Eldershield Valueplus

Mr Tan,

Do you advise me to buy the Valueplus plan for Eldershield. The annual premium is $45 at the younger ages and increases to $1,825 at age 100.

MY REPLY:

The Valueplus plan pays $400 per month after 72 months of disability, to a maximum of 120 months (i.e. an additional 48 months).

To my knowledge, most people who are severely disabled are not expected to live beyond 6 years. The chance of making a claim during the extended period is quite small.

It is best to delay buying this plan for the time being, until it beocmes clearer that more people are likely to need this extended payment.

Eldershield

Dear Mr Tan,

Recently I received an ElderShield policy from an insurer (appointed by MOH). I already have my own endowment and life policies. Do you think it is necessary for me to take up the ElderShield and ElderShield Supplement policies?

REPLY:

I have extracted the following information from NTUC Income's website.

* 1 in 12 people is expected to make a claim (due to severe disability)
* the benefit is $400 a month for 60 months (but some elderly people may die before collecting for 60 months).

If you have sufficient savings that can take care of a severe disability, you do not need to buy the Eldershield plan. You can carry the risk on you own. The total payout under Elderhsield is a maximum of $24,000 over 60 months.

If you cannot take the risk of a severe disability, then you need to buy this insurance.

You can read more from this website.

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Premium payable at age 40 for 26 years:

Male $174.96
Female $217.76

Total premium paid, plus interest accumulated at 4% to age 80:
Male $13,964
Female $17,376
This is nearly 48% (male) and 60% (female) of the maximum payout of $28,800.

Look after the interest of others

Dear Mr Tan

I helped out in a polling for the Lift Upgrading of my block. The Member of Parliament urged residents to cast in their "YES" votes.

Sadly, one resident committee member went round to urge the residents not to do so. He wanted HDB to guarantee that they will make good any damages caused by the upgrading. HDB agreed to try their best, but is not able to match his full demand. Upgrading work involves thousands of residents. How could HDB meet everybody's need?

I have respected him as a RC committee member all these years. I have now changed my view on him.

MY REPLY

I think that the resident committee member should put the interest of the residents above his personal interest.

Keep your money in the CPF Special Account

Dear Mr Tan

One insurance agent pesters me to put my special account into his insurance product, citing that it would give a x% of return which will be sufficent to see me through my old age.

I told him that nothing is absolute. I could not take his words simply because there are too many insurance products in the market, with so many agents eager "to close a deal".

I would rather be prudent and let my money remains in the CPF until I fully understand the product. Any comment?

MY REPLY:

I agree with you. It is best to keep your money in the special account to earn 4% plus 1%. Most insurance products cannot give this type of return, due to the high distribution cost, expense and profit margin of the insurer.

How to decide on the Eldershield offer

Dear Mr Tan

I am 40 years old. I received a brochure from an insurer about Eldershield plan. I have the following 3 options:

1. No Eldershield, ie. poor value, low probability to claim. Better to keep premium in Medisave to grow @ 5%pa ?
2. Eldershield @ $400/mth, max 72 mths. Pay $217.76/yr to age 65.
3. Vplus 400 plan @ $400/mth, max 120 mths. Pay $45/yr increasing up to $1826 at age 100.

I am confused and will appreciate your expert advice. What should I do?

MY REPLY

I suggest that you ask insurance company to give you the following answers for each of their plan (i.e. basic and value plan):

1. What is the total premium that you are likely to pay for the plan?
2. What is the interest that can be earned on the premium for the next 40 years, using the interest rate on Medisave account (e.g. 5%)
3. What is the likelihood of making an Elderhield claim during your lifetime?
4. What is the expected total benefit, (taking into account that most claimants may not live to receive the full 6 years of payment)
5. What is the amount of distribution cost and other charges taken away from your premiums to pay the agent or the insurance company?

If they are able to provide the answers, and they are clear to you, you will be able to make a better judgement. I hope that this general advice is helpful to you.

Lesson: Ask the right question. Be sure that you understand before you buy. Do not buy, if you do not undertstand what is the cost and the benefit.

Insurance takes care of your worry

Most people think about insurance as paying claims. Insurance play another important role, that is, to take care of the settlement of the claim.

For example, if you meet with a traffic accident, and you are sued for negligence, the insurance company handles the settlement of the claim. It frees you from the worry about settling the claim. And the insurance company also pays the claim.

As the insurer's claim officers are more experienced on the settlement, they can handle it better than the consumer.

Similarly, under a medical insurance policy, the insurer's doctor can provide a second opinion to make sure that you are getting the right treatment.

For insurance company to play this wider role well, a few conditions are necessary:

1. The claim officer and the policyholder must have the same goal - to seek the most cost effective way to settle the claim.

2. There must be trust between the two parties

3. The policyholder should seek the advice of the insurer earlier, for example, before getting the medical treatment or repairing the car. The insurer should be organised to provide this wider service.

The current state of affairs in insurance companies in Singapore is not up to this standard. More needs to be done to improve the claim process.

$5 million cover under a Shield plan

Some Shield plan offers a cover of $5 million. This is a marketing gimmick.

To my knowledge, out of 2 million people who are insured for the past 10 years, nobody has ever accumulated a lifetime bill of more than $300,000. Most of the large bills are probably less than $100,000.

Do not be frightened into buying a Shield plan because you have have to incur $5 million in medical bills. This is not possible.

Mother not eligble for medical insurance

Hi Mr Tan

I recently discovered that my mother is not covered under any Shield plan. I have difficulty having her insured as she had a medical condition, but has recovered from it. The insurance company rejected her application.

Do you think I should go for another test to prove that she has fully recovered?

She is 63 years old, well and active. I am concerned that she is aging. Should she be hospitalised, we are not sure if we can cope with it.

MY REPLY:

See if you can get your mother insured, with the exclusion of the specific medical condition. She can still be covered for other illness.

If this is not possible, do not worry. Many older folks are not covered under a Shield plan. If they go to hospital, they can stay in a B2 ward, which is not costly. B2 is suitable for old folks. The bill can be paid under Medisave.

I hope that your mother does not need to be hospitalised.

Use Google Search

Dear Mr Tan,

I have read in your blog sometime ago on the subject of weight loss programme with the so-called income 3 day diet plan programme. Would you be kind enough to reproduce this for me.

MY REPLY:

I found the formula from this website
http://www.webmd.com/diet/features/the-3-day-diet.
It is the same diet promoted by NTUC Income a few years ago.

Secret? use Google Search.

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Dear Mr Tan,

I am very grateful that you took great pains to find out for me. Thank
you a million. Best regards.

Increase in bonus rates

Hi mr tan,

I had bought a life policy for my baby in 2006 which has a protection value at $100k.

Cash value guaranteed @ 65 yrs = $70000
Non guaranteed @65 yrs = $ 231642

I compared with this year 2007 quotation which has the same protection value of $100k and same cash guaranteed @ $70000 BUT...

Non guaranteed @65 yrs = $ 311399

Difference $311399-$231642= $79757

For 1 year there is about $80k difference in the non-guaranteed portion which i think that is a very big amount. I also understand that it is NON-Guaranteed.

My agent explained to me that this is a marketing gimmick, is that true? So the value of non-guaranteed portion is dervied based on what conditions?

How closely is the non-guaranteed portion being matched? My main concern is at the end of the 65 years, will i be able to collecting less payout than compared to buying 1 year later ?

MY REPLY:

NTUC Income increased its bonus rates in 2007. Based on the higher bonus rates, the projected maturity value at 65 has increased significantly.

Here is the good news. The higher bonus rate is also given to policies issued in the past. The policy that you took in 2006 will enjoy the higher bonus rate as well. It is likely that the projected maturity value will increase to match what is shown in the 2007 policy.

Visit other countries

When I travel to foreign courntries, I hvae to complete a few forms - entry, customs, health and currency controls.

Some of these forms asked for repeat or unnecessary information, such as address in that country, reason for the visit, etc.

I suspect that most information is hardly used, except for statistical analysis for tourism purpose.

Surely, it is time to discontinue most of these forms?

Visitors into Singapore are required to complete some forms. Are they really necessary? Even tourism statistics can be obtained from other sources or through a sample survey.

I hope that Singapore can set an example and get rid of the unnecessary forms, that are a burden to visitors. This may start a process for other countries to simplify their entry procedures.

When I visited Europe, I recalled that I was not required to complete any form at all. That is most welcomed!

Taking the MRT for a gala dinner

I was invited to a gala dinner. The dress code was lounge suit.

I had the option to drive to Raffles City. I decided not to. I was not sure if the road was congested or it was difficult to find a parking space.

My wife drove me to the station to take the MRT. To avoid being out of place, I carried the jacket in my hand. In the evening, the train was half filled. It was a comfortable and fast ride.

The return journey was also quite pleasant.

I was probably among the very few guests at the gala dinner that came by train.

Do you really need the insurance?

A very wealthy person told me that all the members of her family has just bought a Shield plan. She was very glad that they are insured.

I told her that this is not really necessary. They are able to pay for the medical expenses out of pocket. They do not really need insurance.

She was surprised. She never thought about it in this perspective.

Here are my reasons.

The chance of incurring a very big hospital bill is quite small. Only a few people are likely to likely to be hit. Even if the bill is $100,000, it should not pose a big problem to a person who has several million dollars of assets.

There is a choice to go for treatment in the restructured hospitals in Singapore. The charges are modest, even in the class A wards.

Buying insurance requires a rational decision.

Do I need it?
What does it pay?
What is the chance of making a claim of this magnitured?
How much does it cost?
Can I afford to self-insure?

Insurance agents - the bad and the good

Someone has been posting strong comments that are critical of insurance agents. According to him, the insurance agents:

* Offer products that are not suitable for the customer
* These products provide poor value to the customers
* The agents will not buy these products for themselves
* The agent are only interested in the high commission from selling the product.

This is true to a certain extent. The blame is not with the insurance agents only. The insurance companies share in the blame for not serving the public well.

We must not overlook the fact that there are insurance agents who operate ethically, as follows:

* They educate the customer about their financial needs
* They offer products that suit these needs
* These products give better value, compared to other similar products available in the market
* They earn a modest rate of commission for their time and service.

Customers need the insurance agents or advisers to help them find the suitable products. There is a role for the adviser.

Life annuity and the poor

Editor
Today Paper

I refer to the letter from Dr Vincent Chia Wei Meng entitled "The numbers tell the story" (Today, 4 Oct 2007).

Dr Chia argued that life annuity is a disadvantage for the poor. He quoted studies that showed poor people have a shorter life expectancy, compared to people who are better off.

This is probably correct, but in a general sense. There are poor people who are healthy and can live longer. It depends on each individual.

If a person knows that his or her health is poor, and is like to have a shorter life expectancy, then this person should avoid buying a life annuity, or should buy a life annuity that provides a partial refund on early death.

The majority, who are in normal good health for their age, should buy a life annuity.

Poor people need the pooling of longevity risk in a life annuity more than the wealthy. The wealthy people have sufficient money to last for more than a lifetime and do not need to pool this risk.

The advantages of a life annuity outweigh the perceived disadvantage, even for poor people. Here are the benefits:

* They do not have to manage their money. The annuity provider takes care of this matter.

* By investing in an annuity fund, the annuitant can get a better return on their money, compared to investing on their own

* They participate in the pooling of longevity risk.

Those who are very poor probably do not have sufficient money to buy a life annuity that can give an adequate income for a life time. With a small capital sum, they can only buy a small payout. They will still need some financial assistance to top up this small payout.

Tan Kin Lian

Presenting views in "words"

Someone posted in comment in my blog: "How can your views benefit other people, if you just write in words"?

Apparently, this person thinks that I should be using more tables, graphs and pictures.

Here is my reply:

1. Do do present tables, in a simple format.

2. I am not familiar in creating graphics using other software. But I will try to learn how. It may take some time.

3. I hope that there are sufficient people who find my views in "words" to be useful.

Investing in Foreign Currency Deposit

Hi Mr Tan,

I like to ask about Foreign Currency Time Deposits.
What are the risks involved if I put my money in Foreign Currency Time Deposits?

MY REPLY:

The risk is in the currency exchange rate.

For example, if you put $10,000 in New Zealand dollars for 1 year to earn 7% interest (compared to 2% in fixed deposit in S$), you will earn 5% more in the interest for 1 year.

At the end of 1 year, if the NZ$ depreciated by 5% against the S$ during the 1 year period, you are in a neutral position (compared to keeping in S$ deposit).

If NZ$ depreciates by more than 5%, then you will lose on the NZ$ deposit.

If NZ$ depreciates by less than 5%, you will still be better off, by investing in NZ$ deposit.

If NZ$ appreciates against the S$, you will get double benefit, first from the higher interest rate (i.e. difference of 5%) and second from the higher exchange rate.

The challenge is to know what is the likely trend of the NZ$. No one can help you to make this decision. The currency experts do not know, especially in 1 year's time. I do not know.

If you study the trend of NZ$ over the past few years, you will find that it has the potential to move up or down 10% within a short period.

The same remark applies to investing in any other foreign currency deposit.

Insurance agents

There is a regular visitor who post repeated comments in my blog to attack insurance agents.

I allowed some comments to be posted - to reflect his point of view. But I had to block some comments that are unfairly critical.

Real estate agents

There is a news report about moves to upgrade the professionalism of real estate agents. This follows complaints from the public about the unethical practices of some agents.

Will it work?

It is difficult. But it is a step in the right direction.

Is there another alternative?

Yes. We can educate the consumers and empower the consumers (owners or buyers of the property) on the steps to take to handle the transcations on their own.

When there is a real alternative, i.e. do it yourself, then the real estate agents will become be more efficient and bring down the cost to the consumers.

Compensation for injury

There is a report in the newspaper today about the foreman who died during the collapse of Nicoll Highway. The widow had to sue the employer, who agreed to pay $410,000. The incident occurred 3 years ago.

Victims of traffic accidents face a similar problem in Singapore. They have to engage a lawyer to claim compensation for the injury. This can take a few years, and result in high legal cost, which can take away about one third of the award.

In some countries, there is a faster way to assess compensation for injuries and death.

It is based on a no-fault system and awards compensation based on the actual expenses and loss of earnings. It applies to accidents at the workplace and on the road.

The award is given quite quickly and the amount is generally fair.

It is useful to have a similar system in Singapore. Actually, the workman compensation system in Singapore is based on this approach. We can extend its operations to cover a larger scope and also to pay higher compensation.

Monthly income benefit

Dear Mr Tan,

You mentioned in your blog that a decreasing term is suitable as an insurance protection.

While I agree with you, I think it may not be the best solution if the beneficiaries are not financially savvy to handle such a big amount of money. It may be better if they to receive a fixed monthly stipend.

NTUC Income has an Income Benefit rider under the Family Insurance Plan, which pays out a monthly benefit when the life assured dies. Do you think this is an equivalently good financial protection as well?

MY REPLY:

I agree with you that a monthly income benefit is more suitable for dependants who are not able to handle a large lump sum.

Single premium endowment invested in CDOs

Dear Mr Tan,

I like to get your advice on this investment product: a single premium investment linked plan with annual payout of up to 4% over a 5 year term and return of 100% of the principal invested at maturity. Also get additional life insurance coverage of up to 110% of the amount of investment.

It invests into a Collateralised Debt Obligation (CDO) tranche of corporate credits with credit rating of AA by S&P's. Min. single premium of $5K.


MY REPLY:

Are you sure that the return on maturity is guaranteed? Who provides the guarantee?

Usually, when the issuer states that the money is invested in a certain class of assets, there is a statement that, in the event of default of the assets, the investor has to suffer a loss. You should check this point carefully.

Collateralised debt obligation are a risky class of asset now, even if they are rated as AA. Some of these assets have depreciated in value.

Private settlement for motor accident

A taxi driver met with a minor accident. He was at fault.

His taxi company advised to make a private settlement with the other party (also another taxi), as the claim is minor. He has taken photographs of the damages.

The other party delayed in giving a reply. Later, he sent a bill of $3,500 to the taxi driver. This was excessive.

The taxi driver was in a dilemma. He did not make a claim under his insurance, as he intended to make a private settelemnt. The claim of $3,500 was excessive.

I advised him to lodge a claim under the insurance, although he reported a few days late. He only need to explain the circumstances of the delay.

Lesson: If you wish to make a private settlement, you have to get an agreement on the spot. Both parties have to sign the private settlement form. If there is delay, you should abandon the private settlement and let the insurance company to handle it. They are more experienced in this matter.

Advice on buying insurance

Some people asked for my advice on the need to buy certain types of insurance. I told them to ask the following questions:

1. What is the risk that is being insured?
2. What is the amount that can be payable under the insurance?
3. What is the chance of a claim arising?
4. What is the premium payable for the risk?

Look at the ratio of claim to premium for the class of insurance. If the ratio is 70%, then the insurance is giving good value to the customers. If the ratio is less than 50%, then the insurance company is making excessive profits, i.e. they are over-charging the premium.

You should also consider the following:

1. Do you really need the insurance?
2. Can you carry your own risk, e.g. for the deductible under medical insurance?

Life annuity with no refund

Many people think that it is better to buy a life annuity that provides a refund. They were not aware that there is a cost to the refund. An annuity with a refund can pay out 10% to 20% less in payout, for a given invested sum.

An annuitant who bought a "with refund" annuity previously asked me if it is possible to convert to a "no refund" annuity. She has no dependents and wish to have a higher payout.

I expect, in the future, more people to opt for the "no refund" annuity.

Tips on investing $60,000

Hi Tan,

I have about 60k in my ordinary account and no dependents. Taking into
consideration of the new interest rate government had annouced, kindly advise what alternate investment I should buy in order to increase wealth.

MY REPLY:

Please read the FAQS in
http://www.tankinlian.com/faq/

Tips on investing SGD 1 million

Questions:

If you have more than SGD 1 million to invest, is it good to have a renown private institution to help you? Can I get a safe 8% return? What do you recommend I do?

MY REPLY:

Read this FAQ before you talk to a private banker.

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

Actuarial Education

Dear Mr Tan,

I am 23 years old. I wish to seek your advice on overseas actuarial education. Which countries in the world provides high quality actuarial education relevant to Singapore context?

As I plan to work in Singapore after my studies, which are the specialized areas of actuarial science I need to be familiarized with? Examples like General Insurance,
Life Insurance, Health Insurance, Pension or Investment and Finance.

MY REPLY:

I suggest that you contact the Singapore Actuarial Society. You can get their contact from their website:

http://www.actuaries.org.sg/resources.htm

They should be able to answer your questions better than me. They are more up-to-date on these matters.

Wish you all the best in your future career.

Avoid "quick return" investments

Dear Mr Tan,

I am enjoying reading your Blog almost everyday. Great sharing and learn alot for you.

Someone actually approached me regarding to one of the MLM opporitunity. (Details deleted) Not sure whether have you hear of the company. But many people are investing their Broadband Wireless and Properties Projects.

The reward is excellant. For 1-GP investment (SGD 11800), the return is SGD 1200 per month.

Expecting to break-even within 8 month and get the extra Customer Rebate for the following months up to SGD 19200, Beside that within the 4 to 5 month, they will also give out USD 60000 bonus within 5 years.

Is this a good Investment opporitunity ?

MY REPLY:

I always avoid this type of "high return" investment. I also advise people to avoid investing in anything that looks too attractive, and where they do not really understand the business model. Some of these types of investments are scams.

Courteous drivers in Brussels

The car drivers in Brussels are courteous. They give way to pedestrians on the road. They are patient. They drive slowly.

Why are drivers in Singapore impatent? Perhaps it is the heat or the stress of life!