Saturday, February 24, 2007

Take a flexible and transparent loan

My friend, who made an analysis of mortgage loans offered in Singapore told me the following:

* the lender promotes preferential interest rate for the first 3 years, sometimes longer
* in reality, the lender has the right to change the interest rate at any time, even during the first year
* the borrower is typically locked into the contract for 2 years
* the lender can raise the rate above their advertised rate, if the interest rate increases
* if the interest rate falls, the borrower does not enjoy the lower rate during the locked in period
* beyond the lock in period, the lender does not reduce the interest rate, unless the borrower takes the initiative to re-finance the loan

Conclusion: This arrangement works against the borrower. In my view, it is better to take a loan on flexible and transparent terms, even if it is more expensive.

Philips Securities promote i-Term

I received an e-mail from Philips Securities today. They are offering i-Term (low cost term insurance) from NTUC Income. It shows a discount of up to 20% (compared to the rates in the market).

It is easy to buy the i-Term. The transaction can be handled on-line.

My friend said that this new way of marketing is similar to what was described in my "Insurance Company for the 21st century (IC21)".

Actually, my concept goes beyond just the internet marketing. It is a whole new approach.

Read about IC21 in:

A senior couple is interested in part time work

Dear Mr Tan,

I read your recent post in your blog regarding suitable jobs for seniors.

My spouse and myself are both 57 years old this year and are both currently unemployed. We are both secondary 4 educated. We are both hoping to look for some part time jobs to help supplement the family income, as currently, we still have one son studying medical school in NUS, which is quite a drain on the family resources.

Could you please help us and let us know which are these suitable jobs you are talking about? We are willing to learn new skills and take up new challenges for our new jobs.

I thank you for your enthusiasm in trying to help create employment for the seniors.



Dear SH

Please continue to read my blog to find out about work opportunities for senior persons.

The Center for Seniors will be launching its website soon. By that time, you can call the contact center and register your interest. I hope that you and your spouse will be successful in your search for a job. It should be possible, especially if you are prepared to be flexible.

Wish you all the best.

Tan Kin Lian

Lunar New Year Party

I held a party for 120 colleagues of NTUC Income. This will be my last party with them.

Here are some pictures.

The person on the microphone is me. The Chinese character is my name. It means "bright". The little baby (who looks like me) is my grand-daughter, Vera. Her mother is my eldest daughter, Su Ling. Her father is Vitali from Russia.

Friday, February 23, 2007

Kind words from a cooperator friend

Dear Kin Lian

For some reason or other, it is sad that you are departing from NTUC Income.

You have made yourself an icon in the insurance industry – and also in the credit co-operative movement.

Truly, you leave behind a legacy of business transparency, honesty and integrity
- which I hope Singapore and Singaporeans would always be grateful for.

Singaporeans cannot and will not forget your tremendous contributions and exemplary

Although, I have not known you well enough, I have always admired your guts as
well as your forthrightness and firmness - when there was a need for leadership and fairness.

I am sure you will soar further and reach new heights in your new endeavours - because - as Socrates says:-

"No evil can happen,
To a good man,
Either in life,
Or after death."

With my warm wishes always - and all the very best.


Today paper, 'Mr Income' puts his feet up

'Mr Income' puts his feet up
After 30 years with insurance cooperative, the chief calls it a day

Clement Mesenas

FOR once, Chinese New Year was all play and no work for Mr Tan Kin Lian.

Reason: Two days earlier, on Friday, he served his last working day as chief executive officer with the giant insurance cooperative which he helped build over the past 30 years.

Mr Tan, who is perhaps better known as Mr NTUC Income, devoted the holiday to his family and friends. He also threw a party for 120 of his former colleagues. He was very touched when his colleagues presented him with a piece of Chinese calligraphy.

It had one large character, liang, which means "bright, light, enlightened, open and clear". The small characters said, among other things: "You are honest, upright and fair-minded. You are a person of integrity, someone who is fair."

When Mr Tan resigned last September, it was under rather dramatic circumstances and the news sent shockwaves through the insurance industry.

Mr Tan had to call a "very rare midnight meeting" to tell his key managers of his intention to step down before they learnt about it from the media.

In an exclusive interview with Today recently, Mr Tan - when asked why he was moving on - said: "Any decision is never one-sided but has to be in the interests of both sides. Sometimes, preferences diverge - when the shareholders and the board of directors prefer something and I prefer something else. But we don't take arbitrary decisions."

So how did the parting of ways come about?

"We must recognise that in any organisation, there will come a time when somebody will have to decide what is better for the future. It doesn't matter who is right or wrong."

A glistening of the eyes, a catch in the voice, betrayed his sadness at the parting.

But he added: "I am confident that any organisation which acts ethically, and on principles, will find the right way ... It does not have to be my way."

On Mr Tan's last working day, incoming chief executive Tan Suee Chieh paid a glowing tribute to Mr Tan, who helped NTUC Income grow from a fledgling into the largest composite insurance company in Singapore with $17 billion in assets today.

"The many strengths of Income are his legacies to us," said Mr Tan Suee Chieh in an email to Income staff.

Mr Tan's persuasive, consultative ways went down well with many of his staff. "His policies were transparent ... and he was a people person," said a senior employee. Yet there were others who found Mr Tan a tough boss.

In his tribute to Mr Tan, the new CEO said: "He is a man who is well known for his strong and independent views."

Admirable attributes but could they have rubbed some people the wrong way? Nobody's talking.

What of the future? "I will continue to write my blog about insurance, finance and current affairs in Singapore, but in my personal capacity," said Mr Tan.

His topmost plan would be to make insurance affordable to all with his new insurance outfit, IC21. It is built round a software platform which allows customers to deal directly with the company. "No need for agents ... The savings in commissions would be tremendous," said Mr Tan.

At NTUC Income, Mr Tan had set up a Business Centre to allow customers to deal directly with the company. "If he (an agent) were to go out to make the approach to potential clients, he could see two in a week. But if they came to the Centre, he would be able to service two to three customers a day," said Mr Tan. This would increase the volume of business, make insurance more affordable and assure agents of a regular income.

Is the nature of business at NTUC Income set for further changes?

The answer could lie in what a close former associate of Mr Tan told Today: "I remember Mr Tan's advice when I first joined NTUC Income. He told me: A company boss will always say: How much money can I make for it? A coop boss will say: How many jobs can I create and how affordable will the product be to the consumer?"

Center for Seniors

I am the chairman of the Center for Seniors. Someone asked me to post in my blog about the work of this organisation.

Briefly, it is a non-profit organisation. It aims to serve the seniors in Singapore. Some of its key activities are:

* to operate a website and call center, to provide useful information for seniors
* to link seniors to other organisations that provide service and activities for seniors
* to provide guidance on continuing employment
* to help seniors to find suitable jobs
* to provide counselling service on how to cope with aging

The Center for Seniors will set up an office in Junction 8 in Bishan. This is expectd to be ready by April. It receives its funds from the National Council of Social Service and from donations from well-wishers.

I will provide more information in due course.

Goodbye to Uncle Larry

My uncle, Larry Koh, passed away yesterday morning. He was 79 years old. He had not been well for the past few years.

In spite of poor health, uncle Larry has always been a positive, jovial person. I enjoyed my several visits to his home. He was always delighted to see me, and to share with me, his views about current events. He has clear views and he talks convincingly. He is a great communicator.

Two years ago, I took one day of leave to accompany uncle Larry on his MRT journey round Singapore. This was a great way for him to take his exercise and pass his time.

I introduced him to Logic9 (Sudoku). He must have spent hundreds of hours on this game on his PC.

In many respects, I share the same characteristics as my uncle Larry, namely a positive approach and to be convincing. Uncle Larry was my mother's youngest brother.

He told me that, during his younger days, he was able to convince people through the clarity of his views, which he put across with emphasis. He likes to "blow his big trumpet".

This is how the community portal set up by NTUC Income, ie the Big Trumpet, got its name.

I shall miss uncle Larry.

A whole life policy pegged to a child's age

Dear Mr Tan

I hope this email finds you well. I have always been impressed with your personal commitment and dedication towards your career. Cheers to a job well done !!

I am a female Singaporean who has a couple of policies under the NTUC arm.

I have been trying to find out over the last 4 years, but without any success, from your agents as to whether there are any whole life policy for my child, on condition that they are pegged to my child's age at the time of entering into the insurance contract.

I bought a policy for my first child when she was born, but pegged to my age. At that point in time, we didn't have much knowledge about insurance. My 2nd child arrived recently.

With time and wisdom, we now realise that it seriously doesn't make any sense to purchase a policy for a young child pegged to a parent's age.



Dear LH

You can buy a whole life policy pegged to the age of your child. The policy can be in your name as the policyholder, with your child as the life assured. You can transfer the ownership of the policy to your child at any time, but you will only want to do so after your child has started to work.

Tan Kin Lian

Japan has a low birth rate

There is an article in the newspaper today about the low birth rate in Japan.

According to the article, the birth rate improved marginally to 1.26 last year, due to the improving economy. But this was expected to be temporary. The reasons for the low birth rate are similar to Singapore, namely, the uncertainty of jobs, the high cost of raising a child and potential loss of career prospects for working mothers

If I recall correctly, our birth rate in Singapore is around this level.

We have to understand the underlying concerns, and be able to find a bold new way to break out of the problem.

Thursday, February 22, 2007

A larger population of Singaporeans

Singapore has a low birth rate. We are among the fastest aging population in the world. Many families prefer to have fewer children.


They find it too costly to raise children. As jobs are uncertain and the cost of living is high, many people prefer to avoid this financial burden.

How can this be reversed?

We need a new approach. We have to shift the cost of raising a family from the individual to the community. Each person should be allowed to have up to two or three children with the cost being largely financed by the community.

This is the approach adopted in the Scandinavian countries. They have generous benefits for families that have children.

The measures that were adopted in Singapore during the past two decades have failed to produce the desired results. We need to try a new way.

Wednesday, February 21, 2007

Short term interest rate increased in recent years

Short term interest rate have been very low for the five years. During the past year, it has increased significantly.

Here are the rates:

3m SOR 12m SOR 5y SGS
Dec 01 1.3% 1.8% 4.0%
Dec 02 0.9% 1.0% 2.5%
Dec 03 0.8% 1.2% 3.4%
Dec 04 1.5% 1.6% 2.3%
Dec 05 3.3% 3.2% 3.1%
Dec 06 3.6% 3.5% 3.0%

3m SOR - 3 month swap offer rate, ie the rate offered by a bank to another bank
12m SOR - 12 month swap offer rate
5y SGS - 5 year Singapore Government Security

The rate charged by a bank to an individual is usually 1% to 4% higher than the swap rate, depending on the credit risk.

The 3 month rate used to be less than 1.5% p.a. until Dec 2004. It has since increased to 3.6%.

It is now possible to get a fairly good rate of return by investing in the money market (ie you will get swap rate less an expense margin).

Why structured products are not popular in America?

A financial expert told me that structured products are not popular in America. They are hardly sold there.

Here is the reason: In America, you can buy options from the exchange. You only pay a very low fee for the option. The options are fairly priced by the market, and is quite liquid.

The structured products that are sold in Singapore are priced by the issuer, and contain a large profit and expense margin. The final return to the investor, after deducting these margins, are quite poor.

Decreasing term is really affordable

Figures applicable for male, age 30.

If you buy a whole life policy for $200,000 to cover death, disability and 30 dread disease, you pay a monthly premium of $418.50.

If you buy a 30 year decreasing term to cover the same risks, you pay a monthly premium of $29.10. This is only 7% of the whole life premium.

You can invest the remaining 93% (ie $389.40) in a large, well diversified, low charge fund and earn an attractive return.

In 30 years, time, the total saving (with investment gain), and after deducting 5% for expenses, will be more than the sum assured of $200,000.

Assume 4% per annum: $253,000
Assume 6% per annum: $361,000

Stop paying premiums on your whole life policy

If you retire from work and find it difficult to continue to pay the premiums, you can convert the policy into a "paid-up" policy.

After the conversion, you will not be required to pay any more premium. The sum assured under your policy will be reduced (based on an actuarial formula). Any accumulated bonus will continue to be in-force. In most cases, the paid up value is quite attractive.

If you wish to learn about this "paid up" option, you can approach your insurance company.

Based on the quoted paid-up value, you can decide which option is best for you:

* continue to pay the premium
* stop the policy and take out the cash value
* convert into a paid up policy.

My Chinese name, Liang

My colleagues presented a Chinese caligraphy to me as a farewell gift. It contains 1 large character, Liang. It contains a line of 8 characters using my Chinese name.

Here is the explanation:

Liang means bright, light, enlightened, open and clear.

The 8 characters is translated to:

You are admired for your contribution towards the cooperative movement, policyholders and the country at large. You are honest, upright and fair minded. You are a person of integrity, someone who is fair.

I am very touched by these words from my colleagues.

Does car insurance policy cover car pooling?

Dear Mr Tan.

I wish to compliment you for the many interesting topics and tips.

Regarding your comments on car-pooling and payment of $2 per trip, would this not constitute using one's private car for business?. Will the insurance cover any accidents occuring during such trips?



Dear LL

The payment of $2 per trip is considered as sharing the expenses of the car. In fact, the actual expenses is much higher, so a higher payment is justified. It does not constitute using the private car for business.

I believe that NTUC Income's insurance policy will cover this situation. I will ask the head of motor insurance to confirm it.

Tan Kin Lian


The private car insurance policy issue by NTUC Income covers use of the Insured car for social domestic and pleasure purpose and in connection with the Policyholder's business or profession.

The car-pooling with a small payment of $2.00 will be covered under our private car policy.

Eddie Loke
Head, Motor Department
NTUC Income

Learn how to use public transport

A young man came to my house to collect some part time work from me.

He took the MRT to Yio Chu Kang station and a taxi to my home. He was not familiar with the bus service 70.

I advised him, in future, to ask people for direction. Someone will be able to tell him which bus to take, and where to take it.

Let us learn about public transport.

Valuing their labour

A few days ago, I posted my views about the low fertility rate in Singapore.

In today's Today paper, there is an article by Thomas Koshy on "Valuing Their Labour". He suggested that it is better for the government to pay the maternity benefit in full, instead of asking the employer to pay for the first two months. Alternatively, the total cost can be spread across all employers by a levy, (instead of being borne by the current employer).

I agree with this point of view. It is better for the cost of maternity benefit to be borne by the government (through taxes) or by all employers through a levy. This will remove the pressure against female employees having children.

My proposal to raise the fertility rate in Singapore will go one step further. I shall cover it in a separate posting.

Tuesday, February 20, 2007

Workfare Bonus

The workfare bonus is an excellent idea. It supplements the earnings of the older workers and encourages more people to work.

I wish to suggest two improvements to the current scheme:

* remove the requirement on annual value of the home
* pay the supplement monthly into the CPF account.

Here are my reasons.

If an older person works for a low income, he is likely to be in financial need. There is no need to check the type of house that he lives in, and whether he owns or rents the home. Let us also help those who are "asset rich and cash poor" to earn a supplementary income.

In many countries, older people receive a pension, and are not required to meet any means test. In our case, the older person has to work to receive a modest supplement (less than $100 a month). Let us not make it too difficult for them.

If the supplement is paid monthly, the employer can include it as part of the pay package and communicate it to the older worker. It will also encourage more employers to create jobs for older workers.

Risk is to your advantage

Hi Mr Tan,

Someone told me that you coin the term "Risk is to your advantage". Can you explain this concept?


My reply:

The global stockmarket goes in cycles. You have some good years and some bad years. Over a long period, the return is averages about 6% to 10% per annum.

If you hit a bad year, the prices may go down by up to 30% below the trend line. This is a bad time to sell. You should wait for the market to recover. It will usually take one or two years, but may be longer.

In a bullish year, the prices may go up 30% above the trend line. This is a good time to realise your gains. In this case, you can get a much better return than average. It is also all right to keep fully invested in a bull year, as it may go higher.

If you are investing your money for the long term, you can wait for the right time to realise your investment. This is how you can turn risk (or volatility in the price) to your advantage.

I treat all the lanes fairly

Each week, I run 8 rounds the track in Yio Chu Kang stadium. I run each round on a different lane, starting from lane 1 to lane 8. I treat all the lanes fairly. I do not expect lane 1 (which is the shortest) to take the entire load and be runned 8 times.

Note: This is intended to be a joke, so please laugh!

Difference in terms used in American and Singapore

In Singapore, we park our car in a "parking lot" in a car park. In America, the "lot" refers to the entire area to park many cars. The car is parked in a "space".

In Singapore, we have 8 running "tracks" in a stadium. In America, there have one track with 8 "lanes".

My American friend was confused when I refer to track 1 to track 8 in the stadium. He said there is only 1 track with 8 lanes.

Monday, February 19, 2007

Better to buy term and invest the difference

Dear Mr Tan,

In December 2002 (@ age 35), I brought a life insurance policy from an insurance company which paid a monthly premium of S$96.50. The benefits are:

- Death or TPD coverage, S$25,000.
- if surrender at age of 65, based on the Benefit Illustration (Nov 2002), will receive a lump sum of approximately S$50,000 (Non Guaranteed).

What are your comments about this policy?



Dear WC

If you get a return of $50000 at age 65 (after 30 years), you are getting a yield of 2.88%. This is not too bad, but I think that the return from a similar product from NTUC Income should be better. I do not have the figure, but you can ask the business center in NTUC Income to give you a quotation.

You can call them at 6510 2860. See

I prefer to buy a decreasing term assurance and invest the difference in a large, well diversified, low cost fund. You can read about the i-term and ideal plan in

The cost of the decreasing term should be less than 10% of your premium. If you invest the remaining 90% (ie $1,042 a year), you may be able to get the following amount at the end of 30 years:

Assume an average return of 4% per annum: amount at end of 30 years: $60,700
Assume an average return of 6% per annum: amount at end of 30 years: $87,300

Note: these projections are not guaranteed.

Wish you the best for the Lunar New Year

Tan Kin Lian

An honest investment banker

I met an honest investment banker during the Chinese New Year holiday. His colleagues in the firm design structured products to be sold to retail customers.

He strongly felt that it is not a suitable product for retail investors. The product was designed to make profit for the issuing bank. The customer is likely to get a poor return on the maturity of the product, quite likely to be less than bank deposit.

The customers are attracted to the capital guarantee, but they do not realise that they are giving up a lot of the potential gain.

He said that the issuing banks made million of dollars on these products, but they are at the expense of the retail customers.

He advised many of his personal friends not to invest in these products. It is better to invest in the stocks directly and take the investment risk. If not, they should just invest in bonds and get a fixed rate of interest.

My wife's cousin migrated to Australia

During the Lunar New Year holiday, I met my wife's cousin who migrated to Australia 3 years ago. He and his family is now operating a farm to rear crabs and fish. They have good demand and good prices from Australia and overseas.

They get land and technical assistance from the Australian government. This is hard work which the local Australians are not interested.

Another cousin and a group of friends are joining him to expand the business. They will bring capital into Australia, but are also prepared to do the hard work to make a living. They do not intend to employ any workers, as labour is expensive.

Is private banking anything special

In today's New Paper, Dr Money tells about his experience in visiting a private banker with his friend.

They were introduced to an investment product that earned a return of 39 percent in 2006. This product is to issue structured products to be sold to retail customers in the bank. The issuer is able to earn such a high return, because the retail purchasers of the structured products get a poor return.

To find out more, you should read the New Paper, Monday 19 February.

Many people have learned from their personal experience that the structured products offered a poor return. Now we know the reason. The product issuer made an average return of 39 percent, taken from the reduced return of the retail customers.

Advice: Do not invest in structured products.

Use a short word

Here are some commonly used long words. You can click on my comments to find the short words that mean the same:

1. as a consequence of
2. as of the date of
3. at the present time
4. costs the sum of
5. despite the fact that
6. due to the fact that
7. during which time
8. for the duration of
9. for the purpose of
10. give consideration to
11. in the majority of instances
12. in the neighbourhood of
13. in view of the fact that
14. is in accordance with
15. on numerous occasions
16. the question as to whether
17. with the minimum of delay
18. you are required to

The long words are from "old English". They are still used often in legal documents and business correspondence.

Why do my agents say that my insurance is not enough?

Hi Mr Tan

I came across your blog from the eNN Neighbourhood News & would like to get a neutral party's opinion from you.

I'm 50 years old & semi retired with an income of between $1,600 to $2,000, but I'm paying $880 for my monthly insurance cum investment. I find this difficult to maintain and it has become a burden to me. My 2 agents from 2 different insurance companies told me that I do not have enough coverage.

Here are my coverage. (details removed)

With 9 different insurance & investments, I wonder why my coverage & savings are not enough???



Dear C

Your two advisers tell you that your insurance is not enough, so they can sell more insurance to you. They earn commission on the additional insurance. They are not really looking after your interest.

You should consider your insurance needs in the following aspects:

* how much do you and your dependent need, if your income stops now due to death or permanent disability?
* how much do you need to save for your future needs, ie when you retire

To provide the protection benefit (ie payable on death or disability), it is best to buy a low cost term insurance. To save for the future, it is best to have in a flexible savings plan invested in a large, well diversified, low cost fund. You can read about the i-term and ideal plan in

If you wish to see a salaried consultant who can give advice to you without being motivated by the commission, you can visit the business center of NTUC Income at Bras Basah Road.

For your existing policies, you can stop the saving on the plans without incurring any penalty. The consultant should be able to help you make this decision.

Tan Kin Lian

Sunday, February 18, 2007

Buy term and invest the difference

Dear Mr Tan,

I obtained the following quotation from an Income agent.

* Living policy to cover $200,000: monthly premium $404.00
* Decreasing term (extended to cover dread disease) for $200,000 for 35 years: monthly premium $76.40.
* Difference is $327.60

You advised me to invest the difference in a large, well diversified, low cost fund. But the return of 6% per annum is not guaranteed? There will be no protection after 65 years old? Do we need not to consider that?



Dear KS

If you invest the difference of $327.60 for 35 years, you will get the following:

Assuming average return of 6% per annum: total after 35 years is $451,000
Assuming average return of 4% per annum: total after 35 years is $295,000

If your savings accumulate to $451,000 at the end of 35 years, you will not need to have any insurance cover. Anyway, I suspect that the sum assured and bonus under living policy will be lower than $451,000 at that time. The cash value will be even less.

I have shown the calculation assuming a lower rate of return of 4 percent per annum. The accumulated sum is still quite attractive. In my personal view, the return is likely to be better than 6%.

Although the Living policy does not look so attractive compared to "invest the difference", I must say that it offers better value than similar policies offered in the market by other insurance companies.

Wish you all the best for the Lunar New Year.

Tan Kin Lian

My honest opinion

When I first started my blog a year ago, some insurance agents (working for other companies) criticised me for recommending products from NTUC Income. They felt that I was biased in my views.

Actually, I give my honest opinion. If there are other insurance or financial products (offered by other institutions) that give good value, I am happy to invest in them personally and to talk about their merits.

In my opinion, the exchange traded fund (STI-ETF) offered in SGX is an excellent product. However, I recently sold my ETF because the market is too high. I will wait for a market correction to reinvest in this product.

I now get many positive messages from members of the public. They tell me that they like the views given in my blog. They trust that I am giving my honest opinion.

I have now left NTUC Income. But, my view about the merits of the products remain the same.

Trailer Fee

Question: In your blog, you recommend to invest in decreasing SA term and invest the balance in a low cost diversified fund. Are you referring to a unit trust right?

Reply by Tan Kin Lian: The large, well diversified, low-cost fund can apply to both unit trust or an invvestment linked fund (offered by an insurance company). The Combined Fund from NTUC Income fits into this category. You can read about it in You can ask read to see if other unit trusts meet this criteria.

Question: I recently read some articles that lump sum unit trust investment have shown historical better returns compared to regular saving plan invested in unit trust through dollar cost averaging? Which might be a better option giving higher returns?

Reply by Tan Kin Lian: It depends on when you invest your lump sum. If you invest it when the market is low, you will get a better return compared to regular investment. If you invest the lump sum when the market is high, you will get a comparatively lower return. I believe that the market is too high now. I will not make a lump sum investment now, if I intend to invest for the long term.

Question: Is the trailer fee mentioned by you included in unit trust vs investment linked plan (ILP)? What is this trailer fee? Does it apply only to unit trust and not ILP? Does it applies to all unit trust offered by banks and other insurance companies?

Reply by Tan Kin Lian: The trailer fee can apply to both unit trust and to the investment-linked fund. It is usually added by the financial advisor (in lieu of the upfront fee). You should add the trailer fee (if applicable) to the fund management fee to get the total fee that you have to pay.

I recommend you to visit the business center in NTUC Income and talk to an adviser. You can get their contact information at

Term with critical illness cover

Question: In your blog, you said Some people prefer to cover the critical illness under a medical insurance plan' instead of buying a special type of term assurance to cover payment of the sum assured on the diagnosis of the illness.

Is it better to buy term to cover death and permanent disability and get critical illness separately? Or to buy term (including critical illness), since term is cheaper than buying a whole life plan?

Reply by Tan Kin Lian: It depends on the premium that you have to pay.

You should ask the insurance adviser to give you the following options:

* premium for decreasing term insurance (including critial illness) for 30 years
* premium for a whole life plan (that covers critical illness)

You can find out the difference in premium. You can calculate the amount that you can get, if you invest the difference in a large, well diversified low cost fund (assuming that it can earn 6% per annum). You will find that the total accumulated savings could be higher than the cash value under the whole life policy.

I suggest that you visit the business center of NTUC Income and get them to show the figures to you. You can then ask another insurance company to quote for the same plan. Then you can see which gives you a better value.

Life Insurance Policy with Cash Payout

One insurance company is able to sell a lot of life insurance policy with a cash payout every 2 or 3 years. Their agents were able to convince the customers about the attraction of this policy.

Actually, this policy provides a poor return to the policyholder.

This is how it works.

Assume that you can buy a whole life policy for $100,000 by paying a premium of $200 a month. This special policy ask you to pay a higher premium, say $300, in order to enjoy a cash payout of $2,000 every 2 years.

You may not realise that you are actually paying $2,400 in 2 years (ie $100 more each month) to get back a cash payout of (say) $2,500. The return on this additional payment is small, or may be negative. This is because a portion of the premium is used to pay commission to the agent.

The agent is very keen to sell this special policy because they can earn a higher commision.

The customer is better off by keeping to the basic plan and saving the difference in a bank account to earn interest.

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