I had to meet someone for lunch at Holland Village and attend an afternoon conference at National University of Singapore.
As public transport was not convenient, I decided to drive to these two locations. It turned out to be a bad idea.
The roads to Holland Village was congested, due to many road works. I had trouble to find a parking space.
The journey from the university to my home took more than 1 hour. The traffic was heavy as it was after office hours. The traffic crawled at a slow pace for a long distance, due to a small accident in Farrer Road. It was stressful.
Lesson: It would have been better for me to take public transport.
Tuesday, November 06, 2007
Anticipation Policy
Anonymous posting in my blog:
While many who frequent Mr Tan's blog is slamming Revosave, I happened to chance upon a similar insurance product from Income's website called Anticipation Policy. This product pays regular cash coupons every 3 years. Isn't this a product that Mr Tan would say isn't good for the consumer? Ironically, this product was designed while Mr Tan was the CEO. Perhaps Mr Tan could explain this irony.
REPLY:
The Anticipation policy was designed 20 years ago. It had a payout every 3 years (not 1 year).
At the time that it was introduced, it gave a yield that was quite attractive. When the yield on the Anticipation policy dropped due to a reduction in the bonus rate, the sale of this plan was no longer promoted.
In today's environment, this plan is not suitable, due to its high cost and low yield.
While many who frequent Mr Tan's blog is slamming Revosave, I happened to chance upon a similar insurance product from Income's website called Anticipation Policy. This product pays regular cash coupons every 3 years. Isn't this a product that Mr Tan would say isn't good for the consumer? Ironically, this product was designed while Mr Tan was the CEO. Perhaps Mr Tan could explain this irony.
REPLY:
The Anticipation policy was designed 20 years ago. It had a payout every 3 years (not 1 year).
At the time that it was introduced, it gave a yield that was quite attractive. When the yield on the Anticipation policy dropped due to a reduction in the bonus rate, the sale of this plan was no longer promoted.
In today's environment, this plan is not suitable, due to its high cost and low yield.
Left or right brain?
Do you use your left or right brain more?
Take this test.
http://www.news.com.au/heraldsun/story/0,21985,22556281-661,00.html
Many people see the dancer turning clockwise. The paper said that they are using the right brain.
Can you control your brain to see the dancer turning anti-clockwise?
After that, you can take the Logic9 (Sudoku) test. Try solving the puzzle with flowers (not numbers).
www.tankinlian.com/logic9
Take this test.
http://www.news.com.au/heraldsun/story/0,21985,22556281-661,00.html
Many people see the dancer turning clockwise. The paper said that they are using the right brain.
Can you control your brain to see the dancer turning anti-clockwise?
After that, you can take the Logic9 (Sudoku) test. Try solving the puzzle with flowers (not numbers).
www.tankinlian.com/logic9
Monday, November 05, 2007
Housing 6.5 million people
In this article, I suggest a way for Singapore to house 6.5 million people without facing the problem of congested roads.
http://www.tankinlian.com/articles/housing.html
We have to encourage people to work near their homes, or move their homes closer to their place of work.
Do you agree with this suggestion?
http://www.tankinlian.com/articles/housing.html
We have to encourage people to work near their homes, or move their homes closer to their place of work.
Do you agree with this suggestion?
Use knowledge and experience
My friend worked for many years as a claims manager for a Japanese insurance company.
He retired at age 62. The Japanese company re-engaged him to be an auditor to audit the underwriting and claims transactions. He earns a lower salary compared to his previous job, but he is happy to continue to be productive.
As he is familiar with the insurance operations, his knowledge and experience is put to good use. He can do a more effective job compared to an internal auditor who is an accountant.
I applaud the Japanese. They know how to put knowledge and experience to good use. I hope that Singapore companies can learn from the Japanese.
He retired at age 62. The Japanese company re-engaged him to be an auditor to audit the underwriting and claims transactions. He earns a lower salary compared to his previous job, but he is happy to continue to be productive.
As he is familiar with the insurance operations, his knowledge and experience is put to good use. He can do a more effective job compared to an internal auditor who is an accountant.
I applaud the Japanese. They know how to put knowledge and experience to good use. I hope that Singapore companies can learn from the Japanese.
Refinancing credit card borrowings
Some young people spend too much money using their credit cards. They accumulated a lot of debts and had to pay high interest on the borrowings.
This is one way to get out of this heavy interest burden. You can approach your cooperative society to take a loan to pay off the credit card debt. The interest payable on the loan from the cooperative is at a modest rate, less than one third of the rate charged by the banks.
Be honest. Tell your cooperative society about your credit card debt. Assure them that you will make a genuine attempt to clear off the debt in installments, and that you will not borrow again on the credit card.
If you have a steady job and a good income, your cooperative society should be willing to help you.
You may be able to approach another bank to refinance the debt at a lower rate of interest. Some banks are keen to provide this assistance to acquire you as their customer.
This is one way to get out of this heavy interest burden. You can approach your cooperative society to take a loan to pay off the credit card debt. The interest payable on the loan from the cooperative is at a modest rate, less than one third of the rate charged by the banks.
Be honest. Tell your cooperative society about your credit card debt. Assure them that you will make a genuine attempt to clear off the debt in installments, and that you will not borrow again on the credit card.
If you have a steady job and a good income, your cooperative society should be willing to help you.
You may be able to approach another bank to refinance the debt at a lower rate of interest. Some banks are keen to provide this assistance to acquire you as their customer.
Encourage tourists to stay a few days longer
My friend told me this story about how he encouraged his friends from Australia to stay a few days longer in Singapore.
1. He asked them to visit the Bird Park. It is the best in the world. His friends like to see the many variety of birds, all in one place.
2. He encouraged them to take the MRT train, especially the portion that runs above the ground, ie, the North South Line after Bishan station. On the MRT journey, the can view many HDB estates in Singapore and also the green spaces in the northern part of Singapore (i.e. Kranji).
1. He asked them to visit the Bird Park. It is the best in the world. His friends like to see the many variety of birds, all in one place.
2. He encouraged them to take the MRT train, especially the portion that runs above the ground, ie, the North South Line after Bishan station. On the MRT journey, the can view many HDB estates in Singapore and also the green spaces in the northern part of Singapore (i.e. Kranji).
Rush hour on the MRT train
I took the MRT train to town at 8 am this morning (i.e. rush hour). The train comes at 2 minutes interval. The train was crowded, but not packed. I had to stand all the way, but it is fairly comfortable. I like our MRT train, even during rush hour.
Business Practice of Insurance Company - Another View
VIEW POSTED IN MY BOG
Business models usually evolved and got copied from one company to another. I would like to offer my view to mr. tan's observations:
1. From some friends of mine in a sales department of a networking equipment company, a pharmaceutical company, a software company, they told me that it is very common to have attractive prizes such as overseas trips and motivational activities as incentives, aside from high commission and bonuses that they get from selling the products.
2. With regards to "projections" - isn't projections are what they are meant to be - projections? if anyone tell you that projections are "guaranteed", then better inform MAS immediately. No, better still, if you can tell me which company can guaranteed 100% something in 20 years time, I will invest in it myself.
3. Most people in the sales line will meet objections and rejections. This happens in any industry. Unless you are naturally thick-skinned, you have to learn how to manage them or else how are you going to give your solutions to people. In particular to the insurance industry, where many people do not plan for their own future or unexpected demise, you got to learn how to overcome objections in order to help them help themselves.
4. I think every product serves a need. it is not fair to compare a product of yesterday with a new product today. A good fund yesterday may be a lousy fund today even though same performance. Why? because our expectations have risen. I know some MNCs who practice this model of eliminating staff whose performance levels falls below 5% relative to the performance of his/her peers. That means, every year sure must lay off some people. When a person buys a product, it was intended to serve a purpose and as long as the original purpose is achieved, it is should be ok. That's why people must know that buying insurance is not a one time thing. he/she must always buy new one whenever there are new needs to be addressed.
5. It is better for the company to make profits than to make losses. The questions should be - are the profits channeled back as more bonus for clients, training of advisors and creating more value-added solutions to consumers? Let's not be hypocritical - if you are buying equities or bonds, don't you want the companies that are linked to them to be profitable and sustainable companies?
Come on, if I buy a product from Income, I also want the company to be profitable and have money to improve the quality of the advisors and come up with innovative products.
There are two sides of a coin and it's not always fair to say that this company or product or agent is bad or good without considering the context where the event took place. By the way, since MAS is the regulatory body, if such practices are not condoned, how come never shut them down?
Business models usually evolved and got copied from one company to another. I would like to offer my view to mr. tan's observations:
1. From some friends of mine in a sales department of a networking equipment company, a pharmaceutical company, a software company, they told me that it is very common to have attractive prizes such as overseas trips and motivational activities as incentives, aside from high commission and bonuses that they get from selling the products.
2. With regards to "projections" - isn't projections are what they are meant to be - projections? if anyone tell you that projections are "guaranteed", then better inform MAS immediately. No, better still, if you can tell me which company can guaranteed 100% something in 20 years time, I will invest in it myself.
3. Most people in the sales line will meet objections and rejections. This happens in any industry. Unless you are naturally thick-skinned, you have to learn how to manage them or else how are you going to give your solutions to people. In particular to the insurance industry, where many people do not plan for their own future or unexpected demise, you got to learn how to overcome objections in order to help them help themselves.
4. I think every product serves a need. it is not fair to compare a product of yesterday with a new product today. A good fund yesterday may be a lousy fund today even though same performance. Why? because our expectations have risen. I know some MNCs who practice this model of eliminating staff whose performance levels falls below 5% relative to the performance of his/her peers. That means, every year sure must lay off some people. When a person buys a product, it was intended to serve a purpose and as long as the original purpose is achieved, it is should be ok. That's why people must know that buying insurance is not a one time thing. he/she must always buy new one whenever there are new needs to be addressed.
5. It is better for the company to make profits than to make losses. The questions should be - are the profits channeled back as more bonus for clients, training of advisors and creating more value-added solutions to consumers? Let's not be hypocritical - if you are buying equities or bonds, don't you want the companies that are linked to them to be profitable and sustainable companies?
Come on, if I buy a product from Income, I also want the company to be profitable and have money to improve the quality of the advisors and come up with innovative products.
There are two sides of a coin and it's not always fair to say that this company or product or agent is bad or good without considering the context where the event took place. By the way, since MAS is the regulatory body, if such practices are not condoned, how come never shut them down?
Evaluate a study loan
Dear Mr Tan,
I wish to sign for a part-time one year degree course. I have to borrow 50% of the course fee of $15,000.
Here are the terms offered by three organisations. Which is better?
Loan 1:
Rates of Interest per Annum: 4.50%
Maximum repayment period: 12 or 24 months
Loan 2:
Interest Rates: 5.350% p.a. on monthly rest.
Monthly instalment is computed based on loan amount and is fixed throughout the loan period.
Loan 3:
Interest rate: 5.58% p.a. (3.88% for Postgraduate Education Financing)
Enjoy easy repayment period of up to 6 years
REPLY
You should ask each of the body to quote to you the amount that you have to pay each month on the same basis, i.e.
Amount of loan $7,500
Repayment to start from (specify the date)
Number of repayments, 12, 18 or 24 months
Amount of repayment
Other charges, if any:
It is difficult to compare the interest rate alone, as there are many ways of calculating them. It is best that you ask them to give you the specific monthly installments, so that you can make a simple and direct comparison.
You can also decide on the repayment period, based on your personal budget.
I wish to sign for a part-time one year degree course. I have to borrow 50% of the course fee of $15,000.
Here are the terms offered by three organisations. Which is better?
Loan 1:
Rates of Interest per Annum: 4.50%
Maximum repayment period: 12 or 24 months
Loan 2:
Interest Rates: 5.350% p.a. on monthly rest.
Monthly instalment is computed based on loan amount and is fixed throughout the loan period.
Loan 3:
Interest rate: 5.58% p.a. (3.88% for Postgraduate Education Financing)
Enjoy easy repayment period of up to 6 years
REPLY
You should ask each of the body to quote to you the amount that you have to pay each month on the same basis, i.e.
Amount of loan $7,500
Repayment to start from (specify the date)
Number of repayments, 12, 18 or 24 months
Amount of repayment
Other charges, if any:
It is difficult to compare the interest rate alone, as there are many ways of calculating them. It is best that you ask them to give you the specific monthly installments, so that you can make a simple and direct comparison.
You can also decide on the repayment period, based on your personal budget.
Sunday, November 04, 2007
Investing in foreign currency time 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?
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, you may find that the NZ$ has depreciated by 5% against the S$, in which case, you will be okay.
If NZ$ 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.
Good luck.
I like to ask about Foreign Currency Time Deposits.What are the risks involved if I put my money in Foreign Currency Time Deposits?
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, you may find that the NZ$ has depreciated by 5% against the S$, in which case, you will be okay.
If NZ$ 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.
Good luck.
Diversify your risk globally
Dear Mr Tan Kin Lian,
A senior person said the Singapore may survive for 2 to 3 weeks should an military invasion occur. We can not rule out this possiblity.
May I seek your opinion on what would be the impact to the Singpaore dollars
invested in insurance company (e.g. NTUC Income).
MY REPLY:
I have no idea about what the impact would be.
Perhaps, in the globalised world, you should invest some of your money in a global equity fund. This will help to diversify your risk.
A senior person said the Singapore may survive for 2 to 3 weeks should an military invasion occur. We can not rule out this possiblity.
May I seek your opinion on what would be the impact to the Singpaore dollars
invested in insurance company (e.g. NTUC Income).
MY REPLY:
I have no idea about what the impact would be.
Perhaps, in the globalised world, you should invest some of your money in a global equity fund. This will help to diversify your risk.
Risky to invest in Gold ETF at current level?
Mr Tan
This is another scheme that is good for stock brokers and the SGX. Not sure if good for CPF members.
Tempt CPF members with enough tantalizing stories and they will surely dig into their retirement savings to have a quick and good punt. No wonder many of them retire poor.
I see no fiduciary considerations underlying all of these wonderful things being offered to the "market".
LETTER FROM SGX
Dear Member,
Please be informed that with effect from 6 November 2007 (trade date), the
Gold ETF (Stock name: GLD 10US$) will be CPFIS-OA approved and investors
are able to use their CPF monies to trade the Gold ETF. The stock is
denominated in US$.
This is another scheme that is good for stock brokers and the SGX. Not sure if good for CPF members.
Tempt CPF members with enough tantalizing stories and they will surely dig into their retirement savings to have a quick and good punt. No wonder many of them retire poor.
I see no fiduciary considerations underlying all of these wonderful things being offered to the "market".
LETTER FROM SGX
Dear Member,
Please be informed that with effect from 6 November 2007 (trade date), the
Gold ETF (Stock name: GLD 10US$) will be CPFIS-OA approved and investors
are able to use their CPF monies to trade the Gold ETF. The stock is
denominated in US$.
Low wage for cleaners
I met a school principal. He told me that his school has outsourced the cleaning to contractors.
To win the contract, the contractor had to bid a low price. He engaged cleaners and paid them a low salary. The salary for a cleaner used to be above $700 per month and has since dropped to below $700 on the renewal of the contract. He found out the low salary by talking to the cleaning woman.
The contractor declared the base salary as $300 monthly for contribution to the Central Provident Fund. At this salary, the cleaner will have very little savings for their retirement.
Lesson: The outsourcing of cleaning work to contractors is depressing the wages of the cleaners.
To win the contract, the contractor had to bid a low price. He engaged cleaners and paid them a low salary. The salary for a cleaner used to be above $700 per month and has since dropped to below $700 on the renewal of the contract. He found out the low salary by talking to the cleaning woman.
The contractor declared the base salary as $300 monthly for contribution to the Central Provident Fund. At this salary, the cleaner will have very little savings for their retirement.
Lesson: The outsourcing of cleaning work to contractors is depressing the wages of the cleaners.
Power of the Internet
Many people are still not aware about the power of the Internet.
I gave a talk in Bishan Community Club to teach the attendees about how to play Sudoku. I had to give some history about this game.
I use Google search and typed in the key words "Sudoku" and "history". It gave several links which provided much more than I needed for my talk.
It is amazing.
I gave a talk in Bishan Community Club to teach the attendees about how to play Sudoku. I had to give some history about this game.
I use Google search and typed in the key words "Sudoku" and "history". It gave several links which provided much more than I needed for my talk.
It is amazing.
Friday, November 02, 2007
Right time to buy a property?
Dear Mr Tan :
I really enjoy reading your blog - it offers practical advise and alternate views which sometimes is so obvious. We are influenced by other people around us and does not see the alternative options.
I have been working in Singapore for about 15 years, and recently became a citizen. I have been renting a property and the rental will seen be increased sharply. I have about $500,000 in my CPF and liquid investments.
I am interested in buying a permanent home. What is your opinion in this matter? I do not qualify for a new HDB flat. Should I buy resale HBD?
REPLY
I am not really familair with this matter. I wonder if it will help for you to visit HDB and talk to the officer there?
Generally, I think that HDB resale represents a good investment, as there is a large pool of people who are willing to sell, to move to another new HDB property. So, you should get a reasonable price.
Perhaps, if you talk to a property agent and get some quotes of what are available, you may be able to make a better decision. If you have some possible offers, you can ask me to help you make an analysis.
I really enjoy reading your blog - it offers practical advise and alternate views which sometimes is so obvious. We are influenced by other people around us and does not see the alternative options.
I have been working in Singapore for about 15 years, and recently became a citizen. I have been renting a property and the rental will seen be increased sharply. I have about $500,000 in my CPF and liquid investments.
I am interested in buying a permanent home. What is your opinion in this matter? I do not qualify for a new HDB flat. Should I buy resale HBD?
REPLY
I am not really familair with this matter. I wonder if it will help for you to visit HDB and talk to the officer there?
Generally, I think that HDB resale represents a good investment, as there is a large pool of people who are willing to sell, to move to another new HDB property. So, you should get a reasonable price.
Perhaps, if you talk to a property agent and get some quotes of what are available, you may be able to make a better decision. If you have some possible offers, you can ask me to help you make an analysis.
Excessive charges on ILP
Dear Mr Tan,
I bought an Investment Link Product in 2001 and made an investment of $1,000. This investment has is being depleted by the monthly charges. If I wish to make a partial withdrawal, I have to incur a charge of almost 40%.
When I bought the ILP, I was only 19. Can the policy contract be binding on me? I was not informed that the investment would be subject to the fee deduction and the withdrawal charge.
When I asked the adviser, he said he did not know that the fees would be deducted from the investment. I am bearing the brunt of his negligence. Does it mean that as long as the clause is in the contract there is no duty for him to advise me personally?
Thank you Mr Tan, I really really appreciate your help.
REPLY:
I suggest that you ask the insurance company to give you a statement for the past 6 years, showing the amount that you have invested, and the charges that are taken out each year (indicating the type of charge).
This statement should show what you can get now, if you cancel the investment. If you pass the statement to me, I will try to see if the charges are reasonable or excessive.
You should also get a written statement from the adviser that he was not aware about the withdrawal charge, and that he did not advise you about it. If you have this statement, you may have a chance to get the insurance company to allow you to make the withdrawal without this withdrawal charge.
I bought an Investment Link Product in 2001 and made an investment of $1,000. This investment has is being depleted by the monthly charges. If I wish to make a partial withdrawal, I have to incur a charge of almost 40%.
When I bought the ILP, I was only 19. Can the policy contract be binding on me? I was not informed that the investment would be subject to the fee deduction and the withdrawal charge.
When I asked the adviser, he said he did not know that the fees would be deducted from the investment. I am bearing the brunt of his negligence. Does it mean that as long as the clause is in the contract there is no duty for him to advise me personally?
Thank you Mr Tan, I really really appreciate your help.
REPLY:
I suggest that you ask the insurance company to give you a statement for the past 6 years, showing the amount that you have invested, and the charges that are taken out each year (indicating the type of charge).
This statement should show what you can get now, if you cancel the investment. If you pass the statement to me, I will try to see if the charges are reasonable or excessive.
You should also get a written statement from the adviser that he was not aware about the withdrawal charge, and that he did not advise you about it. If you have this statement, you may have a chance to get the insurance company to allow you to make the withdrawal without this withdrawal charge.
Cooperative Housing in North America
In Singapore, we are familiar with the condominium type of ownership. Each owner has the ownership of a specific unit in the condominium and contributes towards the common upkeep of the condominium.
This type of property ownership is also popular in many countries, including North America.
There is a slightly different kind of ownership found in Canada and a few states in USA, especially New York. It is called cooperative housing. Each owner owns a share of the entire project, and has the right to live in a unit. The owner does not own the specific residential unit.
There are some advantages in this type of ownership:
1. The ownership of the cooperative is similar to equity. It can be transferred more easily, without the high cost associated with a property.
2. The management corporation has more control over the upkeep of the cooperative housing.
3. It helps to strengthen the community bond among the residents of the housing project.
I hope that this new type of ownership can be made available in Singapore.
More about cooperative housing:
http://en.wikipedia.org/wiki/Housing_cooperative
This type of property ownership is also popular in many countries, including North America.
There is a slightly different kind of ownership found in Canada and a few states in USA, especially New York. It is called cooperative housing. Each owner owns a share of the entire project, and has the right to live in a unit. The owner does not own the specific residential unit.
There are some advantages in this type of ownership:
1. The ownership of the cooperative is similar to equity. It can be transferred more easily, without the high cost associated with a property.
2. The management corporation has more control over the upkeep of the cooperative housing.
3. It helps to strengthen the community bond among the residents of the housing project.
I hope that this new type of ownership can be made available in Singapore.
More about cooperative housing:
http://en.wikipedia.org/wiki/Housing_cooperative
Next Step for a NS Man
Good afternoon Mr Tan,
I just happened to came to your blog and started to read about the posts that you posted. I think it gives good information for the public.
I am currently serving National Service. I have been reading a lot about financial planning. I hope that I can manage my money better. Is there any advise for teenager like me to deal with our money besides saving and putting it in the fixed deposits?
Thanks a lot for your guildance.
REPLY
You can read this FAQ
http://www.tankinlian.com/faq/fptips.html
And more FAQs at: http://www.tankinlian.com/faq/
All the best for your future.
I just happened to came to your blog and started to read about the posts that you posted. I think it gives good information for the public.
I am currently serving National Service. I have been reading a lot about financial planning. I hope that I can manage my money better. Is there any advise for teenager like me to deal with our money besides saving and putting it in the fixed deposits?
Thanks a lot for your guildance.
REPLY
You can read this FAQ
http://www.tankinlian.com/faq/fptips.html
And more FAQs at: http://www.tankinlian.com/faq/
All the best for your future.
Importance of low cost product
If you invest $5,000 yearly for 20 years and earn 5% per annum, you will get $165,000 on maturity.
If you pay an annual premium of $5,000 into an endowment policy, your gain of $65,000 may be reduced by about 50%. You will get a maturity benefit close to $132,000 giving you a net return of 2.7% per annum.
Where does the remaining $33,000 of the gain goes to? The likely component are:
* marketing and other expenses: $20,000
* cost of insurance: $6,500
* profit to the insurance company: $6,500
* total $33,000
Most insurance companies have high expenses, especially in paying commission to the agent. If you choose a company that have lower expenses, you can save $5,000 to $10,000 and get a higher return.
If you buy term insurance (about 5% of the premium) and invest the remaining 95% in a low cost, diversified fund, you can save on a large part of the $26,500. You have to invest in a low cost fund, so that most of the return will go back to you, and not to the fund manager.
Note: The maturity amount is not guaranteed as it depends on the actual return from the investments over the next 20 years.
If you pay an annual premium of $5,000 into an endowment policy, your gain of $65,000 may be reduced by about 50%. You will get a maturity benefit close to $132,000 giving you a net return of 2.7% per annum.
Where does the remaining $33,000 of the gain goes to? The likely component are:
* marketing and other expenses: $20,000
* cost of insurance: $6,500
* profit to the insurance company: $6,500
* total $33,000
Most insurance companies have high expenses, especially in paying commission to the agent. If you choose a company that have lower expenses, you can save $5,000 to $10,000 and get a higher return.
If you buy term insurance (about 5% of the premium) and invest the remaining 95% in a low cost, diversified fund, you can save on a large part of the $26,500. You have to invest in a low cost fund, so that most of the return will go back to you, and not to the fund manager.
Note: The maturity amount is not guaranteed as it depends on the actual return from the investments over the next 20 years.
Thursday, November 01, 2007
Double coverage for medical insurance
Dear Mr Tan,
I am insured for group medical by my company. An insurance agent advised me to buy a Shield plan from his company so that I can continue to get coverage after I leave this employer. I read your previous posting that this is double coverage. What should I do?
Which company offer the best Shield plan? Is it NTUC, AIA or Avivia? What is your advice?
REPLY
If you buy a Shield plan on top of the medical insurance provided by your employer, you are paying the full premium for the Shield plan for partial or no coverage, as most of the medical cost can be met from the employer's plan.
Here are two better options for the employee:
1) Ask your employer to buy a Shield plan. This allows allows you to continue the plan on your own when you leave your employer, i.e. the plan is portable. As the Shield plan has a deductible, you can ask the employer to buy the rider to cover it. If the total cost to the employer is higher than the group plan, you can volunteer to pay a portion of the total cost.
2) Ask your employer to stop the group plan and contibute the premium to your Medisave account. You can pay for your own Shield plan using the Medisave.
Both options avoid the wastage of double coverage and reduces the cost to the employer and employee.
I am not familiar with the coverage and premium charged on the Shield plans by the various insurance companies. I am not able to comment on the plan that is best for you.
I am insured for group medical by my company. An insurance agent advised me to buy a Shield plan from his company so that I can continue to get coverage after I leave this employer. I read your previous posting that this is double coverage. What should I do?
Which company offer the best Shield plan? Is it NTUC, AIA or Avivia? What is your advice?
REPLY
If you buy a Shield plan on top of the medical insurance provided by your employer, you are paying the full premium for the Shield plan for partial or no coverage, as most of the medical cost can be met from the employer's plan.
Here are two better options for the employee:
1) Ask your employer to buy a Shield plan. This allows allows you to continue the plan on your own when you leave your employer, i.e. the plan is portable. As the Shield plan has a deductible, you can ask the employer to buy the rider to cover it. If the total cost to the employer is higher than the group plan, you can volunteer to pay a portion of the total cost.
2) Ask your employer to stop the group plan and contibute the premium to your Medisave account. You can pay for your own Shield plan using the Medisave.
Both options avoid the wastage of double coverage and reduces the cost to the employer and employee.
I am not familiar with the coverage and premium charged on the Shield plans by the various insurance companies. I am not able to comment on the plan that is best for you.
Give a fair return to the policyholder
Dear Mr Tan,
I am a regular visitor to your blog, which I find it quite informative. You have been advocating "Buy Term and Invest the rest".
Are you also saying that there is no need for one to buy whole life or endowment policies as they do not yield better returns?
If I extrapolate, does it mean that on hindsight, when you were CEO of Income, products such as Living Policies should not have been sold? I hope to see your response to this issue in your blog.
REPLY
1. NTUC Income launched its Combined Funds in 2003. I have been actively promoting these products under its Flexi-Link and Ideal plans. These investment products have low charges and give good value to the policyholder. The insurance protection can be bought seprately through term insurance. Most of my personal savings are in these products.
2. The Endowment and Living policies from NTUC Income give a fairly satisfactory return ,due to lower commission rates,. The return is higher than similar products from other insurance companies. They are suitable for policyholders who prefer to have the discipline of regular savings.
3. For most young people, who needs flexibility in their savings, "buy term and invest the difference" is a better choice. The investment should be made in large, well diversified, low cost funds. The Combined Fund from NTUC Income meet this criteria. Another option is the STI Exchange Traded Fund.
4. I have always upheld the principle that a insurance product must be designed to give a fair return to the policyholder, while leaving a fair margin to pay the expenses to market and manage the product. During my tenure, I kept the expense low, so that the policyholders can get a fairly attractive return for their long term savings.
I am a regular visitor to your blog, which I find it quite informative. You have been advocating "Buy Term and Invest the rest".
Are you also saying that there is no need for one to buy whole life or endowment policies as they do not yield better returns?
If I extrapolate, does it mean that on hindsight, when you were CEO of Income, products such as Living Policies should not have been sold? I hope to see your response to this issue in your blog.
REPLY
1. NTUC Income launched its Combined Funds in 2003. I have been actively promoting these products under its Flexi-Link and Ideal plans. These investment products have low charges and give good value to the policyholder. The insurance protection can be bought seprately through term insurance. Most of my personal savings are in these products.
2. The Endowment and Living policies from NTUC Income give a fairly satisfactory return ,due to lower commission rates,. The return is higher than similar products from other insurance companies. They are suitable for policyholders who prefer to have the discipline of regular savings.
3. For most young people, who needs flexibility in their savings, "buy term and invest the difference" is a better choice. The investment should be made in large, well diversified, low cost funds. The Combined Fund from NTUC Income meet this criteria. Another option is the STI Exchange Traded Fund.
4. I have always upheld the principle that a insurance product must be designed to give a fair return to the policyholder, while leaving a fair margin to pay the expenses to market and manage the product. During my tenure, I kept the expense low, so that the policyholders can get a fairly attractive return for their long term savings.
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