Excessive spread and unfair practice

Dear Kin Lian

I bought a regular ILP (with annual contribution of $5,000) using CPF many years ago. I did not notice that the offer and bid spread is 5% at that time and the agent also did not tell me (otherwise, I will not buy it).

Every year when I contribute the amount using CPF, the insurance company will purchase the unit trust using the offer price and immediately redeem it using the bid price to cover the insurance premium. The insurance company is profiting not only on the insurance premium but also on the bid/offer spread.

Currently, investment of unit trust using CPF, the maximum bid/offer spread is 3%. Is this maximum spread of 3% applicable to existing ILP? If yes, how could I get the insurance company to reduce it? If not, how can I request CPF or MAS to look into this?

REPLY

I suggest that you write a complaint to the Insurance Department of MAS addressing the following two issues:

1. Conduct of the insurance agent in failing to inform you about the spread. However, as this occurred many years ago, you may find it difficult to raise this point now, as you failed to do so during the past years.

2. Unfair charge levied by the insurance company in applying the spread on your premium and enchasing it immediately (after deducting the spread) to pay the expenses and mortality charge. It would have been fairer for the company to separate your premium into two portions (for charges and for investments) and to apply the spread only on the investments. I think that MAS should not condone this practice, which is unfair to consumers.

If you find the charges to be too high, it is best for you to terminate the policy.

Joke: Open a tin of peas

A man called on a married couple whom he had not seen for some time. The door was opened by the woman to whom the man said, "Hello, Mabel, and how is Jack?"

"Oh," she replied, "didn't you know? He died a while ago."

"Well, I am sorry to hear that," the man said, "How did it happen?"

"Well," he informed him, "he went into the garden to pull a cabbage for dinner, when he collapsed and died."

"Dear, dear," said the man, "whatever did you do?"

"Well", she rejoined, "what could we do? We had to open a tin of peas".

Does NTUC Fairprice give good value?

Dear Mr Tan,

I am an avid reader of your enlightening blog. I remember that you once cited that NTUC Fairprice offers the most economical pricings. What is your comment on the article below:

Price chart figures can be misleading
I refer to last Sunday's table titled 'At the shops', which compared the prices of food products in various supermarkets and wet markets in Singapore.

I have issues with the way in which the food prices were presented. At best, the figures require the readers to do some calculations to arrive at the right conclusions. At worst, the numbers mislead the readers into thinking that NTUC FairPrice always offers the most competitive prices.

For example, in citing the prices of kai lan, the table displayed FairPrice's pricing as $1/200g. This works out to $5/kg, which is higher than that in Sheng Siong supermarket ($2.50/kg) and Chung Ling Wet Market ($3/kg).

The comparative prices of cucumber and cai xin were also presented using sometimes different units of measure.

It turned out that in these instances, FairPrice's prices were the least competitive. From the table, it seemed FairPrice offered the most competitive pricing only for a carton of 10 eggs.

Most readers just want a quick look at the comparative prices. This being the case, the way the figures were presented can easily mislead the readers into thinking that FairPrice products are priced the lowest, when that may not be the case.

REPLY
It is a matter of opinion. Generally, Fairprice offers good value. Sheng Siong gives good value as well.

Increase in motor insurance premiums

Motor insurance premiums will continue to increase, until the authority act to prevent inflated claims. The reasons are contained in this letter:
http://www.tankinlian.com/articles/puncturing.html

Laywers and workshops are happy with the current situation, as it gives them a lot of business in litigation and inflated repair cost. The higher cost have to be paid by consumers. This situation will continue, until suitable action is taken.

Joke: class conscious

Henry used to go out with a girl was was very class conscious. He didn't have any class and she was very conscious of it.

Avoid being twisted

A reader of my blog asked my advice about terminating his investment-linked policy. His friend advised him that the policy has a "time bomb" and give a poor return. I learned later that the friend was an insurance agent, trying to sell him a whole life policy with premium payable for 25 years.

The conduct of the insurance agent "friend" is considered to be unethical. This practice is called "twisting" and is to the disadvantage of the customer. The distribution cost of the whole life policy is about two years of the premium, amounting to about $3,000. This is an additional cost to be incurred by the customer in switching the policy.

In the USA, this practice is considered to be illegal. In Singapore, there is a warning in the benefit illustration to warn consumers about "twisting" but many consumers are not aware that they are being "twisted".

Example of low cost investment fund

Hi Mr Tan,
I have been reading your articles and you have been mentioned low cost investment fund, can you state an example of such product on offer currently?

REPLY
REad this FAQ
http://www.tankinlian.com/faq/lowcost.html

I prefer the STI Exchange Traded Fund managed by StateStreet. You can invest in 1000 shares (about $3,000) through the Singapore Exchange SGX.

Churning a policy

Some unethical insurance agents engage in "churning" their policies. They approach their existing clients and tell them that a new and better policy has been introduced. They advise the client to terminate an old policy and take up the a new policy.

The client is not aware that this is to his disadvantage. By taking up the new policy, the client has to incur the upfront charges once again. About two years of the premium is taken away in these charges.

Some insurance agents churn the policies every five years. A client may be churned several times during their working life. The client does not realise that the premiums that they have saved over the years is used up in paying commission to the clients. The client gets a poor or negative return on the savings over the years.

Joke: Can I sell you a policy?

A super genius goes in to see a doctor. "Doc," the genius says, "I think I'm too smart. I'm having trouble even communicating with people because we have no common frame of reference, and it's ruining my social life. Can anything be done?"

The doctor runs a series of tests on the genius, and indeed finds that he is too smart. He says, "Currently, your IQ is 250, which is vastly superior to an average man. This is why your having trouble communicating. I do have a cure, however. I have a machine that will drain away some of your intellegence, leaving you with an IQ of 160. You'll still be a genius, but you should be able to lead a normal life as well."

The genius immediately agrees to the treatment, so the doctor straps him into the machine.Just as the doctor turns on the device, he gets a phone call from his ex-wife. They have a heated phone conversation for several minutes before the doctor remembers his patient. He rushes back, and is shocked when he sees the IQ readout at 75.

The doctor says, "Are you all right?"The former genius just stares blankly.The doctor shakes him, saying "Say Something."

The former genius replies, "Can I interest you in a health insurance policy?"

How does news events influence prices?

How does news events influence the price of equity, bond, US Dollar and Gold? You can learn from this simulation game:

http://www.tankinlian.com/trader/trader.html

Play the game at:
http://www.tankinlian.com/trader

Save for a child's education

Hi Mr Tan,
Reading your blog has been a daily thing to do for me. Thank you for all the advice, interesting info. on places you visit, hot topics and jokes.

My only insurance for my only son (9 years old) is a Life insurance for 150k. As I do not have an education plan for him, I am considering to buy the NTUC PayMyUni insurance for him. The quote is 50k for 15 years, premium at $348 monthly plus 2 riders on hospital benefit and waiver of premium based on my life.

I would like to have your advice if this is a good savings for my son's education cos the premium is quite high monthly.

Maturity return
Projected at 3.75%: $71,440
Projected at 5.25%: $81,692

REPLY
The return from the above education policy is fair. It is not great, but is not bad. If you buy this policy, you should commit for the full term of 15 years.

If you invest $348 monthly to earn 5% per annum (not guaranteed) in a low cost investment fund, you will get a total of $92,300.

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

Understanding Twisting and Churning

http://ezinearticles.com/?Life-Insurance-Fraud---Understanding-Churning-And-Twisting&id=782681

There are two types of life insurance fraud carried out by unscrupulous agents you should be aware of. The two closely related types of insurance scams are known as churning and twisting.
How do those agents carry them out and what do you do if you're a victim? Make sure you know these before you get scammed!

The fraudulent practice of making an insured drain one life insurance policy in other to fund another new policy is called churning. Important information about the full consequence of their action is dishonestly withheld by the agent involved.

Closely related to this is twisting. In twisting the policy holder is tricked to drain funds to buy another policy from another life insurance carrier. Run; don't walk if an agent promises you a new policy that will give you more coverage without increasing your premium. It's a scam so beware!

It's only when they get bills for new premiums that victims find out that something really was wrong. For some it could take up to two years before they find out.

Now is there anything you can do if you've been so scammed? But can a person get more coverage without increasing their premium?

For those who've been scammed there's help and for those who want more for less, there's a way. For those who've been ripped off, you can get help from your state's department of insurance or its equivalent. (In Singapore, you can complain to the Monetary Authority of Singapore).

Just a visit their website and you'll find resources that will help you. You can also call if you prefer that. Many reputable insurance companies will quickly compensate you once it's established that you were a victim of such fraud. You just have to contact their main office directly and not a branch.

Watch out for these scams

Edited from an article in:
http://www.guardian.co.uk/money/2008/aug/23/scamsandfraud.consumeraffairs1

Lesson: Land banking is listed as item #8

1. Phoney jobs
This is usually an "advance fee" fraud where you wire money in the expectation you will get a job, usually one offering substantial money for "part-time work from home". The money transmission may be called a "test". Fraudsters often use the names of legitimate companies and "guarantee" earnings.

2. Racing tipsters
There are many legitimate services trying to predict winners. But there are many scams - danger signals include claims of huge past gains (it's easy to copy the list of winners from yesterday's paper), schemes that "beat the bookies" and "guaranteed tax-free earnings". Others sell software which, they say, will produce winners.

3. Car scams
Why would anyone offer you 30% to 50% more than market price for your car? Because they are scamming you. One version is to give you a phoney "banker's draft" and take your car away. You can't usually claim on your insurance.

4. Spanish lotteries
Millions of letters and emails go out, telling recipients they have won in legitimate lotteries. But those who get the letters can't win as they have never bought a ticket.

That does not stop otherwise sensible people losing their heads - and money. One reader filled in a questionnaire and was soon told he had won a large sum of money in the lottery. He sent money to cover "transfer costs". Then he was told "it was blocked by the Spanish government".

5. Phoney psychics
The only thing these people predict correctly is that vulnerable people will send them cash in response to mail shots which contain a mix of menace - you could die or fall ill if you don't respond - and reassurance such as "you'll be safe and will win on the lottery" if you send off the money for this. These are usually sent by post - often targeted at elderly people whose details are sold and resold.

6. Mail-order brides
This is really sad. Scamsters look for lonely people - usually men - and offer them love on the internet or by post. The "beautiful" women, who often claim to be Eastern European or Asian, don't exist: what victims see are pictures copied from entertainment, fashion or celebrity magazines.

Once smitten, men are asked to send their lovers money for air tickets, cash for "the family" or even amounts to pay off old boyfriends. To keep them interested, the targets may be sent sexy pictures or intimate clothing items. Victims are strung along until they realise they have been stung - or until they run out of money.

6. Boiler rooms
Persuasive salesmen cold call investors and try to persuade them to buy shares or commodities on the promise that "they will double or treble your investment in three to six months".

The sales pitch may have a pinch of truth, but what is on offer is phoney. Investors are often shuttled between "analysts" and "senior analysts" but these titles are meaningless.

The shares are usually in companies that don't exist, while those bets on currency exchange rates or heating oil are never made - often the boiler room tells victims they have quick gains, to encourage them to invest even more.

7. The Nigerian scam
When the "widow" of a former Nigerian dictator emails to ask your help in getting access to the millions that happens to be locked in a bank account, most treat it as a joke. Using various names, this scam has been around for at least 30 years. While the dictator was real, and the fact that those in corrupt regimes stashed away money in offshore banks is not disputed, the widow is a total phoney - as is the promised bank account.

8. Land banking
Here you are persuaded to pay a large sum of money for a tenth of an acre in a field - on the promise the land will soon receive planning permission and soar in value. So far, no land banking site has ever gained the building go-ahead.

Most land sold in this way is green belt or zoned for agricultural use only. But land bankers seize on every government statement about the need for more homes to stress that this means that it is certain that the site they are selling will soon be covered in houses - like almost all scams, this relies on an element of truth.

9. Ostrich farms
Ostrich farms exploited victims who believed that the commodity would profit from rarity. But the same ostrich was sold over and over - and the expected market for ostrich meat never happened. Equally, champagne and scotch firms are quite capable of expanding output ahead of an event such as the millennium. Those who bought champagne at top prices found they had very non-vintage fizz - if anything at all.

Heavy loss on ILP for first two years

Dear Mr Tan,
In September 2006, I bought an Investment-linked policy for $150,000 death, critical illness, and disability. First 2 years, no investment portion, all the money go to insurance coverage. Just recently I realize ILP is a 'time bomb' after read some article about it.

Now our friend recommanded me to stop the ILP and take the loss of $6000. Should I continue with the ILP, by paying the lowest fee till the market recover? I hope that I can recover back my investment in 5 years time. My friend said if I continue with my monthly savings, I will lose more, compare with the loss of $6000 now.

REPLY
Generally, you suffered the upfront cost during the first two years. After that, the charges are not too heavy. So, if you have already paid for more than two years, it is generally better to continue the ILP.

If you find the insurance cost to be too high, you can reduce the coverage. But, you must compare the charges against a term insurance policy.

These are general remarks. I am not able to give you specific advice on your particular matter.

Joke: Cancel the policy on her husband

Steve's barn burned down. Julie, his wife, called the insurance company and said, "We had that barn insured for fifty thousand and I want my money."

"Whoa there, just a minute, Julie, it doesn't work like that. We will assess the value of the building and provide you with a new one of comparable worth." the agent replied.

Julie, after a pause, said, "Well, in that case, I'd like to cancel the policy on my husband."

Cash value boosted by non-guaranteed terminal bonus

Dear Mr. Tan
I am offered a whole life policy with premium of $2,053 payable for 15 years. At the end of 40 years, I get a cash value of $114,000. It represents a reduction of 33% from the accumulated premium of $171,000 (based on 5.25% yield). Is this a good deal?

REPLY
The reduction of 33% appears to be reasonable. I have seen another policy, where the reduction is 46%.

However, I am not sure if you can rely on cash value of $114,000. Some insurance companies show high terminal bonus at the longer duration to make the cash value look attractive. They know that most people do not keep their policies so long. If they terminate the policy earlier, they get a poor return.

Even if the policyholder keep the policy for 40 years, they may find that the insurance company can reduce the cash value, as the terminal bonus is not guaranteed.

Whole life policy with premium for 10 years

Dear Mr. Tan,
I am 24 years and pay a premium of $2,500 for 10 years to be covered for $80,000 for death and critical illness for life. The cash value at 65 is $89,000. Is this a good deal?

REPLY
If you invest the 10 years of premium to earn 5.25% (which is the same rate used by the insurance company to project the bonus, you will get a total amount of $164,000 when you are 65. The cash value of $89,000 represents a reduction of 46% from the amount due to you. I consider a reduction of 46% to be too large and the policy gives you a poor return.

Joke: statements of motor accidents

> I was thrown from my car as it left the road. I was later found in a ditch by some stray cows.

> I had been learning to drive with power steering. I turned the wheel to what I thought was enough and found myself in a different direction going the opposite way.

> I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.

A fair reduction in yield

If you invest $5,000 for 30 years to earn a yield of 5%, you will receive $332,000 on the end of the period. This is an attractive investment, if the average inflation rate during this period is less than 3%.

If you invest in a life insurance product, you are likely to get an estimated yield of about 2.5%, giving $220,000 at the end of the period. The reduction of 2.5% in yield works out to $112,000 or 34% of the maturity sum of $332,000.

The actual cost of the life insurance protection is estimated to be 5% of the maturity sum. The remaining 29% in charges goes to pay commission to the agent and the expenses and profit of the insurance company.

I consider the reduction of 34% in maturity sum or 2.5% in yield to be too high and that the life insurance policy gives a poor deal to consumers.

A fair deduction should be 20% of the maturity sum, instead of 34%. This is used to provide the cost of insurance protection (5%) and the expenses (15%) for marketing and administration.

A reduction of 20% in the maturity sum over 30 years amounts to a reduction in yield of 1.4%. In the above example, the policyholder will get a return of $266,000 instead of $220,000.

Lesson: if the reduction in yield is less than 1.5%, the policy is giving a fair return (as it includes the cost of life insurance protection). If the reduction in yield is more than 1.5%, the policy is giving a poor deal to the consumer.

Joke: statements of motor accidents

> The pedestrian had no idea which way to run as I ran over him.

> I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.

> The indirect cause of the accident was a little guy in a small car with a big mouth.

Real estate site in Singapore

Visitors to this site said that it is the best real estate website that they've come across. They find it easy to search, and benefit from the price trends and transaction data available. This helps them make more informed decisions against real estate agents, especially the unethical ones who are only interested in closing a deal fast, and do not give their clients accurate information.

http://www.streetsine.com/

How to fight inflation

Read these tips:
http://newpaper.asia1.com.sg/columnists/story/0,4136,164027,00.html

http://www.tankinlian.com/drmoney/

Baby Package 2008

We have so much trouble with the cutoff date for the Baby Package. The first cutoff date of 1 January 2009 brought a lot of protest from expecting mothers with babies due to be delivered this year. The revised cutoff date of 17 August produced another group of unhappy parents whose babies arrived earlier this year.

We faced this problem with cutoff date on many occasions during the past 25 years. Each time that new incentives were introduced, many parents felt disadvantaged by being on the wrong side of the cutoff date.

We never learned the lesson. Our birth-rate continued to decline over the years, in spite of the repeated efforts.

I met a Singaporean couple who worked in Perth and had their baby delivered there. The incentives given to parents in Australia are:

> AUD 5,000 on delivery of the baby
> 5 months of paid maternity leave
> An allowance to the mother who stopped work to look after the baby during the first two years
The incentive is simple, compared to our Baby Package introduced in Singapore.

Singapore has the unique system of incentives that differ according to the tax bracket of the parents, the working status of the mother, the birth order of the baby, the date of birth and other factors. We need to read a detailed booklet and to ask for explanation to understand the incentives.

Joke: statements of motor accidents

> An invisible car come out of nowhere, struck my car and vanished.

> I told the police that I was not injured but on removing my hat found that I had a fractured skull.

> I was sure the old fellow would never make it to the other side of the road when I struck him.

Pro-Trader - 200 users

The registered users have passed 200.

The webpage is now shortened:
www.tankinlian.com/trader

Adequate life insurance

Do you have adequate life insurance? Are you buying the right type of life insurance? What is the suitable plan for young people?

Watch this video:
http://www.youtube.com/watch?v=iqaMcde3zgA

500,000 visitors by 11-11-2008

I have 409,000 visitors to my blog now. I estimate that it will reach 500,000 by 11-11-2008, maybe earlier.

Managing Personal Risks

Insurance agents tell customers about the risk of death and gets them to save a lot of money in life insurance policies.

To manage your personal risks, you need to consider the following:

> you need to take care of the risk of "premature death", i.e. death that occurs during your working life (until your children are grown up)
> there is no need for life insurance beyond 65 (as everyone will die one day anyway)
> you need to have sufficient savings for your retirement
> your medical expenses can be covered by Medishield , so critical illness insurance is not necessary.

Too much savings is being spent on whole life and critical illness insurance today, due to advice by insurance agents. The chance of death or a critical illness occurring during the working life is less than 5% or 10%. But, it takes away too much savings and leave behind too little savings being invested for retirement (which is the risk faced by more than 90% of the population.

Many people today have inadequate savings for their retirement, due to bad management of their personal finances. They put too much money in life insurance policies that take away high expenses and give a poor yield on their savings.

To manage your personal finances better, read these FAQs:

http://www.tankinlian.com/faq/fptips.html
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/choice.html

Remember. The insurance agent will give you many other reasons to buy a whole life or critical illness insurance. They must market the product, as they are paid commission on the sales. You can ask the agent how much commission is paid to them. It is stated in the Benefit Illustration. The commission comes from your premium. It does not come from the generosity of the life insurance company.

Joke: statements of motor accidents

> As I approached an intersection a sign suddenly appeared in a place where no stop sign had ever appeared before. I was unable to stop in time to avoid the accident.

> To avoid hitting the bumper of the car in front I struck a pedestrian.

> My car was legally parked as it backed into another vehicle.

New era of shortages

Will the world enter into a new era of shortages? Oil? Food? What will be the impact?

http://newpaper.asia1.com.sg/columnists/story/0,4136,169560,00.html

http://www.tankinlian.com/drmoney/

Financial planning for a young family

Hi Mr. Tan

My husband and I are doing our reviews of our profile. My financial planner recently recommends that we increase our critical illness coverage to at least $125K, via a limited pay term insurance. The two products recommended are Asia Life TM Legacy and NTUC Income Vivolife.

I have read your FAQ and I'm not sure if we should be increasing the critical illness coverage by another $100K. We have two young children, that's also the reason why we want to ensure at least we are sufficiently covered.

REPLY

Both of these products are high cost products that give poor value to the consumer. I advice people to buy a 20 year Level Term insurance, and to invest the difference in a low cost fund.

You can see some examples of the difference in the FAQs in my blog:

www.tankinlian.com/faq
http://www.tankinlian.com/faq/true.html
http://www.tankinlian.com/faq/age65.html

Joke: statements of motor accidents

> In an attempt to kill a fly, I drove into a telephone pole.

> I had been shopping for plants all day and was on my way home. As I reached an intersection a hedge sprang up, obscuring my vision and I did not see the other car.

> I had been driving for forty years when I fell asleep at the wheel and had an accident.

Claim ratios on motor insurance

Are you paying the right premium for your motor insurance? Dr. Money analyses some claim ratios of insurance companies in Singapore:

http://newpaper.asia1.com.sg/columnists/story/0,4136,170194,00.html

http://www.tankinlian.com/drmoney/

Charges of Investment-linked plans

Hi Mr. Tan,

May I know is it that all regular ILP does not invest 100% of our preimum from the 1st mth? Does single premium ILP invest 100% of our preimum?

REPLY

There must be 100 different ILPs in the market. I am not able to tell you the difference in structures between these plans. You should ask the insurance companies.

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

Joke: statements on motor accidents

> I collided with a stationary truck coming the other way.

> The guy was all over the road. I had to swerve a number of times before I hit him.

> I pulled away from the side of the road, glanced at my mother-in-law and headed over the embankment.

Flexi-link and Ideal plans

Hi Mr. Tan,

From the website, I realised NTUC income have Flexi-link policy & Ideal policy. May I know what are the main difference between the two? If I did not understand wrongly, Flexi-Link(Invest in 1 lump sum min. $5000) Ideal (Invest regularly - min. $100/mth)

There are different plans policy under Flexi-Link (IB1/2/3/4) and Ideal (ID1/2/5/6/7). However the differences are not explained clearly in the website. I only managed to found out a table which shows the policy fee and adviser charges of each policy.

Are you familiar with the above policies? Can you explained more to me about the differences of these policies to clear my doubt. Thks.

REPLY
If you have $5,000 to start the initial investment, it is better to invest in the Flexi-Link. You can have regular monthly top-ups. The front-end charge for Flexi-Link is 3.5% for each investment. The annual charge is deducted from the fund and varies from 1% to 1.5% depending on the fund invested.

The Ideal plan is a regular saving plan for people who are not able to make the initial investment of $5,000. The Ideal plan are subject to the same charges as the Flexi-link plan and, in addition, there is a further charge of 15% on the annual premium for 3 years (total of 45%) for ID2 and a different charge for ID7 (only available through the business center).

I suggest that you go to the business center in Bras Basah Road and ask the consultant to explain it the difference to you in detail.

The best choice is Flexi-link (if you have $5,000 to invest) or ID7 (but only available through the business center).

Joke: statements of motor accidents

> Coming home I drove into the wrong house and collided with a tree I don't have.

> The other car collided with mine without giving warning of its intentions.

> I thought my window was down, but I found it was up when I put my head through it.

Depression of the 1930s

Will the world enter into an economic depression? Dr. Money explained what happened during the early 1930s.

http://newpaper.asia1.com.sg/columnists/story/0,4136,171882,00.html

http://www.tankinlian.com/drmoney/

How to avoid scams

Hello, Mr. Tan,

I was approached by an financial consultant offering an investment product called forex phaetorian. This product originated from an investment company in Singapore. It is a 2 years term, capital guaranteed and 12% interest guaranteed payable every six month. The consultant told me that 12% investment return in singapore is very common.


Mr Tan, what do you think? I mean, if it is so good, then the whole of Singapore should know about it and sold out fast. Why do they have to come to Malaysia and sell to us? I was told it is a private placement and not a public offering product.


REPLY

There must be a catch. If something is too good to be true, then it is likely to be a scam. Do not trust any product that appears "too good to be true".

Joke: reduce the probability

An actuary is walking down the corridor when he feels a twinge in his chest. Immediately, he runs to the stairwell and hurls himself down.

His friend, visiting him in the hospital, asks why he did that. The actuary replies, "The chances of having a heart attack and falling down the stairs are much lower than the chances of having a heart attack only."

How to stretch your dollar

Dr. Money writes about how to stretch your dollar with the right type of insurance plan:

http://newpaper.asia1.com.sg/columnists/story/0,4136,172456,00.html

http://www.tankinlian.com/drmoney/

Perfect husband

Several men are in the locker room of a golf club. A cell phone on a bench rings and a man engages the hands free speaker function and begins to talk. Everyone else in the room stops to listen.

MAN: 'Hello'

WOMAN: 'Honey, it's me. Are you at the club?'

MAN: 'Yes'

WOMAN: 'I am at the mall now and found this beautiful leather coat. It's only $1,000. Is it OK if I buy it?'

MAN: 'Sure, go ahead if you like it that much.'

WOMAN: 'I also stopped by the Mercedes dealership and saw the new 2008 models. I saw one I really liked.'

MAN: 'How much?'

WOMAN: '$390,000'

MAN: 'OK, but for that price I want it with all the options.'

WOMAN: 'Great! Oh, and one more thing...the house I wanted last year is back on the market. They're asking $2,950,000' for it.

MAN: 'Well, then go ahead and give them an offer of $2,800,000. They will probably take it. If not, we can go the extra $150,000 if it's really a pretty good price.'

WOMAN: 'OK. I'll see you later! I love you so much!'

MAN: 'Bye! I love you, too.'

The man hangs up. The other men in the locker room are staring at him in astonishment, mouths agape.

He turns and asks: 'Anyone know who this phone belongs to?'

Joke: brother-in-law

Mr. Smith was brought to Mercy Hospital (a Catholic hospital), and taken quickly in for coronary surgery. The operation went well and, as the groggy man regained consciousness, he was reassured by a Sister of Mercy, who was waiting by his bed.

"Mr. Smith, you're going to be just fine," said the nun, gently patting his hand. "We do need to know, however, how you intend to pay for your stay here. Are you covered by insurance?" "No, I'm not," the man whispered hoarsely.

"Then can you pay in cash?" persisted the nun. I'm afraid I cannot, Sister."

"Well, do you have any close relative?" the nun questioned sternly. Just my sister in New Mexico," he volunteered. "But she's a humble spinster nun."

Oh, I must correct you, Mr. Smith. Nuns are not spinsters - they are married to God."

"Wonderful," said Mr. Smith. "In that case, please send the bill to my brother-in-law."

Foreign currency deposit rates

Dear Sir,
Currently the FD rates offered by banks in Singapore are 1% or less. I have just opened an Australian Foreign Currency Fixed Deposit that gives me 7+% per annum.

I have no intention to convert the money back to Singapore Dollars in the forseeable future. the money is kept aside for retirement. Would this be a way for Singaporeans to save. Has interest rates in Australia ever gone down to levels similar to Singapore?

REPLY
I suggest that you ask your bank to give this information to you. They have the past record of currency conversion rates and interest rates.

Avoid whole life policies

Many people are badly advised by insurance agents into buying whole life insurance. Being expensive (compared to term insurance), the consumer has inadequate insurance for their needs.

The agent says that "term insurance will expire after 20 years, and you will not be uninsured at that time".

Many people are unduly concerned about this point. It is largely irrelevant. Most people only need adequate life insurance to cover premature death when their children are young. An insurance period of 20 years is quite adequate to meet this need.

Beyond 20 years, they need to have sufficient savings for their retirement. As a whole life policy provide a poor return, it will not meet this purpose. Many people who invested most of their savings in whole life policies received a poor deal.

I fall into this category. Two of my whole life Living policies have not even reach the breakeven point after more than 10 years. Fortunately for me, they represent only a small part of my total savings.

The return on my two Living policies are far below what is due to me, if my insurance company had distributed bonuses fairly, based on the actual experience of the fund. As these are participating policies, there is an expectation that the insurance company has to act fairly, but they did not. The return on similar policies offered by other insurance companies are probably worse, as they have higher expenses.

It is best to avoid all types of life insurance policies, except for term insurance. Many insurance companies overcharge on their term insurance policies, to push consumers into buying whole life policies. You can compare the premium rates with the benchmark provided in this FAQ:

http://www.tankinlian.com/faq/benchmark.html

If you wait for a few more months, a new life insurance company will be offering term insurance at an attractive rate.

If you have the opportunity, you should join a group insurance scheme, such as a plan offered by SAF, SAFRA or your employer. It does not matter that the term insurance is on a yearly renewable basis.

Whole Life by Limited Premium

Hi Mr. Tan,
I understand that Buy term and invest the rest strategy and I believe this strategy is better, but would it be risky to buy all insurance on term insurance? Shouldn't one buy at least one small whole life insurance to hedge as well as to keep it for life. Term insurance do not cover for life, if so , it would be very expensive as well.

Should the term insurance lapse for any reasons, the person would be without any insurance coverage. Shouldnt one buy one limited whole life payment for WL, like what you did?

REPLY
Limited payment whole life has high expenses and does not give value for money. When the Term insurance expires, you will have sufficient savings (if you have invested the savings) and you do not need life insurance any more.

I bought whole life insurance many years ago, but they are not necessary for me now. I get a poor return on these policies. Some of them have still not reach the breakeven point after more than 10 years. Anyway, they represent only a small part of my total savings, so it does not matter to me.

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

Taxi fare surcharges

Read this letter:
http://www.asiaone.com/Motoring/News/Story/A1Story20071120-37566.html

Read about taxi fares in other cities:
http://www.singaporepublictransport.blogspot.com/

A few weeks ago, Comfort taxi imposed a 30 cent diesel surchage due to higher prices. As fuel prices have dropped 20% during the past few weeks, perhaps they should withdraw the surcharge (which they promised to).

I did some research and found this statement from Comfort. It looks like the diesel surcharge will continue for quite a long time:

http://en.china.cn/content/d343963,7ba501,1912_6577.html

The trend is your friend

When you trade (or invest) in stocks or other market products, it is important to catch the right trend, so that you get a better price. Catching the right price is a skill that is difficult to acquire. You can practice with a simulation game, that is developed to be realistic and close to real life.

http://project.projects.tankinlian.com/trader/

Is this the right time to invest in stocks?

I think that this may be a good time to invest in stocks. The reasons are:

> The last few months of the year are usually good for stocks
> Oil and commodity prices are moderating
> The stock markets have fallen 30% during the past year

Will the global economy recover? Will there be more bad news? On balance, I think that the bad news have probably been discounted.

Taxi fares in other cities

I made a comparsion of taxi fares and service in a few cities:
www.singaporepublictransport.blogspot.com

More cars, so more ERP

Read about the views expressed in the Online Citizen:
http://theonlinecitizen.com/2008/08/more-cars-so-more-erps/#comment-17687

Read about public transport in:
www.singaporepublictransport.blogspot.com

Transfer of shares to family members

The Singapore Exchange allows a shareholder to transfer shares to a family member at a nominal fee of $10 per transfer per share. This arrangement applies only to a transfer to a family member only.

To transfer shares to any other person, the shareholder has to sell the shares through the exchange, and pay the normal fees (which are much higher).

20 year Term Insurance

I advice consumers to buy a 20 year Term Insurance (or 30 year Decreasing Term insurance).

Some people felt that they need whole life insurance. They must have been "sold" this idea by an insurance agent. Here is the reason why a 20 year Term Insurance is suitable for most people:

http://www.youtube.com/watch?v=sGDgYLCpnDo&feature=related

At present, Decreasing Term insurance is not available in the market. It will be available in 2009.

Here are some benchmark premium rates:

http://www.tankinlian.com/faq/benchmark.html

Joke: accurate but totally useless

A skydiver is blown off-course and lands in a tree in a remote area. After dangling from branches for an hour, he spots a hiker walking by. "Excuse me," yells the parachutist, "but could you tell me where I am?"

The hiker looks up and says, "Yes, you're twenty feet above the ground." "Thank you," replies the skydiver, "You must be an Singaporean."

"What makes you say that?" asked the hiker.

The skydiver answered, "Because what you just told me was 100% accurate, but totally worthless!"

Educational videos on Life Insurance

View these videos:

Whole Life vs Term
http://www.youtube.com/watch?v=yQZ1285SkgY&feature=related

Susie Orman – Life Insurance
http://www.youtube.com/watch?v=sGDgYLCpnDo&feature=related

Term vs Cash Value Life Insurance
http://www.youtube.com/watch?v=7zGRDIVKUh4

Ask the right questions

A reader was given a Benefit Illustration for a life insurance policy (PayMyUni). He did not understand the product and asked for my advice.

The Benefit Illustration contained many pages of information. It is quite complicated to read through the details. Most of the information are not relevant to the consumer who has to make the decision.

The consumer should ask a few questions to the financial adviser:

1. What is the amount that I can get back at the end of the term, based on a projected yield of 3.75% and 5.25% p.a. ?

2. What is the amount that I can get by investing the same premium over the same period to earn 4% p.a. ?

If you buy Term insurance (and spend 5% of the premium) and invest the remaining 95% in a low cost investment fund, you should be able to earn a net yield of at least 4% p.a.

The insurance agent will tell you a lot of other information, that are usually irrelevant to your decision. You should not be distracted by the sales talk. You should focus on getting the relevant figures for your decision.

My advice is to avoid all life insurance products sold by insurance agents, as they have high expenses. To save for a child's education, you can follow the tips here:

http://www.tankinlian.com/faq/education.html

Pro-Trader getting to be popular

105 players have now registered to try this application that provides a simulted trading environment:

http://tankinlian.com/trader/

35 players logged in yesterday to play the game. Many of them played a multi-player game to compete against other players.

Save for a child's education

Dear Mr. Tan
I've read your blog and aware of benefit of term insurance (cheaper compare to whole life policy). I intend to buy one term and one education policy for my child. As you were formerly with NTUC Income, you should be able to tell me more about the plan call 'PayMyUni' whether it provide good returns or not.

REPLY
I am not familiar with PayMyUni as it was introduced after I left Income. Usually, I advise people to save for a child education through a low cost investment fund. Read this FAQ:
http://www.tankinlian.com/faq/education.html

Learn the skill of trading of financial products

How does USD or S&P or Treasuries react to news events? Will the price go up or down? You can learn about the behavior by playing this simulated game:

http://project.projects.tankinlian.com/trader/

The simulated game is designed to be as realistic as possible. Each game is different from the previus games, as they are picked randomly from 50 different scenarios.

This game is now available for free for the time being. It will be restricted to paid subscribers at a later date.

Buy Term and Invest the Savings

Hi Mr Tan,
After reading your reply, I decided not to rush into buying a policy. After all the research I had done, I am still kind of lost. I do not know which policy suit me better for my age and my situation.

For your information, I am 20 this year, fresh diploma graduate who had just started my 1st career. I did not buy any insurance previously. Hence this will be the 1st I am buying for myself. Being the bread winner of my family, I think buying an insurance will be safer for me and my family. To me, my concern will be life protection plus some investment which will make my saving grow.

Initially I thought that buying a long term saving plan eg 25years, will be better. I was told that by an insurance company that it will double up by return. The sum of money return was very attractive. However I understand it tied up my money. In case of emergency, I might have financially difficulties. Hence I thought of buying ILP.

However I understand that ILP Will have high charges involved after reading your blog. As u mentioned, by buying a term insurance or decreasing term insurance will be cheaper. Then invest the money in some other investment funds such as uni-trust, bonds, equities etc. The problem is I do not know anything about the share market. I wonder if I am able to invest my money into the right funds. Some banks who I visited, or 1 of the insurance company who I spoke to, offered me regular saving plans or ILP.

No one offered term insurance to me yet. I understand that term insurance had no cash value. Hence I am worry, if I bought a term insurance but end up I do not know how to invest on the investment funds, I might end up buying another ILP. Where do you think I can get more informations about those investment funds? Or is there any ILP or regular saving plan which offer good return with reasonable charges in the market now?

In your advice, is there anything in particular which I should be take note/ beware of before buying any policy? What do you recommend I should do? I also had several doubts which I think maybe you can clarify for me.

1) All policies, regardless whether from bank or insurances companies have yearly policy fee unless otherwise stated?
2) The policy fee had been calculated into our mthly premium or is there additional charges?
3) Does fixed deposit earn better interest and give more flexibility than ILP/saving plan? Appreciate for your time and patient.Hope to hear from you soon.

REPLY
Please read these FAQ:

http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/investown.html
http://www.tankinlian.com/faq/termd.html

Joke: Wrote a check

Mr. John Johnson was a rich old man was dying from a rare disease. On his deathbed, he called for his insurance agent, doctor and preacher:"

I trusted each you my entire life. Now I want to give each of you $30,000 cash in an envelope to put in my grave. I want to take it with me."

Mr. Johnson died and at the funeral, each one placed the envelope on top of the man, then he was laid to rest.

On the way from the funeral, in the limo, the doctor confessed "I must tell you gentlemen, I only put $20,000 on top of Mr. Johnson, I wanted buy this new machine that would enable me to diagnose his rare disease and save others. It's what he would have wanted."

Then the preacher said: "I have to confess, I only put $10,000 on top of Mr. Johnson. We needed that money to help more homeless, and it's what Mr. Johnson would've wanted"

The insurance agent was angry at both the man, and said: "I can't believe both of you, stealing from a dead man. I wrote Mr. Johnson a check for the full $30,000!"

Practice trading with this simulated game

66 people have registered and started to play this simulation game:

http://project.projects.tankinlian.com/trader/

It provides a simulated environment for the user to trade stocks, bonds, US dollar and gold. The prices of these product move according to the news.

You can practice as a single player first. Afterwards, you can compete with other players under the multi-player mode. The auto-game starts within 15 minutes and those players can join in.

Give it a try!

A painful learning experience

Hi Mr. Tan,
Recently, I bought a whole life policy from a particular insurance company. I paid them a year of premiums in advance already. However, 4 months into the policy, after reading your blog and doing some self reading, I decided to end this high cost product early. My agent informed me that I will not be able to get back the future 8 months of premiums that I have paid earlier. What should I do now? Can I complain to FiDREC?

REPLY
I think that you have paid an annual premium under the policy. There is usually no surrender value, if you cancel the policy during the first two or three years. It will be difficult for you to argue that you are entitled to a refund of 8/12 of the annual premium on termination after four months. If you like, you can try FiDREC and see if they agree with you. (Most likely, they will not take up your case).

Hi Mr. Tan,
Thanks a lot for your kind attention and input you have given me. I greatly appreciate it. Please continue with your great work in educating the public about the pitfalls and truth with regards to insurance products. I was also "awakened" to all these after reading your blog and website! Guess i have treat this experience as a painful learning lseeson.

Joke: Let the boss have the first say

A insurance agent, an administration clerk and their manager are walking to lunch when they find an antique oil lamp. They rub it and a genie comes out in a puff of smoke. The Genie says, "I usually only grant three wishes, so I´ll give each of you just one."


"Me first! Me first!" says the admin clerk. "I want to be in the Bahamas, driving a speedboat, without a care in the world." Poof! She´s gone.


In astonishment, "Me next! Me next!" says the sales rep. "I want to be in Hawaii, relaxing on the beach with my personal masseuse, an endless supply of Pina Coladas and the love of my life." Poof! He´s gone."


OK, you´re up," the Genie says to the manager. The manager says, "I want those two back in the office after lunch."


Moral of story: always let your boss have the first say.

Honesty and business ethics

Is your insurance agent honest? Is your insurance company trustworthy? Do they observe ethics? Read about my comments on business ethics in:

http://theonlinecitizen.com/2008/08/business-ethics-%e2%80%93-honesty-while-making-profits/#comment-17387

Effect of Deduction

Dear Sir,

I have an enquiry to make regarding the Effect of Deduction after reading your blog. I took out my policy and I am pretty stunned to see the amount that is written under the effects of deduction.

My annual premium is $3,000 and assuming that I live till 65, it will be a full 44 years. I was 21 when I signed the plan.

Looking at it, Total premium paid is $132,000, total distribution cost is $5468, Non-Guaranteed Cash Value at 5% is 205,600 and at 9% 691,800. Effects of deduction is $882,776. I was not told about the effects of deduction when I signed up the plan and looking at it, I am pretty much being shortchanged for the amount of money that I put in.

Kindly advise on what should I do.

REPLY

You can write a letter of complaint to the deputy managing director in charge of market conduct in MAS, as shown below.
http://app.sgdi.gov.sg/listing_expand.asp?agency_subtype=dept&agency_id=0000008384-

The agent has a duty to disclose and explain this important point to the policyholder. It is shocking that the Effect of Deduction is higher than the Cash Value (assuming an investment yield of 9%).

Pro Trader (Trading of Financial Products)

This website allows you to practice your trading skills:
http://tankinlian.com/trader/

You are given simulated prices for 4 financial products which change in response to economic news. You can buy or sell up to 10 contracts of these products. You will see your gain or loss each second, as the prices change.

You have to register an account and select the single player mode. There are instructions for how to trade. You can play the multi-player game and compete with other players.

All the best.

Opt out of Eldershield

Dear Mr. Tan,
My wife received an "opt out letter on Eldershield" from Great Eastern. She is not a customer of Great Eastern. How did Great Eastern get her particulars? Is it fair to apply "opt out", especially to people who are illiterate?

REPLY

The Ministry of Health makes it mandatory for everyone reaching age 40 to be covered under Eldershield. This is provided under the Eldershield legislation. Although it is compulsory, the insured person has the right to opt out. If they do not opt out, they automatically join the scheme and the premium for Eldershield is deducted from Medisave.

The Ministry divided the people reaching age 40 into three groups and passed them to the three participating insurers, namely Great Easter, Income and Aviva. Your wife is probably in the group that is given to Great Eastern by M of Health. This is how Great Eastern got her particulars.

When Eldershield was first introduced, about 35% of the people opted out, as they found the premium to be too high, relative to the benefits. The opt out rate has fallen (but I do not know the current level today). I have not analysed the premium and benefit recently, so I am not able to give an opinion if it is worth joining Eldershield.

Insurance agent does not tell the truth

Dear Mr. Tan,

I met an insurance agent on the street, and was introduced to their "savings" plan. I read through your website and understand that such a policy is called a regular premium ILP policy, which provides life insurance cover and also an investment portion.

The agent told me about the "percentage that is allocation for investments", which is described as the distribution cost in your website. She did not mention anything about this percentage as being a cost.

I asked her what is the minimum amount and number of years needed for the plan. She said that the life insurance policy portion of the plan will need a minimum amount of $100 per month and take 13-15 years just to break even, and I understand from your website that this means the company has high expenses.

I told her I could buy term insurance and invest the rest in index funds and get better returns based on what I read from newspapers. Also, I told her that I understood that the commission she gets from selling ILP/life insurance policies is more than what she would earn from selling term insurance policies.

She said for the investment portion, the cost is 1-1.5% per annum. I asked her if her commission and other expenses are included, what is the total cost like ?
She said she was unable to tell me the figure.

She then introduced a medical insurance plan which she said enhances cover for Medishield, as its coverage is very low.

I asked her to provide me a copy of the terms and conditions for the earlier ILP Policy and the medical insurance plan. She said she would only provide me the benefits illustration (with terms and conditions) for the medical insurance plan.

Questions:

1) The agent said that the commission she gets from this ILP policy or a term insurance policy is the same (50% in the first year). I did not ask her the percentage for the subsequent years. In the end, she did not introduce any term insurance policy to me (although she said she also sells them) , which I had at least shown some interest in.

Does this mean she is dishonest or does the insurance company earn much more from the ILP policy than the term policy (and she earns the same from both) ?

2) What do you think of this insurance agent ?

3) I had in the past encountered insurance agents from the same company selling this type of ILP policy at least 4-5 times on the street during their roadshows. I understand other companies do sell the same thing too, but they are much less aggressive and seem to organise very few roadshows compared to this particular company.

What is the reason for this ?

This has become very irritating to me, and I would try to avoid this company once I see them from afar.

REPLY

I believe that this agent is dishonest and is not looking after the best interest of the client. Unfortunately, this type of behaviour is typical of most insurance agents from most companies. It is a sad state of affairs.

I hope that clients like you, are willing to write to the MAS and tell them about the real behaviour of insurance agents. If MAS acts against the dishonest agents, it may improve the situation and make the agents more ethical.

Large "effect of deduction" on Living policies

Dear Mr. Tan

I am considering terminating the Living Policy for myself and my husband and buying term insurance instead.

About the effect of deduction, wow, I really didn't know about that until you mentioned it in your blog. And I read again our policies, they really take away such big amount from us! Is this the standard practise? Do other insurance companies do this also?

REPLY

It is true that the Living policy takes away a lot of the premium. But the coverage is wider than a Term policy (unless you buy a Term policy that covers the critical illness as well).

My advice on buying Term insurance applies to a new policy (and not to the termination of an existing policy). Usually, after a policy is taken, I advise people to continue the policy as they have already incurred the high initial expenses. I have two Living policies on my own life as well, which I am continuing.

If you wish to terminate an existing policy, you should look at the yield over the next 5 years. This is explained in this FAQ:

http://www.tankinlian.com/faq/exist.html

The effect of deduction for similar policies sold by other insurance companies is likely to be higher.

Joke: that's not covered

A client calls up his insurance agent and tells him he needs to file a claim.
Agent: “Tell me what happened?”
Client: "This is how it happens ....."
Agent: "I’m sorry but that’s not covered.”
Client: “Well, let me explain better what happened.”
Agent: “I´m sorry but that´s not covered either.”
Client: "I´ll tell you what, you tell me what´s covered and I´ll tell you how it happened!”

Encourage people to use public transport

I find public transport to be quite convenient. But there are ways to improve our bus and train services, so that more people can take public transport. Top priority is an improved feeder service, such as the system used in Hong Kong.

More ideas can be found in:

http://www.singaporepublictransport.blogspot.com/
http://www.tankinlian.com/articles/transport.html
http://www.tankinlian.com/articles/express.html

Regulate selling

It is important to regulate “selling”.

If salesman goes around to sell products, they are likely to make the sale by misleading the customer. The regulation of selling should include the following:

1. The product is inherently fair to consumers (e.g. the manufacturer cannot make false claims)

2. Suitable information is provided to the customer (i.e. the information has to be verified by an expert)

3. The selling process has to meet standards of good conduct.

If the other conditions are not met, the selling should be considered as “touting” and the product should be suspected to be bad for consumers.

Present partial information only

I met a property agent. He was taught to adopt the following approach:

> present the postive aspects of the property to be sold
> tell the negative aspects, only if the buyer ask about them

If the buyer does not ask, then the negative aspect is not disclosed. This is what "professional ethics" is being taught. I consider this approach to be dishonest.

Motor accident reports

The General Insurance Association implemented a new framework to handle motor accidents from 1 July 2008. During the past two months, a total of 33,100 accidents were reported, representing an increase of 35% over the same period last year.

Derek Teo, President of GIA, claimed that the new framework is a success. I wonder how the insurance companies are able to bring down the claim cost, when the number of insurance claims has increased.

I remembered that the framework included roadside assessment by the assessors sent by the insurance company. I wonder if this new measure has been implemented, as it is a major strategy in the new framework to avoid inflated claims.

Happy National Day

Read my wishes for the future in:

http://theonlinecitizen.com/2008/08/we-the-citizens/#comments

Invest in the Exchange Traded Fund

Dear Mr.Tan,

I am new to investing and will like to start investing after getting my bonus next month. I read some of your blogs and the Exchange Traded Funds seems like a good choice. I am interested in investing in ETFs but not familiar with the process. How much do i need to invest in ETFs? Can i do the investment on my own or through a broker? I do not have any trading accounts, do i need to get a trading account first?

REPLY
If you go through a stockbroker, you need about $3000 to buy 1000 shares of ETF.

If you wish to invest in smaller amounts, you can go through Philips Securities. They have a plan to allow you to invest monthly, but they impose a monthly charge. I do not know the details. You can ask Philipps Securities.

Private Shield with Riders

What is the cost of a Private Shield plan, covering medical bills as charged in a private hospital, together with a rider to cover the Deductible and Co-insurance of 10%?

I calculated the total cost from age 30 to 85 to be more than $100,000, based on the premium rates today. If you add the cost beyond age 85, it will be much higher. The premum rates will increase in future years, but the future increase can probably be covered through the interest earned on your savings.

If you wish to have a private Shield plan to cover your expenses in a private hospital, you must have $100,000 in your Medisave account by the time you retire.

Insurance agents advice you to buy a private Shield plan. I hope that they have pointed out to you about the lifetime cost, so that you are well informed.

If you have to set aside $100,000 for your private Shield insurance, how much of that money is actually paid in claims? Based on the figures available from MAS website, the claim payout is 43%. This means that you are paying $100,000 in premium to get $43,000 in claims. Can you afford to give away the additional $57,000 of your savings to the insurance company?

After paying so much in premium, are you worried that your claim may be rejected due to "non-disclosure of pre-existing medical conditions", especially if you were not aware about these conditions? This has happened to many policyholders.

Think about the lifetime cost, if you wish to buy the insurance plan that covers all expenses "as charged". Make sure that you have sufficient money to pay the premium up to age 85 and beyond.

Note: If you take a private Shield plan without the rider, the total cost is $66,000. In this case, you have to pay the Deductible and Co-insurance.

Opening of Beijing Olympics

The Beijing Olympics opening ceremony started at 8:08:08 pm on 8 August 2008. How creative!

The opening ceremony is a combination of:

> modern technology
> art and culture
> discipline and focus of the people.

China can be proud of its remarkable achievements during the past two decades. Many people now forget that China is a Communist controlled country. China has shown that a Communist system can deliver peace, progress and prosperity for its people. I am amazed at the pride and loyalty of the people towards China.

Gracehaven Children's Home

The Salvation Army, Gracehaven Children's Home would like to cordially invite you to join us for a day of fun at our Carnival on 6 September 2008, Saturday, from 10am-6pm. This day has been set aside by the Home to raise funds for the children and young persons residing with us.

The proceeds from the Carnival's targeted amount of $150,000 will go into providing for their educational needs, social and rehabilitative programs.

Your support in every way would be most valuable to us. To join us in this partnership of care, you may support us in any of the following areas below:

1) Sponsorship in cash for the food and drinks for sale, logistical items such as power generators, tentage, fans, tables, games and food stalls, etc.

2) Purchase of carnival coupons. Each coupon is priced at $10 per piece, and it has 5 portions of $2, and a special redemption coupon for your free gift.

Tax exemption receipts can be issued for your donation upon request.

For any enquiries and donation in cash or kind, please feel free to contact our Program Co-ordinators,

- Ms. Goh Kailin at 64881531, email - goh_khai_ling@smm.salvationarmy.org
- Mr. Liu Minjie at 64881700, email - liu_min_jie@smm.salvationarmy.org

Help the low income people

Dear Mr. Tan,
I see many poor people in Singapore. In your opinion, what is the best way to help them? In some countries, certain essential goods are subsidised, but they tend to be abused. Is there a better way to give the help, and prevent abuse?

REPLY
Here are some ways to help the low income people:
1. Pay them an adequate wage
2. Encourage them to save, and help them to get a higher return
3. Help them to avoid debts and paying high interest
4. Keep down the cost of essential goods (but not through a subsidy)
5. Help them to get access to eduation and health care, paid through taxation

Transfer savings into CPF special account

Hi Mr. Tan,

I am contemplating transferring my CPF-OA funds over to CPF-SA to earn more interest.
However, I am concerned that if I transferred too much over, I may not have the minimum OA amount at retirement for withdrawal. Besides this, what other withdrawal restrictions is likely to happen for such a case of large OA-to-SA funds transfer?

REPLY

It is better to transfer to SA to earn higher interest rate. The SA can be withdrawn during your lifetime. If you have excess amount in SA over the minimum sum, the balance can be withdrawn at that time.

Personal insurance

Dear Mr. Tan,

I read that it is important to get a H&S plan althought our employer do cover us ? Since we may not work for the same employer next time. Plus, a H&S plan is more important than a Critical Illness plan ?

REPLY

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

Agent prefer to sell ILP

A, an American living in Singapore, recently bought some properties and was looking for insurance. He turned to his friend, B, who works in the insurance industry, to help him out.

B recommended that A purchases term insurance, either level term or mortgage protection, as the insurance need was to just cover off the mortgages. B drafted a letter up on behalf of A, requesting term quotes to the top 10 insurance companies in Singapore.

A received quotes for unit linked investment plans from all the companies, and some companies stated they didn't sell term, or that they didn't know what "level term" was. A & B decided to follow up with company X, as they had the cheapest quote so far. They were told that "X doesn't offer level term", to which B replied "Yes you do, it's called x-Term". They requested that a senior agent come out and meet with them.

At the meeting, the agent pulled out his laptop and started to show ILP's. Again, A said that he is looking for term. The agent replied that term was not worth his time to do. This would have been the easiest sale in the world, as A was ready to sign on the dotted line right there, no hard sale to do, just fill out the paper work.

They also requested a meeting with company Y. They never showed up, and when they called, they said sorry and never arranged another meeting.

So, A & B decided to get some quotes from the USA, since he's American. The term quotes coming in from the USA, where about 50% cheaper than the quotes from Singapore. Even taking into account that they were for preferred underwriting, and underwriting tests are cheaper in the US, this is a large markup in Singapore. Particularly since Singapore mortality is better than the US!

So the morale of the tale, even if you want to buy term, it is very difficult to do.

Joke: Hazel Wood

After going into Hazel Wood with his girl friend, Fred wrote below the sign which said "Hazel Wood" the words "But Janice wouldn't".

Auction Rate Securities

Citigroup sold auction rate securities to retail investors on the representation that these securities are "cash alternatives". It implies that they are liquid and can be converted to cash at any time. During the credit crisis, there is no liquidity for these securities.

The District Attorney office of New York took up a case on behalf of the retail investors. It negotiated a settlement that require Citigroup to buy back the securities from the retail investors and compensate those who have suffered a loss. Citigroup had to buy back USD $8 billion of these securities.

I wish that our similar action is taken in Singapore on behalf of retail investors that were misled into investing in structured financial products and life insurance products that offer poor value to the investors.

Benefit illustration

Hi Mr. Tan,

I am 20 this year. I had just graduated from diploma and had just starting my first career. Being the breadwinner of the house, I think having a insurance/policy will be safer. I am currently thinking which type of policy should I take. However I am kind of confused. After reading through your website and blog, I get exposed to more information which I neglect previously. However there are still several question which i will like to clarify with you.

Is cash value equivalent to surrender value Where can I fine the cash value in my benefit illustration ? What is gross yield and net yield? Where can I find the gross yield and net yield in my benefit illustration ?

REPLY
Cash value is the same as surrender value. The gross yield is the yield that the insurance company expects to earn by investing your premium. This yield is not guaranteed. The net yield is the yield that you can earn (not guaranteed) after the charges have been deducted by the insurance company.

You should ask the insurance agent to show you these figures in the benefit illustration.

Due to the high charges, a life insurance policy gives a poor yield. It is better to buy a Term insurance and invest the difference in a low cost fund. This is explained in this FAQ:
http://www.tankinlian.com/faq/fptips.html

Insurance for a child

Dear Mr. Tan

I would appreciate if you could advise me on what insurance package/company should I take up for my new born son. I'm overwhelmed by the different insurance packages and companies in the market.

REPLY

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

Joke: The wife wanted to tell it herself

The posh dinner party has been a great success until, over coffee, one of the guest decided to tell a detailed blue joke.

The host was appalled, "This is an outrageious joke. How do you tell this story before my wife!"

The guest replied, "I's sorry. I did not know that you wife wanted to tell this joke herself.

Business ethics

I write about honesty and business ethics in this article:

http://theonlinecitizen.com/2008/08/business-ethics-%e2%80%93-honesty-while-making-profits/#comment-16764

posted in
www.theonline.citizen.com

Profiteering

Source: Wikipedia

Profiteering is a pejorative term for the act of making a profit by methods considered unethical. Business owners may be accused of profiteering when they raise prices during an emergency (especially a war). The term is also applied to businesses that play on political corruption to obtain government contracts.

Some types of profiteering are illegal, such as price fixing syndicates and other anti-competitive behaviour, for example on fuel subsidies (see British Airways price-fixing allegations), or restricted by industry codes of conduct such as aggressive marketing of products in the third world such as baby milk (see Nestlé boycott).

Overcharging

Source: Wikipedia

Overcharge is an economic term that refers to the difference between an observed market price and a price that would have been observed in the absence of collusion. The latter is often called a "but-for price" or a competitive "benchmark price".

When collusion is not in use, such as by privately-owned businesses, overcharge is considered as a markup of the observed market price for the sole profit of the business and in some states is considered illegal, similar to profiteering and price gouging.

An overcharge may be expressed as a mark-up on the benchmark price, or it may be divided by the observed market price. When the benchmark price is equal to the marginal cost of production, as it is in perfect competition, then ratio of the overcharge to market price is the Lerner Index of market power.

When the overcharge is multiplied by the quantity purchased, it becomes the monetary injury or damages incurred by a buyer of goods sold by a cartel.

Touting

Source: Wikipedia

In British English, a tout is any person who solicits business or employment in an importune manner (generally equivalent to a solicitor in American English).

A ticket tout is someone who engages in ticket resale for more than the face value of the ticket. In recent years some British ticket touts have moved into Internet ticket fraud.

According to the American Bar Association, touting is where a person advertises, promotes, or otherwise describes a security for sale without disclosing that the person is being paid to do so.

An example would be a person who frequents heavily touristed areas and presents himself as a tour guide (particularly towards those who do not speak the local language), but operates in on behalf of local bars, restaurant or hotels, being paid to direct tourists towards certain establishments.

In a similar fashion a tout could be someone who, acting upon his own initiative, loads or unloads the baggage from a bus, then demands payment for his services from the passengers.

In gambling parlance, a tout is a person who sells sports betting information to bettors.

Illegal to tout and overcharge

I read a newspaper report that taxis now put up a sign "It is illegal for electronic stores and tailors to tout and overcharge".

What is touting? Are financial products being marketing at MRT stations considered as touting?

What is over-charging? Many financial products have excessive charges that give poor value to consumers.

Will it be illegal for financial institutions (i.e banks and insurance companies) to tout and over-charge for their financial products?

Why only go after electronic stores and tailors, when the overcharging in financial products is 10 times or more?

Investing in Foreign Currency

A few readers have asked my views about investing in AUD due to its recent drop. It is difficult to make a judgement on the trend, due to its volatiity. Even foreign currency traders find it difficult.

Here are some general tips about investing in foreign currencies:
http://www.tankinlian.com/faq/foreign.html

Premium buses

Some people are willing to pay a higher fare to get a better seat in an airplane. They are called first class and business class. We can have the same arrangement for a bus.

Read more about this concept in:
www.singaporepublictransport.blogspot.com

Joke: Passed by the manager

Notice in a foreign hotel: The water in this hotel is hygienic. It has been passed by the manager.

Freely negotiated fees

To: Consumer Association

The Competition Competition has mandated that fees should be freely negotiable. The apply this requirement to doctors and property agents.

The Commission think that this is to the benefit of consumers. It is likely to work the other way. If fees are freely negotiated, and the standard and scope of service is not clearly defined, consumers can be put to a disadvantage. The industry players (i.e. doctors and property agents) are more knowledgeable about the playing field and will be able get away with higher charges, as consumers are not aware about the market.

A better approach is for the Commission to get the industry association to define a few standard services and require the providers to advertise their fees for these services.

I hope that the Consumer Association can look into this matter.

Taxi without driver

Imagine that you can board a taxi that is driven automatically (i.e. without a driver) and take you quickly to your destination, without any traffic congestion.

This is called a PRT. Read about this concept in
www.singaporepublictransport.blogspot.com

Joke: Black or white

The American from Alabama was in a coffee shop of an expensive hotel in London.
Waiter: How do you like your coffee
American: I like it like my woman, strong and sweet.
Waiter: Black or white?

Personal Accident Insurance

Hi Mr. Tan

I currently have SAFRA Essential Term (http://www.income.com.sg/insurance/safraterm/ ) and SAFRA Living Care ( http://www.income.com.sg/insurance/safracare/ ) policies.

Effectively, the two policies cover Death, TPD, the 30 major CI, and hospitalization.

In addition, as a employee of my company, I am covered for basic medical expenses incurred for seeing a doctor.

I have an agent from NTUC trying to sell me personal accident insurance. In your opinion, is there any further benefit to me for taking this up?

REPLY

A personal accident policy is low cost and is useful to supplement the cover under your life policies. If the total sum assured under your life policies is not adequate, you can buy a personal accident policy to supplement the coverage. The annual premium to cover $100,000 should be less than $80 for most occupations.

Key man insurance

Dear Mr. Tan,

My friend bought a Prulink product for himself many years back. The company paid the premium. He is the one of two directors and shareholders of this company. This insurance is purchased under the keyman policy. He is the insured person and the company is named as the owner of the policy.

Unfortunately, my friend met with an accident and is paralysed. The insurance paid out S$800,000. Cheque was issued to the company.

Should this money belong to the company or should it be paid to the insuree? Can this money be held at the company since it was paid by the company and was purhcased as a key-man policy? Or, can this money be construed as gratitous payment to be paid to the family member immediately?

REPLY
It depends on the agreement between your friend and the company. If the company took the policy and pays the premium, the company is the owner. The compnay has an insurable interest in the key man of the company, as the disability of the keyman can cause some loss of profit to the company.

If the company has an agreement with the keyman to pay the proceeds to the keyman or his family, then the payment should be made according to this agreement.

Rights Issue

Dear Mr. Tan

I would like to seek your invaluable adivce on the upcoming rights issue offered by X. Do you think it is a good investment? What actually is a rights issue?

REPLY

If a company wishes to raise additional capital, it offers a rights issue to its existing shareholders. The price is usually lower than the current market price of the shares.

Let me give an example. A company has 10 million shares. It is now trading at $3. The company needs raise an additional $10 million in capital. It decides to issue 5 million shares at $2 to the existing shareholders. Each shareholder is allowed to buy 1 share for every 2 shares that they now own.

Many shareholders will take up the new shares because it is offered at a price ($2) lower than the current market price ($3). After the rights issue have been completed, the share price may drop below $3 due to the dilution of new shares issued at $2.

If the shareholder does not wish to invest in the new shares, the shareholder can sell the rights in the market. The value of the rights depend on supply and demand and is likely to be around $0.30.

I am not able to give an specific comment about the rights issue of X.

Joke: Ring bell with elbow

A: Would you like to come to my house-warming party on Saturday?
B: Where is it
A: 6 Chestnut Drive. Please ring the bell with your elbow.
B: Why can't I ring with my finger?
A: You're not coming empty handed, are you?

Double coverage under Medishield and private Shield

Dear Mr. Tan

Being a old timer with Income, I know that you are always helping the policy holders with your valuable knowledge. I have a problem now and hope that you could give me your advice.

I switched from CPF MediShield to IncomeShield Plan B in year 2002 with the payment deducted from my MediSave account annually.

In Year 2007 I subscribed to Enhanced IncomeShield Rider on top of the IncomeShield Plan B. The Rider's was cash payment as required. In view of saving the MediSave account fund with better interest rate, I changed the payment mode for my IncomeShield to cash payment as well in September 2007. As I was not free to make payment on the due date and Income had comfirmed via email that the payment due date has 30 days' grace period as usual. Hence, I made the payment about 1 or 2 weeks later.

To my surprise, when I got my CPF Statement of Account, I realised that my MediShield had reactivated with the deduction of MediShield payment from my Medisave account. I queried CPF on this and was told that this is the usual practice that when the payment was not made on the due date for IncomeShield the MediShield would be reactivated.

I wish to have your advice of whether this is double insured and whether there is any benefits of more coverage when I make a claim or this is totally overlapping of the same coverage. I heard that now CPF's MediShield has better coverage than other similar plans, hence I don't know whether I should terminate which one to save my unnecessary additional payment.

Could I appeal to Income for the reimbursement of the IncomeShield payment for not informing me this consequences which result to my additional incurred cost.

REPLY

You can ask NTUC Income to help you to sort out this problem. You should NOT pay two premiums for the same coverage. NTUC Income should have notified CPF that you are covered under Incomeshield (by cash) and prevent the re-activation of Medishield.

If this is not possible, you should ask NTUC Income to refund your premium for Incomeshield, in full. It is all right to be insured on Medishield only.

All the best.

Vitamin Account

My friend invested SGD 40,000 in a Vitamin Account offered by a bank. This is a structured product. The total payout for the past 3 years is 4.1%. The current value is 89.5%. The investor lost 6.4% for the past 3 years. During this time, the stockmarket showed a positive gain.

Lesson: Avoid all types of structured product, even if it is capital guaranteed. They are likely to give a poor yield if you keep it to maturity (5 years). If you terminate it before maturity, you are likely to suffer a loss.

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

Cyber Defamation Law

South Korea plans to introduce a Cyber Defamation Law to regulate Internet freedom.

The new law is intended to deal with harmful Internet messages and to improve security and stem false information. It will bring the online medium in line with its tradtional counterparts.

Some measures being proposed are:
1. Suspend sites that go beyond limits
2. Require people posting their comments to use their real names

I believe that these measures are necessary. I have always used my personal name, in posting views on the Internet.

Financial advice

My blog aims to educate the public about financial matters.

I do not give specific advice to any person. If you want advice, you have to find a financial adviser.

You can get information on the list of FAs regulated by MAS by visiting the MAS website at http://www.mas.gov.sg/. under "Financial Institutions Directory".

Here is the specific list:
http://www.mas.gov.sg/fi_directory/index.html

What is a financial planner?

Q4: Does MAS regulate all financial planners? What is the difference between a financial planner and a financial adviser?

A: MAS regulates firms and persons that give advice on investment products to consumers. MAS does not regulate tax and estate planning activities.

Under the FAA, only firms licensed as a FA and firms that are exempt FAs can use the term "financial adviser". This helps you identify whether you are receiving financial advice from an entity regulated by MAS. MAS does not restrict the use of titles such as "financial planner", "financial analyst" or "financial consultant". You should be aware that persons who use such titles may or may not be regulated by MAS. You can get information on the list of FAs regulated by MAS by visiting the MAS website at www.mas.gov.sg. under "Financial Institutions Directory".

This advice, and other useful tips, can be found in this webpage:
http://www.moneysense.gov.sg/publications/guides_publications/Consumer_Portal_FAAGuide.html

Comparing yields on policies taken from two insurers

Dear Mr. Tan

I wish to seek your advice as to whether I am getting a fair share of the maturity sums I obtained from two policies maturing with two different companies.

For a 25 year term endowment policy with sum assured of $15,000 with AIA, I was paid the maturity sum of $30,271.95 which was $5,233.05 short of the projected amount in their original quotation when the policy was first taken up in 1983. On my appeal, they paid a further $2,469.63 making it a total of $32,741.58.

As for the NTUC Income Education Policy with a sum assured of $10,000 for a 20 year term, I was paid the maturity sum of $19,432.50 which was $2,137.50 short of the projected amount in their original quotation first taken up in 1988.

I have appealed to NTUC Income to pay the sum as projected originally but they have rejected this. They did not exercise understanding and flexibility as did AIA.

What I cannot understand is its agents have been telling Singaporeans that they charge lower premium and makes higher payout mainly becaused NTUC Income is a co-operative as against commercial Insurance companies like AIA, Prudential and Great Eastern. Instead, I now find AIA to be more compassionate, understanding and flexible while NTUC Income does not even bother to consider my appeal.

I seek your kind understanding and assistance on this matter. Hope you can advise whether what NTUC Income claims about giving me a better yield as compared to AIA is true.


REPLY

The yield on the AIA policy is 4.69% p.a. (25 years) and the yield on the Income policy s 5.44% (20 years). The yield from Income is better than AIA, although the policy was taken for a shorter period. In both cases, the yield has been satisfactory, as you get more thn 4.5% p.a.

AIA
25 year policy,
Premium: $57 monthly
Maturity benefit: $32,742
Yield 4.69% p.a.

Income
20 year polcy
Premium: $44.30
Maturity benefit: $19433
Yield 5.44% p.a.

Joke: Record your gossip

Frank Smith bought his wife an answerphone. His wife recorded this message, "This is the Smith residence. Unfortunately, Mrs. Smith is out, but you can leave a message. Please start your rumour or gossip after the tone. "