Friday, February 01, 2008

Helping Singaporeans cope with recession

Read this article
Give your views in this survey
Here are the results.

Keep your savings in your personal insurance policy

A mother bought an endowement policy in the name of her son. The policy matured recently and a cheque was delivered to the home. The son was under custody for drug rehabilation.

The mother was worried that if the maturity money is credited into the son's account, he will use it to buy drugs.

But she is stuck. The money legally belonged to the son, even though she paid the premium over the years. The mother is poor, and actually need the money for her own use.

Lesson: It is better to keep savings in your own name, and not in the name of your children. You can use the money for their education or other suitable purchase at a future date. If you buy the policy in the name of your child, you will lose control of the money.

Invest on your own

If you invest on your own in the stock exchange, you can reduce your expenses considerably. If you buy shares or the exchange traded fund, you pay a brokerage of 0.3%. There is no annual fee.

If you are not sure about the shares to select, invest in the STI exchange traded fund. It is invested mainly in about 30 Singapore blue chips that make up the ST index. This gives you diversification.

1,000 STI ETF will cost you abotu $3,200 now. If you are investing your monthly savings, you may have to wait for 1 year to accumulate sufficient savings to buy 1,000 shares.

You can offer a price between the buy and sell price quoted on the exchange. Your order will stand in the queue, waiting for someone to sell to you. If you are keen to buy immediately, you can pay a higher price to match the sell price on the board.

If you have a large sum to invest (say $100,000 or more), you can select 5 to 10 blue chips and invest $10,000 to $20,000 in each share. This will give you some degree of diversification. It is like creating your own portfolio.

You will need to open an account with a stockbroker and a CDP account.

Real Estate Investment Trust (REIT)

The share prices of the Real Estate Investment Trusts (REIT) are now about 20% below its recent peaks. The yields on many REITS now range from an an attractive level, from 5% to 8%. Rentals on the properties owned by the REITS are expected to remain strong over the next few years, giving support to the high yield. This is an attractive class of investment.

Thursday, January 31, 2008

Tribute to Mohideen Gany

My dear friend, Mohideen Gany, passed away peacefully this afternoon. He was among the top sales producers of NTUC Income during the initial years.

At that time, the commission paid on the sale of life insurance policies was extremely low (less than one fifth of the level today). He and several dedicated union officials worked hard during their spare time to promote the business of NTUC Income.

I have known Mohideen Gany as a very close friend for the past 30 years. I called him Anneh (elder brother).

I visited Mohideen Gany in hospital last week. I visited him in his home yesterday after his discharge. Although he was very sick and in pain, he was still alert and gave me a happy smile when he know of my visit.

I shall miss a great friend.

Actuary joke: Feeling comfortable

The actuary says, "If you put one foot in the oven and another foot in the freezer, your average body temperature will be quite comfortable".

Joke: Criminal lawyer

"Do you have a criminal lawyer in this town?"

"Well, we are pretty sure we do but we haven't been able to prove it yet."

NTUC Growth Fund

Dear Mr. Tan,

I have invested in NTUC Growth fund. I saw that this fund's past performance is very good, outperformed most global balanced fund on the market. However, this is also during the period when you are CEO of NTUC.

I am not sure whether I would continue my regular savings plan on this fund any more since the new managment does not do many good things for the customers nowadays. I worried about this fund's future performance. Also, information of all NTUC fund doesn't seem to be trasparent to customers, we cannot download annual report and prospectus like most other fund.

After some research, I found that there is one fund from UOB UOB Growthpath series which has its major holding on index fund. Althought this fund's performance doesn't seem to be as good as NTUC Growth fund, but the index component keep this fund's ER as low as 1.17%.

I would like to seek your opinions on investing long term on this fund in stead of NTUC growth fund.


I am not familiar with the UOB Growthpath series. But, from what you have described, it looks like a good fund.

The Growth Fund from NTUC Income should continue to be a good fund, as it is well diversified, actively managed (by external fund managers) and has a low expense ratio.

If you have any issue with the access to information from the website, you can bring it to the attention of the management of NTUC Income.


Dear Mr, Tan,
I am looking at the product by Income, the Vivolife. How would you rate this product?


Please read the various comments (from me and other people) about this product in my blog:

My advise is "Buy Term insurance and invest the difference".

Read this FAQ

Selling profitable products

Mr. Tan,

Was the NTUC Income Limited Premium Whole Life introduced when you were still CEO of Income? If yes, can you give a comment why you allow such a bad product to be launched when you were in office?

Is it because while in office, you have to ensure good revenue for the company and hence has to sell PROFITABLE product? If so, how can the public be very sure that your new "campaign" against your own company is not due to some hidden agenda? (Not particularly to this product)

When you were in office, why did you allow your company to sell endowments, whole life to the public and have the agent earn a big commission? You should have eliminated all participating products and fire all your agents. Can you explain?

I like to bring to your reminder that your insurance agents were responsible in bringing Income to this level of success. Without them,you cannot never have achieved what you had achieved. Do not forget that your success was due to the hardwork of many AGENTS for without sales, you will have no salary when you were CEO.

For your information, I was not and I am not a NTUC Income agent.


I have covered this point on a few occasions in the past.

During my time, the Income agents sell products at a modest level of commission and were able to bring products at lower cost to the customers. This was an efficient means of marketing at that time.

The endowment and whole life policies sold in the past gave much better value to the policyholders compared to similar products in the market.

During my time, I was not concerned about selling PROFITABLE products, because most of the profits go back to the policyholders. I was only concerned about offering products that serve the needs of the policyholders and are fairly priced.

In today's environment, there are more efficient ways for customers to take care of their financial future. I recommend that they buy Term insurance and invest the difference.

Agents can continue to make a living by acting honestly, giving good advice, in the interest of the consumer. Do not exploit the ignorance of the consumer.

Policy will soon be withdrawn

Dear Mr. Tan,

A NTUC agent is trying to sell my the Limited Premium Whole Life policy. He said that this policy will soon be withdrawn and replaced by a new policy that offers lower return to the policyholder. He asked me to sign before the deadline. Please advise me.


You should compare each policy on its own merits. What is the cost of insurance? What is the return? Is there a better option to get the coverage? Do not buy a policy just because it will soon be withdrawn.

Generally, a whole life policy provides a poor return, due to the high upfront expenses. The insurance agent wants to sell this policy, to earn a higher commission.

It is better to buy Term insurance and invest the difference. Read this FAQ

Wednesday, January 30, 2008

Payment of claims

Dear Mr. Tan,

I am planning to get two policies from Income. I heard alot of negative feedbacks from friends and insurance agents about the difficulty of claiming the payout. One friend mentioned that her relative did not get the gaurantee payout as printed on the insurance form.

Do you have any comments about this? Particularly about the difficulty of making claims from Ntuc tt you are no longer working in Income... I thinkyour comments would be fair and just.


Agents from other insurance companies have been passing this message "difficult to claim from NTUC Income" for the 30 years or longer. This is totally untrue, but the agents felt that this was the only way to turn customers away from the better value products offered by NTUC Income.

There were many instances where NTUC Income was the first to pay a claim, way before similar claims were paid by other insurance companies. NTUC Income practiced prompt and fair settlement of claims. I believe that the pro-customer claim practice continues today.

Wish you all the best.

CPF Medishield

CPF MediShield is being revised. It will cover a wider range of treatment and cover an average of 80% of hospital bills (increased from the current 60%). The premium will be increased by an average of $10 a month.

For most people, CPF Medishield (after the revision) is better than the Shield plans offered by private insurers for the following reasons:

1. Saving of about 15% of premium in marketing expenses (incurred by private insurers).
2. Saving of about 15% to 25% in the profit margin of private insurers

The potential saving in insuring with CPF Medishield could be 30% to 40% for the same type of coverage.

As most of the medical expenses will be incurred when one gets old, and the cost is likely to escalate due to age and inflation, it is important to choose a cost effective medical insurance plan, such as Medishield.

Global warming

China is having its most severe winter in many years. The climate in many parts of the world is going through severe changes. I believe that this is caused by global warming.

Actuary joke - Definition of an actuary?

Someone asked for a joke about the actuary. Here it is:

... An actuary is a person who passes as an expert on the basis of his prolific ability to produce an infinite variety of incomprehensible figures calculated with micrometric precision from the vaguest of assumptions based on debatable evidence from inconclusive data derived by persons of doubtful reliability, for the sole purpose of confusing an already hopelessly befuddled group of persons who never read the statistics anyway.

Explanation: Some actuaries are highly thereotical and get carried away with numbers. I hope that most actuaries are practical, and are able to explain difficult concepts in simple terms.

Tuesday, January 29, 2008

Exchange Traded Funds

Mr. Tan,

I enjoy reading your blog as it gives me a very rational and unbiased view of the investment products available . You mentioned indexed funds and ETF's as low cost funds.

I know of examples of ETF e.g. the STI ETF and Lyxxor ETF's. What are the examples of indexed funds available and how do I purchase them.


You can buy the ETFs from the Singapore Exchange, through a stockbroker.
Visit this website:

Quotation for Term Insurance

My friend carried out a survey to get a quotation for a Term insurance plan by calling the hotline of the life insurance companies. Here are his findings:

1. Prompt response:

Within same day: TM Asia, AXA, Great Eastern
Within two working days: UOB, Income, Prudential, Aviva

2. Ease of getting a quotation:

Verbal, Email (with printed quote): UOB, TM Asia, Great Eastern
Email (no printed quote): Aviva
Verbal: AXA, Income, Prudential

3. Most competitive rates:

Top 4 (ranked): UOB/Aviva (tie), TM Asia, Income

Here are the telephone numbers to call:

Inflation and investment

Dear Mr. Tan,

Inflation is expected to increase to 5% in 2008. Interest rate remains very low, less than 2%. The stockmarket is volatile. How should we invest our money to be protected against inflation?


The high rate of inflation is caused by temporary factors, i.e. the large increase in oil price and the increase in GST. I hope that it will return to a low level from next year.

If you are investing for the long term, it is better to invest in an investment fund with at least 50% in equities. It is likely to give a return that is higher than inflation in the future. (My estimate is 6% over the long term.)

The global stockmarket has corrected from its high level. While it may remain volatile in the short term, the current level represents fair value, as it is a discount of 20% from the recent peak.

Read this FAQ:

Avoid High Charges on your ILP

Dear Mr. Tan,

I've been approached to invest in an AIA ILP recently. I understand that I may need to pay for mortality charges should I decide to buy it. Are the rates are the same for all insurers? Any website that I can go to compare them? Pls advise.


You can compare the mortality charges with the Term insurance rates set out in this FAQ:

More importantly, you have to make sure that you are not paying a large upfront charge on your investment?

Read this FAQ:

Vitamin Account

Dear Mr. Tan,

I have invested $X in the Vitamin account from a large local bank for the past 2 over years. I received a total payout of 4.1% to date, and the value of my investment is now 89.5% only. This means that I will lose more than 6% if I withdraw my investment now. Instead of getting a positive return for the past two over years, I get a negative return.

I made this investment because it is principal protected, but I did not realize that I will have to suffer a loss if I withdraw early. Looks like I will have to be stuck with this bad investment until the maturity date.


Many people have invested in this product, and they are now stuck. Some have decided to withdraw their money and take a loss.

I understand that the return is quite low. If the return is more than 3%, the bank has the right to redeem the investment. If the return is negative (as is the case now), the customer is stuck for 5 or 6 years.

This does not appear to be fair. Perhaps you can complain to the Monetary Authority of Singapore.

Insure large risks with low probability

Buy insurance only for large losses with low probability of occurrence, such as death or disability by accidents, or total loss of a house by fire or a major traffic accident. Do not insure for small losses that occur quite frequently, such as short term sickness.

The best way to provide for loss of income and medical expenses due to short term sickness is through your personal savings. If you have adequate savings, you can use them for emergency.

As a rule of thumb, you should insure for an event that may occur only once in 5 years or longer. If it occurs more frequently than five years, you can fund it through your savings.

Housing loan on floating interest rate

Dear Mr. Tan,

I need your advice. My current housing loan interest rate is about 4.5%. Should I re-price it now on floating rate basis SIBOR + 1.25%, or wait a few months later?

I read that SIBOR will be much lower in middle of the year. If I sign on now, the SIBOR rate will be locked it at the current rate (i.e below 2%) for next one year.


Currently, you are paying 4.5%. The locked in rate for the next 1 year will be less than 3.25%. So, you are benefiting from the difference in interest rate. After one year, you will be on fully floating interest rate.

I think that you should switch now, rather than wait for a drop in SIBOR rate. I am not able to predict the short term trend in interest rate, so I am not able to help you on your timing decision.

Monday, January 28, 2008

Medical insurance exclude "pre-existing conditions"

Dear Mr. Tan,

I work in a small company. Recently, my company engaged a broker to place our employee insurance. The group medical insurance arranged by the new broker excludes "pre-existing illness". Many employees had their existing medical conditions excluded, when they were covered by the previous medical insurance scheme. How can we get covered for these conditions?


Under normal circumstance, the "pre-existing condition" should only exclude the serious conditions. It should not exclude the minor conditions. It is the broker's duty to get the best coverage for your company.

If the broker is not able to arrange a better coverage, it is better for the company to give a cash sum to each employee, so that the employee can buy a personal Shield plan. This Shield plan will continue even after the employee leaves the company or retires from work. This is the concept of "portable" medical insurance.

Lawyer Joke

A man showed a lawyer and $50 note and ask him whether, in his opinion, it was genuine. The lawyer examined the note and said, "It seems perfectly genuine to me. "

He then placed the note in his pocket and said, "My minimum fee for advice is $70, so if you just let me have another $20, that will finalise the matter."

Sunday, January 27, 2008

Logic Quiz was great fun

I received this message from my American friend,

Kin Lian: I concluded the Einstein quiz and it was great fun. I glanced at your method and picked up an important hint, so I can't say I did it all on my own - but I was headed in the right direction. I've also done your "four house" quizzes, which were quite enjoyable. I will try the fives and sixes after that. They really are a lot of fun and keep the mind spinning!!

Here is the link to the Logic Quiz (also Einstein's quiz):

Insurance on a landed property

Dear Mr. Tan,

I recently bought a landed property for $1.5 million. Do I need to buy fire insurance for the entire sum? If I insure for a lower sum , can I claim up to the amount that I have insured for?


You only need to insure for the replacement cost of the building, excluding the cost of the land. For a landed property in Singapore, the land cost is higher than the building cost, so you only need to insure for about half of the purchase price. A good rule of thumb is to multiply the build in area of your house by (say) $200 to $300 psf, depending on the quality of finishes.

If you insure for less than the replacement cost, you are considered to be the co-insurer for the uninsured portion. For example, if the replacement cost is $800,000 and you insure for only $600,000, you are deemed to be the co-insurer for the remaining $200,000, i.e. 25% of the property. In the event of a loss, you can only claim for only 75% of the loss.

Make sure that your property insurance cover fire and other perils, such as lightning, explosion, collision, windstorm, bulgary, flood and natural disasters.

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