonus. This is not true. I have told Suee Chieh a few times that I am against the restructuring of the bonus,

Allow policyholders to choose

Some policyholders have asked me to insist that they be given the right to choose between the new and old bonus structure. I hope that this is possible and believe that it is the best option.

If NTUC Income's managment is convinced that the new bonus structure is likely to give a better return to the policyholders, they should be able to convince most policyholders to move to the new structure.

View from Appointed Actuary (2002-2007)

Dear Kin Lian

A high terminal bonus (which some companies suddenly reduced to zero when STI was low in 2002/3) is used by most companies to pass much of the investment risk to policyholders, without giving any significant additional return. If a policyholder wants an investment linked product, he can buy one - a policyholder who buys With Profit wants and deserves a more predictable ultimate claim value.

Stock Companies (i.e. all companies offering With Profits life insurance policies in Singapore, other than Income) are constrained in that their shareholders demand a stable dividend. The amount that can be transferred to Shareholders is limited to 1/9th of the cost of bonus - hence the annual bonus has to be sustainable with a very high degree of confidence, even in extreme financial conditions - and hence has to be low.

Income, as a Cooperative, distributes less to shareholders and is not constrained in this way - the transfer from Par Fund to Shareholders Fund has been no more than 2% of the cost of bonus - so a variable and high annual bonus can be paid, to the benefit of policyholders.

Income has managed to maintain remarkable stability in its non-guaranteed Terminal Bonus over the years - not even reducing it when STI was down at 1,300. As a result, in my opinion, the Income bonus philosophy was much better than that adopted by competitors, since the policyholder could predict with greater certainty the value of his policy as it approached maturity.

Other companies have an inferior product - and it would be unfair to policyholders for Income to unnecessarily follow "market norms".

Nicholas Rhodes,
Appointed Actuary of Income 2002-2007.

Life Annuity Vs CPF-Life

Dear Mr. Tan,
I am 58 and retired. Three years ago, I used my minimum sum to bought a Life Annuity.

With the recently announced CPF-Life, higher MSRA interest, D-Bonus and V-Bonus, is it better for me to:
(a) Terminate the Life Annuity and transfer the money back to CPF RA (to earn the SMRA interest rate and various bonus) or
(b) Retain the Life Annuity and instruct the insurer to postpone the pay-out age from 62 to 65 (to qualify for the V bonus)?

REPLY
The CPF pays an attractive rate of interest on the retirement account, i.e. 4% plus 1% bonus. It also pays the bonus for deferring the payment.

I know of an annuitant who decided to cancel the annuity and transfer the savings back to CPF. He received a good cash value and found the new arrangement to be finacially better.

Perhaps, you should study both options and make the decision, based on the actual figures. You can ask for the actual figures and carry out a cash flow projection over the next 5 or 10 years, to make a better decision.

Buy a life annuity with cash or CPF

Dear Mr. Tan,
I am 58 years old still and is still working. I have a retirement account in my CPF. Should I purchase an annuity using cash or should I use my retirement account?

REPLY
It is better to keep your minimum sum in the CPF as it earns a better return. You can buy the life annuity using cash. Read this FAQ:
http://www.tankinlian.com/faq/seniors.html

Dubious practices in respect of Terminal Bonus

Dear Mr. Tan,
The article "Salutary bonus lessons from the UK" (Straits Times, 28 May 2008) highlighted that "onerous benefit guarantees were a big factor behind the closure of Equitable Life...".

You have raised some good questions on the risks of terminal bonuses. The declaration of unsustainable annual bonuses was indeed a key factor for the collapse of Equitable Life. However, Equitable life also adopted "dubious practices" in respect of "terminal" or "final" bonuses, and failed to set aside adequate technical provisions for terminal bonuses.

These imprudent practices are highlighted in a BBC article entitled "Where Equitable Life went wrong", which provides a more comprehensive picture of the Equitable Life case. http://news.bbc.co.uk/2/hi/business/3547441.stm

SH

REPLY
The bonus rates declared by NTUC Income in the past were sustainable. In the early 1990s, they were calculated based on a long term yield of 6.5%. In the late 1990s and early 200s, there were reduced to reflect a long term yield of 5.25%. The actual yield earned during the past 10 years was 7.8%.

At any point of time, the bonus rates were adjusted (upwards or downwards) to reflect the projected long term yield of the fund. This projected yield is based on the mix of investments that is prudent for the fund.

It is possible for a life company to declare unsustainable bonus rates. For example, if the bonus rates were calculated based on a projected yield of 10% in today's environment in Singapore, it would be considered to be unsustainable.

NTUC Income did not declare unsustainable bonus rates in past years. In fact, it had been quite conservative in calculating the annual bonus. It kept 20% of the each year's bonus aside, to be declared as a special bonus payable on maturity and claim. This helped to provide a safety margin.

Collective Protest - set aside for the time being

I discussed with NTUC Income's management to seek an amicable solution that will be in the best interest of policyholders and the reputation of NTUC Income. I communicated two concerns on behalf of the policyholders:

1. The restucture of the bonus system results in a lower annual bonus distributed yearly to policyholders, to be compensated by a higher rate of special bonus (which is not guaranteed). I ask that there should be satisfactory assurance on the payment of the special bonus on surrenders and claims, so that the policyholders will not lose out on the restructuring of the bonus.

2. In some past years, policyholders received a bonus cut (compared to what was illustrated at the point of sale) when the investment yield was low. As NTUC Income had earned a good yield of 7.8% earned during the past 10 years, I suggest that the shortfall in the bonus for the poor years be restored as early as possible, subject to financial solvency. I pointed out that the actual yield is higher than the projected yield at the point of sale.

To allow more time to find a settlement, I indicated that I will set aside the Collective Protest for the time being. I hope that an amicable solution can be found, so that the protest will not be necessary.

The Straits Times reported that Income had issued a statement that the old bonus structure is unsustainable. I disagree. For policies taken in the earlier years, they were based on a projected yield of 6.5%. For policies issued in the later years, they were based on a projected yield of 5.25%. These were realistic estimates of the future yield made at that time. The actual yield earned over the last 10 years turned out to be higher, at 7.8%.

Under the old bonus system adopted by NTUC Income, the sustainable rate of bonus is not a rate that is fixed. It is a rate that is adjusted from time to time, to reflect any change in the projected yield. If the yield goes up, the rate of bonus is adjusted upwards. If it comes down, it is adjusted downwards.

During the 1970s and 1980s, the bonus rates were adjusted upwards very few years. During the late 1990s, in the low interest rate environment, the bonus rates were adjusted downwards. In recent years, there is a case for the bonus to be adjusted upwards.

I believe that this system is fairer to policyholders and allows them to enjoy a higher vested bonus each year. This increases their cash value and reduces their loss, if they have to terminate the policies in the earlier years.

Tan Suee Chieh said that my change of tone was probably due to a better appreciation of issues behind the bonus structure. This is not the case - and I had told Tan Suee Chieh about it earlier. I had understood the issues earlier and had concerns about the change. My wish now is to find a solution that is in the best interests of the policyholders and the reputation of NTUC Income.

Some policyholders have asked me to insist that they be given the right to choose between the new and old bonus structure. I hope that this is possible and believe that it is the best option.

If NTUC Income's managment is convinced that the new bonus structure is likely to give a better return to the policyholders, they should be able to convince most policyholders to move to the new structure.

Risk of high terminal bonus

Many insurance companies introduce life insurance policies with low annual bonus and high terminal bonus.

If the policyholder surrender the policies before the terminal bonus is payable, usually during the first 20 years, they will get a low cash value. The insurance company makes a big profit.

The policyholder is likely to get a cash value (on surrender) that is lower than the total premiums that was paid. The policyholder usually gets a poor deal and has to bear a high cost for the insurance protection, compared to the alternative of buying a low cost term insurance.

Even if the policyholder is able to wait a long time (say, 20 years or longer) for the terminal bonus to become payable, the policyholder still faces the risk that the terminal bonus (which is not guaranteed) may be reduced in the future. Policyholders of insurance companies have suffered a big loss in payout due to a severe reduction in terminal bonus on a few occasions in past years.

NTUC Income used to declare a high rate of annual bonus from its annual surplus, consistent with the long term yield of the fund. This allows the policy to accumulate a high cash value and reach a breakeven point (i.e. the cash value equals the premiums paid) as early as possible.

As the long term yield changes, the rate of annual bonus is adjusted (usually upwards, but sometimes downwards).

NTUC Income has now decided to change the bonus structure to declare a lower rate of annual bonus and to increase the rate of special bonus. This affects 310,000 policies and is stated to be in line with "industry practice". The bad aspect of this industry practice is that the insurance company can to pay out a lower cash value and make a bigger profit on a surrendered policy - although NTUC Income has stated that this is not their intent.

NTUC Income has said that they will increase the terminal bonus for surrenders and claims, so that the payout to the policyholder will be not less than the old bonus structure.

It is important for each policyholder to know the answers to the following questions:

1. What is the rate of terminal bonus payable on each of their policy for each year from now until the maturity date or for the whole of life. Under this new system, a different rate of terminal bonus will apply for each type of policy, each year of entry, each year of termination and the type of termination (i.e. surrender or claim).

2. Will the rates of terminal bonus be published for all policies, so that each policyholder is able to see not only the rates that will apply to each of his policy but to all other policies as well?

3. How will the rates of terminal bonus be changed in the future, to reflect the change in the long term yield of the fund and to ensure that all the policyholders are treated fairly?

It is important for each policyholder to get sufficient assurance that their interest will be protected by the change in bonus structure. This requires full disclosure of the new rates of terminal bonus and the principles guiding the changes in these rates in the future.

It is best for each policyholder to be given an individual choice of staying with the old bonus structure or move to the new structure.

Investing in unit trusts and shares

I helped my three children to open an account with an online portal to invest in unit trust and a stockbroker to invest in shares. I will transfer some of my shares, REITS and unit trusts to them.

I want them to learn how to manage their own investments. This will encourage them to invest their own savings from their monthly salaries in shares and low cost unit trusts. These products, have low cost and are transparent.

During the visit to the online portal and stockbroker, they are given a hands-on guidance on how to manage their investments through the website. This is their first personal experience on investments.

They will learn how to take care of their investments, instead of relying on advisers who charges high fees that are not properly disclosed to the investor. I want them to avoid investing in high cost investment-linked plans that takes away two years of their savings.

I wish to encourage young people to visit an online portal (i.e. Fundsupermart, DollarDex, POEMS, DBS Vickers) to open an account and learn how to manage your investments through the portal.

I hope that parents with adequate savings, can can transfer some cash or shares to your children to start their personal investment accounts.

Compassionate Fines

Someone once said that Singapore is a “fine” city. We have a fine for littering, a fine for jay-walking, a fine for late payment of taxes, a fine for traffic offences and a fine for paying a fine late.

It is all right to have fines to impose discipline on the people. This is how Singapore gets the reputation of being a clean, orderly and safe city. It has its advantages.

However, in their zeal, the authorities may forget that their manner of imposing the fine can cause additional unintended hardship.

Read more about my article in the Online Citizen.
http://www.theonlinecitizen.com/

Collective Protect - Action

If you wish to send more signature, you can continue to do so. You can mail to me, or send it to kinlian@gmail.com.

You can get the Collective Protest from from: http://www.tankinlian.com/faq/collectiveprotest.html

Duplicative coverage

COMMENT POSTED IN MY BLOG

I have a friend who gave up Medishield because she has company medical benefit.At age 50, she contracted breast cancer, the company medical paid for her treatment. She left her job at 55, and because of her breast cancer, though in remission, she is not able to get a Shield Plan. Now she contracted liver cancer and is not covered by any medical insurance. So whether to insure the Shield Plan when employed with medical benefit or not, is really something to think much harder.
.said

REPLY
The coverage for medical expenses is already provided by the company. The insurance adviser is advising these employees to buy an Enhanced plan (costing $200 or more a year) just to cover the small risk of not getting continuing insurance after leaving a job. This cost is too high for the risk.

Soon, there will be a cheaper way to get this type of protection. For example, the company medical plan can be taken with an insurance company that offers the continuity of cover.

The employees do not have to buy their personal Shield coverage. They can cancel their existing coverage. This will save $200 or more yearly for the employee. The saving can be invested to get additional money for retirement (instead of being wasted on a cover that is mostly unnecessary).

Logic9 (Sudoku)

Sudoku is a popular game. It appears daily in Today paper and in MyPaper. It appears in the Sunday Times.

You can learn the tips of how to solve the Sudoku puzzle at all levels, including the difficult ones, from:
http://www.tankinlian.com/logic9/

Look for Tips to Play Logic9. You can also practice these tips by Play.

This link is also available from the right panel under the heading Logic9 (Sudoku).

Bad experience with insurance advisers

Dear Mr Tan,
I had a bad experience with my previous financial adviser who asked me to buy a expensive policy. I have lapse my policy as I find it too expensive and not practical.

I am a 28 years old, single. I do not want to spend too much in paying for higher premium. I know that Term Insurance is the most ideal. Which is better - Level or Decreasing Term?

My financial adviser recommended me a Term Insurance cover up to age of 65. I will be covered after 65 without paying premium. The premium is about $108.00 per month. The sum assured is $60,000. Is it good?

I have a NTUC M Incomeshield (previous known as MediShield) policy. My current financial adviser has advised me to top up $120 per year to enhance the coverage. I am also covered under my company insurance.

REPLY
It is best for you to ask a few insurance companies to quote to you the premium for term insurance. Read this FAQ:
http://www.tankinlian.com/faq/termd.html

Here are some benchmark rates for your reference:
http://www.tankinlian.com/faq/benchmark.html

The adviser is dishonest. He or she is selling a high cost whole life policy with premium payable up to age 65, and telling you that it is a low cost term insurance. If you buy a decreasing term insurance, you need to pay a much smaller premium.

As you are covered under your company scheme, there is no need for you to buy the enhanced plan.

You can lodge a complaint against these two advisers for giving you bad advice.

Questions on Life Annuity

Dear Sir,
After reading through your website, I have some doubts about the benefits of annuities.

1. Are the monthly payouts inflation proofed? If not S$1 is not worth so much in 20+ years.
2. Are there any tax benefits?
3. Are there any early cancellation costs?
4. How does the return compare with say STI ETF's over 20years?
5. Funds are locked in?
6. What are the exact costs as compared to say holding Equities for the same period?

It seems not to be so easy for the average person to gauge the exact returns over the life of the annuity. In such case only the sweet parts are mentioned to attract allay peoples fears. I would appreciate your view on my comments.

REPLY
My views are expressed in this FAQ:
http://www.tankinlian.com/faq/life.html

Seek a solution to the Bonus Restructure?

I have two rounds of discussion with the management of NTUC Income on the restructure (now called reshaping) of the bonus for 310,000 policies.

NTUC Income's management has assured me that the have the best interest of the policyholders in making this restructure of the bonus and will continue to observe the social purpose of NTUC Income (which they have stated previously). They are also willing to find ways to address the concerns of the policyholders. I have accepted their position on this matter.

I will provide an update within the next few days.

Investing my savings

I am now 60 years old. I have savings from my CPF (taken out at 55 years) and past savings from other sources.

At present, my total savings are invested in the following sources:

1. Foreign currency fixed deposits - 20%
2. REITS (real estate trusts) - 20%
3. Singapore and global shares - 50%
4. Life insurance policies - 10%

My investment in foreign currency fixed deposits earn an interest rate of 7% but is subject to currency risk. The REIT earns a dividend yield of about 5%. The Singapore and global shares earn a yield of about 3%.

All of these investments have risks. However, as I am investing them for 10 to 20 years, I can ride out the volatility in the markets. I hope that the good years will offset the bad years, and give me an average yield of more than 5%. In the case of the foreign currency fixed deposits, I expect the excess interest to offset a potential deprecation of the currency.

My savings in life insurance policies were made during the past 30 years. I keep these policies, if they continue to give a reasonable yield. I shall be discontinuing the policies that earn less than 3% p.a.

I will not be putting any new investments in a life insurance policy, as the return is poor. I do not like policies that have high terminal bonus, as a large part of the future yield is uncertain, non-transparent and beyond my control.

Life insurance up to age 65

1. Is it necessary to take life insurance to cover the whole of life or up to age 65 only?

The primary purpose of life insurance is to protect against the loss of income due to premature death. You should have the protection for the period of your working life. Most people expect to stop work at 65. They need life insurance to cover the loss of income up to that age.

2. What type of life insurance plan is most suitable to provide the coverage?

I prefer a decreasing term insurance or family income insurance as they offers adequate coverage at a low cost. Here are some benchmark premium rates:
http://www.tankinlian.com/faq/benchmark.html

The premium rate is likely to be less than 10% of the cost of a whole life policy providing the same coverage.

3. How do I save for my retirement?

It is best to invest in a low cost investment fund. A low cost fund have an annual expense ratio of less than 1% per annum, with 50% or more invested in equities. The sales charge should be kept less than 2%.

4. Do I need critical illness coverage?

The expenses for treating the critical illness should be covered under a medical insurance poilcy. You can have an addtional cover of (say) one year's salary to cover the loss of income during the period of treatment. This can be covered under a critial illness policy taken up to age 65 and is optional.

5. Do I need life insurance coverage beyond 65 years?

You need an insurance policy to cover the medical expenses. In the past, some people need life insurance to provide money to pay estate duty. With the abolishment of estate duty, this is no longer needed.

6. Can I use life insurance to leave some money for my children?

If you have excess funds, you can buy a whole life policy with premiums paid through a single premium. You should avoid paying premium after your retirement. Make sure that your own needs (to pay your future living expenses) are taken care first, before you think of leaving money for your children.

You should choose an insurance company that gives you a good return on your single premium. Ask a few insurance companies to give you a quotation and compare the yield. You can get the telephone numbers of the insurance companies from this FAQ:
http://www.tankinlian.com/faq/termd.html

Reversionary Bonus

Dear Mr. Tan

I had abstracted out the policy contract for you to vet through hope you can help us.

Bonus (All life and endowment policy from Income)
If the policy is with profit policy, a reversionary Bonus will be added to the policy each year out of the surplus arising from the actuarial valuation of the life assurance fund. The amount of bonus will be determined by our actuary. The Bonus will not vest until two years from the entry date and is paid at the same time as the sum assured.

Bonus (vivolife- New life policy from Income)
This is a participating policy. Bonus when declared will be added to the policy out of the surplus arising from the actuarial valuation of the life assurance fund. The amount of bonus will be recommended by our appointed actuary and approved by our Board of Directors. Bonus will not vest two year from the policy entry date.

Most of the policyholders policy contract are mention in paragraph
1 . A reversionary Bonus will be added to the policy each year out of the surplus arising from the actuarial valuation of the life assurance fund. That mean they should declare the annual bonus in full sum once declared.

Those who brought vivolife policy under paragraph 2 stated that Bonus when declared will be added to the policy out of the surplus arising from the actuarial valuation of the life assurance fund. Reversionary word is missing. It does not mention the bonus will added to the policy each year so it can be reversionary or terminal bonus once declare will be added to the policy.

Hope this piece of information will help you to prepare our case cheers.

JL

Save for a child's education

Hi Mr tan,
I stomped onto your website and I found it really enlightening. I have 2 children aged 2 and 4 years old.. What is your advice on the right investment tool , considering the need to save up for high cost of education in the future and that children do not have any medical insurance? could you advice please. Thanks.

REPLY
My advice is contained in this FAQ:
http://www.tankinlian.com/faq/education.html

It is better to:
1. Save in a low cost investment fund
2. Buy Medishield or other medical insurance to cover your child
3. Have a decreasing term insurance on the parent's life

You can also have a more integrated saving plan, as suggested in this FAQ:
http://www.tankinlian.com/faq/savings.html

Investing retirement savings

Dear Mr Tan,
I wish to invest S$ 200,000 for my retirement savings for 10 to 15 years time. I have studied a few products and found that NTUC Growth policy is the best, giving lowest risk and reasonable return. Could plse give me you expertise advice.

REPLY
Read these FAQs:
http://www.tankinlian.com/faq/returns.html
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/expense.html

I hope that they will help you to make your decision.

Investing your savings - for the young

Hi Mr Tan,

I've just graduated recently. To start planning for my future, I've decided to buy an investment product from a local bank. My projected investment horizon is around 15 years. My risk appetite is low to moderate, and I wish to earn around 5 to 8 % returns on my investment.

I am also looking into foreign currency fixed deposits (FCFD)and in a savings account. I plan to save up to 20% of my income. Some doubts in mind are:

1) Is the rate of returns of 5 to 8% achieveable? Or am I paying too much fees for these funds?

2) Is such spreading of my savings sufficient? I am contributing S$100 per month into this investment product, another S$100 in a savings plan and some money in FCFD.

REPLY
I suggest that you avoid a regular premium ILP as it has high charges.
Read this FAQ:
http://www.tankinlian.com/faq/ilp.html

I hope that this FAQ will give you a better idea on how to invest your savings.
http://www.tankinlian.com/faq/savings.html

Life insurance for a Malaysian

Hi,
I am a Malaysian working in singapore right now. Its is better for me to buy insurance in Malaysia or Singapore. Based on transparency, I believe Singapore give better value instead. Pls advice.

REPLY
It is better for you buy a Term insurance and invest the difference. Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html

You can call these insurance companies to get a quotation on the cost of the term insurance:
http://www.tankinlian.com/faq/termd.html

By separating your insurance protection from your savings, you have the greatest flexibility in the future, in case you decide to work outside of Singapore.

Make hotline simpler for customers

The bank of my DBS credit card showed the customer service line as 1800 111 1111. When I called this hotline, it goes to the DBS Bank main hotline. I have to answer many confusing questions before I can get to the credit card section. I got lost along the way two times. I gave up and called my customer relationship manager.

It is clear that the user of the credit card wants to ask about his credit card. It is better for DBS to give a number that goes straight to the credit card department.

This type of approach is used by many large organisations. I hope that they will change their system to be more customer friendly. Let us talk to the right people, without going through a maze.

I hope that officers of DBS and other orgaisations with similar systems provide this feedback to their management.

Exclusions under a medical insurance policy

Dear Mr Tan,

Some time back, I extended my Shield cover to an enhanced one. Because of my hypertension and diabetes conditions, the enhancement came with an exclusion clause to exclude these two conditions and their sequelae. I understood "sequelae" to mean conditions resulting from, or a consequence of, hytension and diabetes.

I would like to know from your experience that when invoking this exclusion clause, whether the onus should be on the insurance company to provide medical certification to prove cause and effect, ie that hypertension and/or diabetes result in or caused another condition for which an insurance claim is being made under the enhanced policy.

Hypertension and diabetes are generally recognised as risk factors for numerous diseases affecting the heart, kidney, liver etc, But it does not mean the these diseases are automatically a sequelae of hypertension or diabetes as there are also other causes.

If such exclusions are meant to have a blanket cover on such common and widespread disease without evidence of connectivity, then you can imagine how "useless" it is to pay to get insured in a nation-wide medical insurance scheme which is meant to be our main protection in the absence of any public-funded scheme. I hope you can illuminate.

REPLY
I suggest that you ask the insurance company to give their explanation on this matter. You can send it to me after getting that explanation. I shall see if it is a reasonable interpretation.

I believe that the onus of proof is on the insurance company, if they wish to reject a claim due to the exclusion clause.

It is important for an insurance company to provide contractual terms that are clear to the consumer.

Option to stay with the old bonus structure

Dear Mr. Tan,
Just want to thank you for every effort you put in recently to resolve the matter with NTUC Income management. Ideally, I hope that they would grant us to stay on with the old bonus structure, maybe, just to those who had signed to indicate their preference.

At least one thing for sure, after this incident, many people (those who read about it) are cautious when they intend to take up an insurance policy. Nothing is absolute, even the terms are written in black and white. Once again, your effort is appreciated!

FL

MAS Notice 320

MAS has issued a detailed notice governing the distribution of bonus on participating policies. It is shown here:
http://www.mas.gov.sg/resource/legislation_guidelines/insurance/notices/MAS_Notice_320.pdf

I shall be studying the requirements in detail and will post my explanations of the requirements. This will help us make sure that the disclosures by the insurance companies meet the spirt and intent of the notice.

New Benefit Illustration

Life insurance companies are now required to use a new format of Benefit Illustration, based on the projected investment yield of 3.75% and 5.25% per annum. The lower yield of 3.75% reflect the current investment environment, with low yields on bond investments.

Policyholders should be aware that the charges imposed on a life insurance policy to pay for the marketing expenses (e.g. agent commission and sales incentives), administrative expenses and mortality charges (for the life insurance cover) remains to be quite high.

I estimate that the charges can reduce the yield by about 2.5% for an endowment policy and 3.5% by a whole life or critical illness policy.

If the gross yield is 3.75%, the net yield after the charges can be less than 1.5% or 0.5% for a saving over 20 years or longer. If the policy is terminated earlier, the yield will be negative (i.e. the cash value is less than the premiums paid). Read this FAQ:
http://www.tankinlian.com/faq/expense.html

I hope that life insurance companies will reduce their charges and expenses and give a better value to their policyholders under their endowment, whole life or critical illness policies. If you are considering to buy any of these policies, you should ask the insurance adviser to give you the answers to the following questions:
http://www.tankinlian.com/faq/right.html

You should also avoid high cost investment linked policies (ILP), as explained here:
http://www.tankinlian.com/faq/ilp.html

Due to the high charges and low return from a life insurance policy, it is better to buy a low cost term insurance policy and invest your savings in a low cost investment fund, as explained here:
http://www.tankinlian.com/faq/savings.html

Indonesian newspaper writes about life insurance

There was an article in the Kompass newspaper about life insurance. It was written in Indonesian language. My friend translated the key points of the article for me. The journalist wrote these points after interviewing a few consumers:

1. The consumer find the insurance agent to be disturbing their privacy. They keep calling the consumer, when they are no longer welcomed.

2. The consumer finds life insurance products to be complicated and does not understand the explanation by the agent.

3. The agent will keep in close touch with the consumer up to the point of sale. After that, the agent cannot be found.

I was quite surprised at the frankess and independence of the newspaper. They are willing to write a negative report on life insurance, even though it may affect their advertising revenue. My friend said that this paper is highly respected for its journalistic independence.

2006 Earthquake at Jogja

On the way from the airport, I asked the driver how many people were killed during the 2006 earthquake in Jogjakarta. He guessed that it must be 100,000 people, but he was not sure.

I checked Wikipedia. The number is much smaller. The 6.3-magnitude earthquake killed 5,782 people and left some 36,299 persons injured. More than 135,000 houses are damaged, and 600,000 people are homeless.

It is still serious, but the scale is smaller than the Sichuan earthquake in 2008.

Jogjakarta, Indonesia

I stayed in Jogjakarta for the past two days. My last visit was more than 20 years ago, when I also visited Borobodur.

Jogja (the short name of Jogjakarta) is a charming city. All the buildings are less than five stories, as they cannot be taller than the Sultan's palace. There are still many buildings from the colonial era, in Dutch style.

I attended a life insurance event at the Prembanan, which is an old site containing a few Hindu temples. The people are friendly and peaceful. During the 1998 riots in Indonesia, Jogja was peaceful.

The Sultan is also the Governor of Jogja. My Indonesian friend said that he has high integrity. The people respect him very much.

Commodity Prices

Hi Mr. Tan,
I would like to seek your advice on commodity investment during this period. I have bought X commodity fund a few months ago and my gain is around 5%, after paying the 5% sales charge to the bank.

Should I sell off this fund? Should I set a profit target or should I continue monitoring the commodity market and sell it once the commodities prices starts going down?

REPLY
I am not familiar with the timing of commodity prices. I cannot advise you on this matter.

Commodity prices are already at a high level. Some people think that they will go higher due to shortages, high demand, etc. But, there is a risk that it is already over-priced.

In the past, some stock, commodity and property prices have gone beyond their realistic level due to speculative reasons. Remember the dotcom days? When the bubble burst, the investors make a big loss.

Forced to buy other insurance products

Dear Mr. Tan Kin Lian,
I was motivated to write to you as you seem to speak up if an insurance company is doing things that are unfair to their consumers.

My insurance company X recently sent a letter as follows, "We will not renew your Workmen Compensation because you do not have any property insurances with us. If you are interested in insuring other commercial insurance products with us, we will be very willing to assist you."

I called the representative who said that X has decided to stop providing the Workmen Compensation as a standalone product, unless we also buy another commercial property insurance e.g. shop fire or theft. The company was not making money from the Workmen's Compensation, and require a second product as a bundle.

I was very upset as this seems to me that X is trying to force us to buy another product (fire/ theft), knowing full well we are required by law to buy the first product (workmen compensation). The representative said that other insurance companies had adopted this practice as well.

I cannot accept this unfair and unethical practice, especially if the industry players have ganged up to change this.

I wanted to find out if MOM and MAS are aware of and condone this practice. I was directed by a FiDREC officer to call an officer in MAS. The officer insisted that this was just a "bad commercial decision" and MAS cannot interfere.

I find it disappointing that MAS as a regulatory organisation is apparently helpless against bad industry practices. It seems that insurance companies are at liberty to do as they wish. Is there any authority for me to complain to, who will look into this matter?

REPLY
I am sorry that you were not given a satisfactory answer by X, FiDREC or MAS. Do you like to bring this matter up to the newspaper? Maybe, a journalist will be happy to write this story.

In USA, for the classes of insurance that are made compulsory (e.g. motor and worker compensation), the regulator set up a "residual market". Any consumer who is not able to get insurance from the private insurance market can approach the "residual market" to get insurance.

I think that the "residual market" is a better approach, compared to the practice of requiring the consumer to buy another insurance product that may be unnecessary. I hope that MAS will look into this matter.

Bad claim service

Dear Mr Tan,
We are having some problem with X. They have proceeded with the 3rd party claim without our nowledge. We are concerned as it will affect our 50% NCD.

Based on our conversation with the claim officer, they said that the claim was $1,700 ($1,400 for repair, $300 for loss of use) which is ridicoulously high for a minor accident. We requested for the official quotation which has not been provided up to now. In fact we are willing to settle out of our own pocket but was initially advise to wait for IDAC report.

How many days does the 3rd party claim? How long does the repair takes? Why is X so generous in the settlement? I asked these questions through the telephone and have not obtained an answer.

Whose interest is X protecting? By paying a higher claim, they will increase our premium.

Out of our frustration, I told the staff that we might not even consider to continue with X. Not surprisingly she reply "Go Ahead!".

I hope that you will advise other motorist to be aware of such situations. A reputable insurance company may not able to protect your interest but take the opportunity to make more "business" out of someone instead.

May I request what is the procedures X takes on a 3rd party claim? Are they allowed to act without the policyholders acknowledge.

REPLY
I am sending your e-mail to the service quality manager of X. I hope that she will reply to you.

Waiting for the time to buy a property

Mr. Tan,

We just sold our house prior coming to Singapore. We are renting, while waiting for the right time to buy. We have some money in foreign bank (which gives 3.5% fixed deposit) and another 90K sitting in the saving account with almost no interest. I saw the ad in the newspaper from X about emerging market notes, that lock $ 20,000 for 5 years, with 3.3% p.a and give fixed deposit of 2.65%. Do you think this is a good idea? What about unit trust? Which product do you recommend?

After reading some of your articles, I trust you better than agent selling me their products.

REPLY

I am not familiar with this product from X. Normally, I avoid structured products, for the reasons given in this FAQ:
http://www.tankinlian.com/faq/sinvest.html

You can read this FAQ on investment for the long term:
http://www.tankinlian.com/faq/savings.html

For short term investments, you should accept the current low rate of return.

Harrassed over an old case

Hi Mr. Tan
Would be very appreciative if you could advise on the following matter, please.

My wife was involved in a minor accident where her car grazed a pedestrain who was not paying attention when he stepped off the sidewalk at the roundabout a few years ago. My insurer X assessed and accepted that my wife was not at fault (I have on hand various correspondences) and I have been enjoying 50% NCD plus additional NCD protection premium all these past years.

Almost 3 years later, we received a letter from thier lawyer which brusquely requested my wife to go for an interview with the lawyer and bringing all the necessary documents, police reports, pictures etc. These were already provided to X for their assessment earlier. The lawyer warned that failure to comply or cooperate would entitle X to repudiate liability against my wife, leaving my wife personally liable to any damages and costs which may be obtained against her.

Is this the norm for X or their lawyer to go after the policy holder years after they have assessed the policy holder to be not af fault and closed the case?

REPLY
I suggest that you meet with the lawyer and ask this question to the lawyer.

If you feel that you have been unfairly inconvenienced, you can send your feedback to the top management. In the worse case, you can lodge a complain with Fidrec.
http://www.fidrec.com.sg/website/faq.html

Generally, the insurance company should look after the interest of the policyholder and should not give unnecessary trouble and inconvenience to the policyholder.

Collective Protest - Update 25 May 2007

I just returned from a two day visit to Jogjakarata. I cleared through my mail on the Collective Protest. I now have 537 signatures.

It is short of my target of 1,000 signatures, but has passed the half way mark. I wish to thank policyholders who have made the effort to collect the signatures and send them to me.

If you wish to send more signature, you can continue to do so. You can mail to me, or send it to kinlian@gmail.com.

You can get the Collective Protest from from:
http://www.tankinlian.com/faq/collectiveprotest.html

Prefer the old bonus distribution

Dear Mr. Tan

I support the Collective Protest against the restructure of bonus, however it is too late to mail you the form, hopes this helps.

Just few weeks ago newspaper was still advertising about the high return NTUC Income payout in the past few years, I was then seriously considering new policy for both my daughters. It is surprise to know that the bonus policy can change overnight. I sincerely hope that Income can revert back to its old bonus distribution policy.

REPLY
You can still mail the signature form to me. I will use it for a future occasion.

Collective Protest - Action

If you wish to participate in the Collective Protest against the restructure of bonus, please click on this page:
http://www.tankinlian.com/faq/collectiveprotest.html

You have to print the letter and signature form. Please collect as many signatures as possible. Mail it to my address shown in the instruction page, to reach me before 25 May 2008.

Make it easy to pay by bank transfer

Mr. Tan,
When I get my invoices processed, my Accounts department will start processing if I provide an email copy in advance. They still need an original (i.e. signed) invoice before releasing the cheque. I think that this is required as an audit trail.

A direct debit payment (DDA) has to be done through banks. I understand that it is a hassle to arrange with the bank such a payment mode. I think that there are extra charges or delays. For one-time payments, perhaps it's much easier to pay by cheque.

REPLY
We are caught in the old ways of making payments, due to various reasons. Mostly, it is the reluctance to try a new way.

Many people continue to write cheques and mail them. The receipients have to open the envelope and visit the bank to deposit the payment into their account.

In many other "advanced" countries such as Cjhina, the payee instructs the bank to make the transfer to the payor. The bank gives detailed information to the payor about the payment - sufficient for audit trail, etc

I hope that employees of commercial organisations or banks reading my blog will ring this matter up to their bosses.

Low transaction cost

I have a good arrangement with my remisier. He sends a few documents to me daily to keep me updated on the major investment opportunities. If I need information on any company, I send an e-mail to him. He forward it to the research department and give me the information within one day.

I pay 0.3% for each transaction. If it involves $10,000, the brokerage is $30. He keeps about 40% of this fee, i.e. $12. If the trade is $50,000, he earns $60. He also takes care of the paperwork involved in the trade. Although the cost is low, my remisier can look forward to a few trades in each month from each active client.

I hope, one day, that insurance sales can be made as efficient and low cost as trading of shares.

Contact NTUC Income

Dear Mr. Tan
I tried to email my NTUC Income agent regarding to my living policies cash value. However, she has not replied to my mail for a long time. Then I tried to write to xxxxx@income.com.sg, Again, there is no reply. What other email address can I write to for a reply?

REPLY
You can try the service quality officer, sq@income.com.sg

Benefit Illustration

Dear Mr. Tan,

I am given a benefit illustration for a life insurance product. It seems to be quite detailed, long and complicated. Do you have any tips on the important things to watch out for?

REPLY

You should ask the agent to explain the key points to you. You can ask the questions contained in this FAQ:
http://www.tankinlian.com/faq/right.html

Make sure that the agent explain the answers clearly. Do not be shy to ask for clarification, if the point is not clear to you. It is the agent's duty to provide clear explanation.

True cost of life insurance

Dear Mr. Tan

I read several comments in your blog. They seem to suggest that there is such a thing as a high cost life insurance policy, and a low cost policy. How can a consumer tell the difference?

REPLY

You can read this FAQ:
http://www.tankinlian.com/faq/true.html

It explains the true cost of a life insurance policy, as reflected in the reduction in the yield that can be earned from the life fund.

Tunis, Tunisia

What is the difference between Tunis and Tunisia?

Tunis is the capital of Tunisia, a country in North Africa. It is a small country situated between Libya and Algeria. I will be visiting Tunis in June. It will be my first trip to the continent of Africa.

A few countries have a name ending with "sia", e.g. Malaysia, Indonesia, Tunisia, Rhodesia (now Zimbabwe) and Polynesia.

Wealth Accumulator

Dear Mr. Tan
Someone told me that you recommended a product called the "Wealth Accumulator". Can you explain the features of this product, and why it is good?

REPLY
This product is just a concept at this time. It has no front-end load and a low annual fee. It is like an indexed fund. I hope to get a new life insurance company to offer this product in the near future.

You can read more about this product here:
http://www.tankinlian.com/faq/low.html

In the meantime, if you wish to find a low cost investment fund, you can consider any of the following:
http://www.tankinlian.com/faq/lowcost.html