Wednesday, April 30, 2008

Invest separately for higher return

Dear Mr Tan,
Thanks for your great advice in your blog, I always thinking that NTUC is the best insurance company in term of its low premium compared to other companies. However, after go through your article, I start to wonder.

Recently I have just bought a living policy (VIVO life) for my wife, my son and me, I attached the policies for your reference.

Would you mind to advice me whether I should continue or cancel this policy and change to Term policy instead?


In the table below, I tabulate the cash value for each policy at the end of 20 years (based on 3.75% and 5/25%) and the amount that you can get by investing the same premium to earn a net yield of 4.5%

policy Annual Cash value 20 years Amount
premium @3.75% @5.25% @4.5%
Self $1,454 $31,294 $34,907 $47,666
Wife $1,217 $26,428 $29,478 $39,890
Son $1,171 $27,105 $30,234 $38,389

You can get about $10,000 (or 30% more) more for each policy by investing separately. If you buy decreasing Term insurance to provide the protection, the cost is very low. The Vivolife policy gives a poor return due to its high expenses, which are taken away from your savings.

It is better for you to buy Term insurance and invest the difference, as explained in this FAQ:

You should have adequate life insurance cover on your life (say about 5 years of your income). You can buy a 20 year Decreasing Term or level TErm insurance.

REad this FAQ:

I hope that this information is helpful for you to make an informed decision.


Anonymous said...

First mistake is you bought the wrong product that didn't cover you against the risk of critical illness ADEQUATELY becuase if you tried you might not afford it.Your need is 3-5times your annual salary. If you buy for the sake of just having one, forget about it. You are not serious.
Secondly , have you addressed all your OWN other concerns before trying addressing your dependents?
Thirdly, your son might not need it.
Fourthly, to address CI, first line of defence is an H&S medical plan, cheap and good for all weather. You need CI cover becuase you need to cover your earnings.The others no earning, right?
Fifthly, vivolife shortchanges you all round from protection to return.
Sixthly, you have been conned by the frills, supplementary benefits which don't really matter to you whether you have them or not.
Seventhly, If your agent is a good adviser and honest and competent one, vivo life would not have been recommended. Simple reason is , it is expensive and you DON"T NEED for whole life and you have OTHER NEEDS to take CARE at the same time. Your so called consultant didn't allocate your finances EFFICIENTLY AND EFFECTIVELY.The result is YOU DON'T HAVE PEACE OF MIND. You still have shortfall and you are walking around with that shortfall wondering if something were to happen will there be enough to take care of the situation.
The truth of all this is agent wants to make a high commission out of you. Your interest is subordinate to his or hers.You don't have enough it is YOUR BUSINESS.
With the outcry about the annual bonus the more you should not touch this product.In the EARLY years you need MOST but you get the LEAST.They tell they give you if you hold for very long time. Let me tell you this product sucks and rotten to the core and that is why they need some other useless benefits to dress it up so that you won't see the truth.

blackbox said...

Investing is simple but not easy. This is because one has to be on top of his emotions.

Therefore I disagree with Mr Tan in recommending this strategy straight away. It is more prudent to have a better understanding of investing first.

If one does not understand the game of investing, I recommend you to read the following books before Buy Term Invest the Rest.

1. Random Walk Down Wall Street
2. The Intelligent Asset Allocator
3. Stocks for the Long Run
4. John Bogle on Investing
5. Irrational Exuberance

Meantime, terminate your Vivolife and buy a Term plan. The best is a decreasing term. Buy under Family Insurance Plan from NTUC Income; this is their true blue secret no one tells.

Anonymous said...

9.32pm, i like what you say about the ' true secret no one tells'. Exactly, this kind of secret the agents won't tell you or persuade you to take. This family insurance is the best becuase they meet your family protection needs adequately and fully at affordable cost. Ntuc agents always talk about sincerity, caring, I love u, and those bullshits (if only i can use expletives to describe the agents). The agents are ONLY interested in their own pockets.

Anonymous said...

Blackbox, but that is for those who want to DIY. Educate yourself is the best ; you have full control.
But for the majority an adviser is needed. This is a big headache. You have a lot of insurance agents masquerading as consultants to planner and wealth managers. Just like ntuc agents suddenly overnight they became experts and started calling themselves consultants. So how to spot a bogus insurance agent from a genuine adviser who is qualified,competent and honest.
There are 12,000 of them. Although somebody said that there are only 20% are qualified but how to filter them from the rest.
Maybe the answer is looking at their credentials but then with today kind of multiple choice exam
some of them got through by luck.Some even got by buying through some open book 'exam' and get their title within 1 week. Agents are crazy about titles and they pay to have them and you can see on their name cards all of sorts of ABC. Nevertheless the credentials tell you something. The
credentials which are stringently controlled come to mind are CFA and CFP or MFP. These are globally recognised titles.
Far more important than titles is watch out out how they approach your concerns. If they whip out a product or talk about a product you can terminate the meeting right away. But if they start asking a lot of relevant questions and probe your financial circumstances and many useful info and then crunch some figures maybe you can consider. I say "maybe" becuase agents are very clever. They are cheaters; they are good at changing
to fool you.They carry laptops to look impressive and they will input some figures to give figures.Don't be fooled.
Next is to get referrals from some friends or get the advisers to provide you cleint referral so that you can ask their clients about them. If they agree and not afraid and again maybe you can use becuase they will refer to thier cleints who are pro them.
Next is to suspect all advisers. Ask questions and right questions.How? Learn how to ,you can come to this blog for help.You can pose your concerns here or write to MR. Tan. You see, Mr. Tan doesn't charge a cent.

blackbox said...

Hi 1:15pm,

It is indeed a difficult problem to solve.

It is not only a problem of the agents but also a problem of the insurers.

Most insurers are crafting products that would most probably ruin a person's financial future rather than enhance it.

The banking / fund management industry is equally as bad. Most unit trusts have high expense ratios. Some products are structured are have risks difficult to assess.

Therefore the best way to reach financial freedom is to educate oneself and DIY. This is my personal conclusion.

Anonymous said...

My advice to the poster. Cancel all the policies if they are recently bought. Cut your losses.

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