Saturday, June 07, 2008

Financial Planning and Inflation

The past 15 years have been a period of relatively low inflation. Inflation rate has picked up this year. It is likely to stay high in the future.

We now have to factor inflation into our financial planning. This article contains some tips on how you can take inflation into account.

Save for your child's education

If you wish to save for your child's education, you have two options:

> endowment policy (also called education policy)
> low cost investment fund.

This FAQ explains the difference

Tip: Save in a low cost investment fund. It gives a better yield and is more flexible.

Participating Life Insurance Policies

The participating life insurance policies was created more than 100 years ago. The policyholder pays premium into the policy, to be used to pay the death benefits and expenses. The remainder is invested to earn a good rate of return (compared to the yield that the individual policyholders could get on their own). The actuaries were specially trained to treat policyholders fairly and to distribute the surplus fairly in the form of reversionary bonuses.

Much has changed during the recent 20 years. Many insurance companies have been converted into for-profit companies. There is greater competition to get new business, leading to the launching of new series of policies with complicated bonus structures. In this chaotic situation, it is likely that many policyholders will get less than their fair share of the returns.

Many policyholders wonder why their yield on maturity is so low, compared to the investment yield earned by the life insurance fund. Although a large part of the yield is taken away to cover the high cost and expenses, they wonder if they are given their fair share of the remaining yield.

In today's environment, the participating life insurance policy is an unsatisfactory product to the consumer. It gives a poor yield and is not transparent.

Tip: Do not put your long term savings in a participating life insurance product. It is better to buy term insurance for the protection and to invest in a low cost investment fund. Read this FAQ:

Sudden Shift left me high and dry

Dear Mr. Tan,

My company had a Workmen Compensation Insurance Policy with X. In a letter to my company dated about 1 month before the expiry (but in fact posted late as I only received it only 2 weeks before the expiry), X said that they will not renew the policy any more.

On checking with my agent, I found that the X's new practice requires my company to buy "fire and theft" insurance with premium of 100% more than the premium for "Work Injury Compensation" (new name for "Workmen Compensation) before it can be accepted.

My questions are as follows:
a) If X changed it practice, why was it communicated so late to its existing customer?
b) If the claims for "Workmen Compensation" was high, why did it not raise the premium for this cover, instead of forcing the customer to buy other policies?
c) Why does the Ministry of Manpower allow this to happen?
d) Is X using its strong market position to unfairly?

After all, this "Work Injury Compensation" system is mandated by MOM. MOM should settle some of these ground rules so that the system can operate in an efficient and fair way. MOM cannot say "let market forces decide" because it is not a completely free market with many buyers and many sellers but a market with many small buyers who are "forced" to buy something and a small number of big sellers)


What a wasteful world!


We are a wasteful world. We bring people from the rural areas into crowded, congested cities. They spend several hours each day commuting to and from work. A lot of time and energy is wasted in this commuting.

We produce material goods that are excessive for a comfortable life. We have too many products and choices. We buy too many things that we do not use, to be thrown away. We keep producing more, and use up the limited materials and minerals.

We work too many hours in an excessively competitive environment. We compete to survive. We destroy our competitors and take over their assets. We have too little time to enjoy leisure.

No wonder - we are short of oil, minerals and food. We see the huge spike in prices. It will lead to more hardship on the poor. It may lead to unrest.

The capitalist, free market system has not given people a good life. It is time to re-think of a new model for the world.

AUD Fixed Deposits

I searched the Internet to find out the interest rate on 3 month fixed deposit offered by various banks in Singapore.

Small Large
deposit deposit
ICICI 8.29% 8.34%
ANZ 7.58% 7.58%
RHB 7.3% 7.3%
DBS 6.99% 7.21%
UOB 6.38% 6.58%
HSBC 6.2% 6.5%

Note: Large deposit is usually for SGD 200,000 or more. But it differs according to the bank.

Tip: Source the internet to get an idea about the interest rate offered by the bank on the deposit. Usually, 3 month is a good period to invest, unless you wish to take a longer term view. You can convert your SGD to the foreign currency with a online stockbroker and transfer the foreign currency to the bank that offers the best interest rate.

Get a better yield on your savings

Singapore banks make huge profits, or $1 billion or more. Their profit come from the following sources:

> High margin between the interest rate that they charge to borrowers and the interest rate that they pay to depositors
> High charges on conversion of foreign currency, e.g. spread of more than 0.5% (compared to 0.15% charged by efficient online brokers).
> High fees for bank transfer and other services.

I hope that the banks can give a better deal to their customers, as follows:

> Pay higher interest rate on fixed deposits
> Reduce the spread on currency conversion
> Reduce their bank charges

There are many online portals that can offer lower charges and fees, and better conversion rates. If you search the internet, you can also find banks that offer better interest rate on fixed deposits. I advice consumers to be more active in searching for the best deal through the internet.

FAQ: Traded Endowment Policies

1. What is a traded endowment policy?

A traded endowment policy is a policy that is sold by the policyholder to an investor. The investor pays a sum that is higher than the surrender value offered by the insurance company.

The investor will continue to pay the premium under the policy and will collect the death or maturity benefit on the policy.

The investor expects to get a good rate of return on the amount paid to buy over the policy, and the future permiums paid.

2. Is it advisable to invest in a fund of traded endowment policies, where the fund manager undertakes to manage these policies?

It depends on the following:

> Is the fund manager reliable and trustworthy?
> What are the charges taken away by the fund manager?
> What is the underlying gross and net yield of the fund, after deducting the charges?
> What is the underlying risk of the traded endowment policies?

3. What is the underlying risk of the traded endowment policies?

These traded endowment policies carry the following risks:

> The future bonuses paid under the policies may be reduced. This will reduce the expected yield.
> The insurance company may become insolvent
> The fund manager may overlook to keep the policy in force, leading to its termination

These risks have to be factored in considering the net yield on the fund.

4. What is a satisfactory rate of return, considering the risk?

If the investment is in the UK, you should compared the expected yield on the traded endowment fund with the yield from UK Government Bonds.

You should expect to get at least 2% to 3% higher than the bond yield of similar duration, to compensate for the higher risk.

If the fund has a duration of 5 years and the UK bond yield for 5 years is 5%, you should expect to get a net yield (after deducting the fund manager’s fees) of 7% or 8% from the traded endowment fund, to make it worth the risk.

5. Do you invest in traded endowment policies?

I avoid investing in this type of product as I am not familiar with the risk, the yield and the integrity of the fund manager.

I prefer to invest in Government bonds or equities, as these products are traded on the exchange and there is liquidity. flexibility and price transparency.

Tan Kin Lian

Investing in foreign currency deposits

Here are my tips for investing in foreign currency deposits. They are based on my personal experience:

1. Get a good rate when you convert from Singapore dollars to the foreign currency. Find out the buy and sell rate for the currency. Take the middle of these rates (which is usually the interbank rate). Find out the spread charged by the bank, which is the rate that you pay, compared to the interbank rate. A good spread is 0.15%. If the spread is more than 0.2%, you should take the trouble to convert the money elsewhere.

2. You can convert the money with an online stockbroker, such as Phillips, and pay a spread of 0.15%. You may have to pay some bank charges, but the amount is quite small. You can compare the total cost, i.e. the spread and the bank charges, to decide which is the best option for you.

3. You can call a few banks to check the interest rate that they pay on the fixed deposit. If you tell your bank about the rate quoted by other banks, they are likely to match it.

4. On withdrawal of the fixed deposit, you can convert the foreign currency into Singapore dollar in the same way, i.e. move the foreign currency to the online stockbroker to get a better conversion rate.

Here is an example. You wish to convert SGD 100,000 into Australian dollars. The bank quotes the buy and sell rate as 1.3015 and 1.3210. The middle rate, or interbank rate is 1,3112 (i.e. mid-way between the buy and sell rates). The spread charged by the bank is 0.75% (i.e. 1.3201 divided by 1.3112).

If you convert the money at Phillips (through POEMS), you are given a spread of 0.15% above the interbank rate. You will be charged 1.3132. However, as the interbank rate changes each few seconds, you will find this rate changing as well.

If you are converting $50,000, you will be able to save $390 by converting with Phillips. You may have to pay $100 or less in bank charges. You can still make a saving by taking some trouble. If you are converting a larger sum, say $100,000 or more, your saving will be more.

If you convert the money at Philiips, you can transfer it to another bank to earn a better interest rate on the fixed deposit.

Friday, June 06, 2008

Adequate Wage in Singapore

Extracted from

I wish to say a few words on why there should be a minimum wage. It is necessary to ensure that the weakest members of our society, i.e. the poor and lower educated, are given a wage that is sufficient to meet the cost of living and raise a family. They should not be required to work 12 hours a day or two jobs, just to earn enough.

Most countries in the world has a minimum wage, including the low income and high income countries. Even the USA, which is the worlds biggest proponent of the free labour market, has a minimum wage.

A minimum wage may not increase the business cost significantly. It just reduces the huge profit earned by the business owners, salaries of the top management and the rental costs. The share of business cost of the minimum wage earners is probably not significant, except for labour intensive industries.

There is less economic pressure for a minimum wage policy in a big country. If necessary, a person can move to live in a low cost part of the country. Some people can go back into farming, for example.

But in a small country like Singapore, the choices are limited. So a minimum wage policy is necessary.

The argument against a minimum wage is that it will drive jobs to other countries. Let us look at the facts. Are our jobs going overseas? Hardly!

We have the opposite situation. Many jobs are created in Singapore, that have to be filled by low wage workers from other countries.

I am surprised at the large number of these foreign workers. They increase the demand on our public infrastructure and facilities and increase the congestion in Singapore. Is this good for Singapore?

These low cost foreign workers compete with our local workers. Many of our local workers cannot find jobs and have to be unemployed. The unemployed are criticised for being “choosy”. Is this true? Many of our elderly are willing to take menial jobs as cleaners just to survive. I respect them. I hope that we can give them a decent wage for their work.

We must remember that there is a high cost of living in Singapore. More so, for a worker who has a family to feed. We cannot expect them to accept the same wage that is adequate for a foreign worker who feeds a family in a low cost country.

Tan Kin Lian

Call hotline for the best quote

Hi Mr. Tan,
I read from your blog, you mentioned that X offers competitive rates for motor insurance. For many models of cars, the rates are up to 15% lower than our competitors.

How can this be, when I was quoted a higher rate compared to another insurance company? I was quoted $518 for my next renewal with X, 50% NCD + 5% loyalty discount. A good friend recently renew his motor insurance with another company and he was quoted $460 for his renewal on the same terms.

I emailed and called X for clariffication. No one could give me a satisfactory answer. When I asked a customer officer if X could give me a better requote, she said NO and its not negotiable.

How wonderful. Seems like i have no incentive or reason to stick to X anymore, as X is now charging more than others. That's all I have to say for now. Thank you for reading this email.

In past years, X offered competitive quotes. I understand that the increased their premium rates by about 20% (or more) this year. They are no longer the most competitive.

I now advise consumers to call the hotlines of insurance companies to get the best quote. Read this FAQ:

Thursday, June 05, 2008

Restore the Annual Bonus


I note this part from the Income's Chairman's speech:"Should the special bonus in future reduce due to adverse financial conditions, we are committed to restoring it when conditions improve."

That is good to know. But if that is the policy, why not do it for the annual bonus? It was cut in 2003 because of adverse financial circumstances. Since then, the company has done well, with returns averaging 7.8 per cent over the last 10 years.

So, why not put those words into practice: "...we are committed to restoring it when conditions improve."Conditions have improved. Where is the restored bonus?

Larry Haverkamp

Extract from speech by Income's chairman

Extract from the speech by chairman of Income, made at the annual general meeting on 30 June 2008:

Some policyholders have raised specific concerns on the special bonus in blogs. Allow me to address them.

> While special bonuses are not guaranteed, they are designed to ensure that the reduction in annual bonus is compensated. As I have indicated earlier, the new bonus structure is aimed at improving, the total payout to policyholders.

> Should the special bonus in future reduce due to adverse financial conditions, we are committed to restoring it when conditions improve.

> I have stated that this Board will look after the policyholders’ interests. Towards this end, the Board will ensure that the bonus allocated to policyholders result in payouts is fair and consistent with the experience of the Life Fund.

Avoid switching to another high cost policy

Dear Mr. Tan,

I would like to seek your help and advice on the policies which i purchased from X a few years back. I am 25 years old and started work 2 years ago. I bought my first Protection policy in 2002. Later, I bought a Living policy in 2006.

Recently a few insurance agents advised me to terminate my policies with X. They said that I am paying a very high premium for my policies. Especially for the Living policy. Two agents from Y and Z offered an alternative policy at a lower premium.

I have been reading your blog and am curious if I am really paying a costly price for my policies under X? Due to the high living standard in Singapore, i would like to spend my money wisely and purchase the most competitive policy in the insurance market.

Should I terminate my policies with X and buy the policy recommended by Z? Is there any other alternatives which i can look into?

As a general guide, you should not terminate a policy and buy a new policy from another agent. Each time that you buy a policy, the agent earns big commission that takes away two years of your savings. I suggest that you approach the insurance agent from X, and ask for his or her advice, on whether the agents from Y and Z are giving you proper advice.

If you wish to make a change, you should buy a low cost term insurance and invest your money in a low cost investment fund. Low cost means that there is no adviser who earns a lot of money from giving you the advice.

Read this FAQ:

Online Trading Platforms

I refer to your blog entry on your subscribing to Fundsupermart:

I recommend that you check out the service provided by Phillips Capital (at as well. I have accounts on both, and I have noticed that POEMS sometimes has lower sale charges for their unit trusts. (I do not have vested interests in either companies and am speaking as an individual investor.)

As an example, Fundsupermart has a 2% sales charge for the DBS Shenton Global Opportunities fund. For POEMS, it is 1.5% (I think you need to have an account before you can see these details). Also, there are ways to get even lower charges on POEMS.

POEMS provides avenues to invest in ETFs in global markets and S'pore govt treasury bills, while Fundsupermart does not. Fundsupermart provides an avenue for investing in S'pore govt bonds, while POEMS does not.

One key downside about using POEMS is its (very) badly designed user interface, but I can live with that!


Wednesday, June 04, 2008

Give a better currency rate

I used to convert my Singapore dollars into foreign currency with my bank. I learned recently that the spread (i.e. difference between the buy and sell rate) is about 1.3% compared to 0.3% charged by an online stockbroker. The difference of 1% is for a two way trade. For one way, the difference is 0.5%.

If the amount is $100,000, the difference in charges of 0.5% is $500. I have to pay a TT fee of $10, so I can save $490 by going through the online stockbroker. I hope that my bank can give a better currency rate, so that I do not need to go through another source (which is quite troublesome).

Renewal of Motor Insurance

A few people found their motor insurance premium increased by 20% or more, on the renewal of the insurance this year. They did not make any claim during the past year. The increase was due to the escalating claim cost faced by the industry and the poor management of these claims.

They asked my advice on how to get a lower premium rate. I asked them to get a quote from the hotlines of the insurance companies shown in this FAQ:

A few consumers have found that India International (Tel: 6347 6100 Fax: 6225 7743) to offer the most attractive quote.

A few months ago, I visited their office to renew the motor insurance for my wife's car. I found their service to be satisfactory. The office environment is friendly. I asked about their claim procedure and was satisfied with it. The premium rate is almost 20% lower than the rate quoted by my existing insurer.

If you like to try, you can send a fax to India International for a quote. If the quote is competitive, you can visit their office and talk to the employee, before you decide to make a switch. You can send your feedback to me.

Foreign currency conversion rate

Are you getting a good conversion rate when you buy and sell foreign currency, such as Australian dollar or British pound?

Look at the buy and sell rate. The difference is called the spread. This is the charge imposed by the bank to cover their expenses and profit. It is the cost incurred by the customer to convert from Signapore dollar into the foreign currency and to convert it back at a later date.

If the spread is less than 0.5%, it is a good rate. If it is more than 1%, it is too expensive.

I found the spread charged by a local bank to be as follows:

USD 1.1% 1.6%
Euro 1.1% 1.3%
GBP 1.3% 1.7%
AUD 1.6% 2.1%
NZD 1.7% 2.2%
Other 2.6% 3.4%

TT - telegraphic transfer
OD - on demand, i.e. currency notes
The spread is slightly lower for sums above $50,000

I found the spread on foreign currency at POEMS (Philips Securities) to be 0.3%. In the future, I will convert my money at POEMS and ask them to transfer it to a bank to place on fixed deposit.

Tuesday, June 03, 2008

Debt Trap

Dear Mr. Tan
I am in debt and would like to seek your advice on how to manage my financial problem. I was badly hit during 1997 (CLOB shares). I am still unable to get out of my debt trap.

Please try this organisation - Credit Counselling Singapore:

Investing a Lump Sum

Dear Mr. Tan,
I have some 600k that is liquid yielding very low return. Can you advise what I can do? Many investment banker illustrate how regular saving plans can yield BIG if we have TIME and CASH to invest (both I have). My experience is the variable - which instrument can consistently hit the projected return? What do you say?


I hope that you find these FAQs to be useful:

Call a few companies for a competitive quote

Hi Mr. Tan,
Iam 30 yrs old female. I want to buy a term insurance with critical illness. An agent quoted me a 30 year term insurance with critical illness for $50,000 with yearly premium $287.50. Is it advisable to take it up?

The premium seems to be rather expensive. My estimate is that the premium rate should be less than $200. You can read this FAQ to get the benchmark rate:

I suggest that you call a few insurance companies and get a competitive quote:

Bonuses will be fair and consistent with experience

Dear Mr. Tan,
After reading your letter to "ToDay", I started to worry whether NTUC Income can really pay a higher and better special bonus. I felt so because you said that Mr Lim Boon Heng and Mr Matthias Yeo "reaffirmed that Income would observe its social purpose ..... and give a good deal to the policyholders. They said that the management will need some time to find the appropriate measures to achieve these goals."

Does it mean they have yet to work out a complete and properly thought through plan and just proceed to revise and cut the annual bonus? This is not the way a big and reputable organization works! Especially they are taking care of money saved for retirement or raining day?

What will happen if they can't fulfill what they claim at the end of the day? Just say sorry and forget their "social purpose" and the promises? Your comments please.

In making the change, Income has made sure that the special bonus will compensate for the cut in annual bonus. They have now given adequate assurance on the payment of the speical bonus.

More time is needed to address the other issue, which was raised by me. Income has agreed to ensure that the bonuses are "fair and consistent with the experience of the fund". If this can be achieved, it will be good news for the policyholders. It will probably allow the past bonus cuts to be restored and more to be paid, consistent with the good investment yield.

OCBC Preference Shares

Dear Mr. Tan,
OCBC is offering preference shares to retail and institutional investors. If I am not wrong, DBS too offered such investment earlier. I like to know whether would you consider buying into this and how much?

Personally, I intend to invest in the OCBC Preference Shares. It gives a good dividend and has rather low risk.

Dr. Lee Kum Tatt's Blog

I visited the wake of Dr. Lee Kum Tatt who passed away on Sunday. His daughter showed me a printed copy of the postings in his blog.

Kum Tatt made the effort to print out the postings, arranged them in a nice order, and bound into a book. It is a piece of work that Kum Tatt must have been very proud of.

Near term investment strategy

Dear Mr Tan,
I am a novice to investment. I have spare cash lying in the bank for years. Should I be investing now? I sense quite a bit of pessimism, talk of global crisis. Even Dr Tony Tan was talking a great recession. So should I be holding to wait for the great crash so that cash is king and I would be able to buy at a discount?

If you are saying it makes no sense to hold, could you please advice on some products I can look at? Short and long term. I would really appreciate some very practical advice here.

It is difficult to make this type of timing decision.

In my case, I decided to stay invested in shares, REITs and foreign currency deposits. You can read about my asset allocation in my blog,

Some people do not agree with my strategy. Each person has to make his own decision and judgement.

Monday, June 02, 2008

Foreign Currency Fixed Deposit

Many people like to invest in foreign currency fixed deposit, such as Australian or New Zealand dollars, to enjoy the higher interest rate. They face a few practical difficulties:

> get a good conversion rate from Singapore dollar to the foreign currency
> get a good interest rate on the foreign currency deposit

It is possible to set up a fund that will invest in a few high yielding foreign currency fixed deposits, e.g. Australian dollar, New Zealand dollar, British pounds, Euro and US dollar. These currencies have higher interest rate than Singapore dollars.

The fund manager will be able to source for the most competitive exchange and interest rate. This should save the investor up to 1% spread on the currency and interest rate. This should be more than sufficient to cover the fee of the fund manager, and still give an additional benefit to the investor. The investor will be able to enjoy the higher interest rate and the spread of currencies.

I think that there should be interest in this type of fund.

Inflation adjusted Income Benefit

I discussed this idea with an insurance agency manager. I said that most people preferred an income benefit to be provided to the family in the event of premature death.

For example, the breadwinner may wish to have a monthly income of $3,000 payable to the family for the remainder of the term of 25 years, in the event of premature death. I suggested a 25 year term, as the children would have grown up by that age.

A monthly payment of $3,000 for 10 years (say) is better than a lump sum payment of $300,000 (say). The family does not have to worry about investing the lump sum.

He agreed with me. He said that his agents have been selling this type of protection, and it is well received. The only disadvantage is that the current products do not allow for inflation adjustment. He said that if the monthly income could be adjusted by 2% or 3% a year, it would be ideal.

This is possible. I shall be designing this product. As it is a term insurance product which ceases after 25 years, the cost will be quite affordable.

Higher interest rate?

Someone pointed out that the interest rate for Singapore Government bonds has increased in recent days, and is now above 3% for longer term bonds.

When interest rate increases, the prices of the bond drops. An increase of 1% in the yield can cause a drop of more than 10% in the price of the longer term bonds.

During the past 15 years, Singapore went through a period of low inflation and low interest rate. As inflation has increased this year, and may continue at a high level in the future, there is the likelihood that interest rate will increase.

If you are invested in a long term Government bond or life insurance policy with a guaratneed return, you may be locked into the low return for many years.

Try to invest for the shorter term, say up to 3 years, or into equities and REITS, which are likely to give some hedge against inflation.

Reply to New Comment in Today

2 June 2008

Today Paper

I refer to your News Comment “Which hat was Tan Kin Lian wearing?” (Today, 2 June).

I have two policies affected by the bonus restructure. My initial reaction was to terminate these two policies and take a loss. I decided against this course of action, as I would lose the opportunity to raise this issue as a policyholder. My key concern was that 310,000 policyholders should not lose out.

Under the new bonus structure, the policyholder receives a lower annual bonus, to be compensated by a higher special bonus payable on surrender, death or maturity. My concern was that the special bonus is not guaranteed and it is difficult to keep track of the correct amount of special bonus required to compensate the cut in annual bonus for each policy.

After I started the collective protest, I obtained another important piece of information. The average investment yield earned by Income during the past 10 years was 7.8% per annum. This was higher than the yield used to project the bonuses at the point of sale.

Most of these 310,000 policies had received bonuses that are lower than originally projected, due to the cut in bonus during some past years. I felt that it is more important for these past bonus cuts to be restored, subject to financial solvency.

In my meeting with Mr. Lim Boon Heng and Mr. Matthias Yao, I raised these two issues. They understood my concerns and reaffirmed that Income would observe its social purpose, treat policyholders fairly and give a good deal to the policyholders. They said that the management will need some time to find the appropriate measures to achieve these goals.

Income has issued a statement, which is posted in their website, to address these concerns. The statement is reiterated by the chairman at the annual general meeting.

The first two points address the concern about the payment of special bonus. The third point that “the bonus allocated to policyholders should be fair and consistent with the experience of the fund” is more important for the long term interest of the policyholders. I am following up with Income on this important goal.

The comments of your editorial director about my “strategic errors” arose from a misunderstanding of my purpose, which is to protect the long term interest of the policyholders. I hope that the resulting actions will benefit the other policyholders as well.

Tan Kin Lian

Poll on the Collective Protest

I decided to withdraw the Collective Protest after receiving the assurances from Income's chairman and deputy chairman and the chairman of NTUC's social enterprise development committee. These assurances address the two key concerns regarding the payment of the special bonus and that the future bonuses will reflect the actual experience.

I carried out a Poll on this matter. 76% of visitors (90 replies) to my blog disagreed with my decision. They must have felt strongly that policyholders should be given an option to stay under the old bonus structure. I wish to apologise for disappointing these policyholders.

I have agreed to withdraw the Collective Protest (670 signatures) in return for the assurances. I believe that we will not be able to achieve more by lodging the protest. It will affect the reputation of Income, and is not good for Income or the policyholders.

I believe that these assurances are important for the policyholders. I will continue to monitor the developments to make sure that they are implemented within the near future.

It is more important to policyholders that they should get bonuses that reflect the actual experience. I believe that the good investment yield of 7.8% earned over the past 10 years should allow Income to restore the cut in bonuses that were made during the bad years. If these bonuses are restored, even as a non-guaranteed special bonus, it will be good news to the policyholders.

Although the special bonus is non-guaranteed, Income has given an assurance on the payment of these bonus. I believe that this assurance can be accepted. Income has further assured policyholders that they will be fairly treated and given good value on their polciies.

Calculate your Life Expectancy

You can calculate your life expectancy based on your actual age, and lifestyle. Try this calculator:

This test shows that my virtual age is 46 (actual age 60) due to my lifestyle. My life expectancy is 90 years (another 30 years more to go!)

Insurance for parents

Dear Mr. Tan,

My parents are in the mid 50s. They do not have any insurance coverage other than a private Shield plan. They belong to the old school - they do not see the benefits on insurance when they were young and now that they are old, the premiums for people of their age are very high.

An agent quoted close to $200 per month for a $30,000 critical illness term coverage. This seems like quite a high amount to pay for such little coverage. Are these premium rates the norm?

They are both in good health now but I worry when they fall sick in future as they do not have much savings to fall back on. I am very keen to buy these plans on their behalf but I do not want to be paying excessive for such little coverage.

They are already adequately covered for medical expenses under the Shield plan. There is no need to buy the critical illness coverage at this age.

It is better for you to put the savings into a low cost investment fund, and accumulate some savings for them to draw down during their old age. Read this FAQ:

The agent wants to earn a high commission from selling the critical illness coverage. This is not suitable for your parents, as their greater need is for an income during their retirement.

Sunday, June 01, 2008

Wise words from the late Dr. Lee Kum Tatt

How do we help our young to find a purpose in life? Dr. Lee Kum Tatt said:

One of the ways I follow is to ask questions and try to help them to find the answers. Here is an example.What do you treasure most in your life?

This sounds like a stupid question. My children thought so when they were young. My teenage grand children have taken over this thinking for a while but are now beginning to appreciate the good in some of our way of thinking. I take this as the generation gap which will narrow down with time and age.

As parents, we want our family members to grow up and be good citizens. It is exasperating that there are no accepted set paths to do this and our kids are constantly exposed to all sorts of ideas, some of which were not considered to be acceptable to us before.

For the younger generation, it is just as frustrating not knowing how to achieve what they think they like to have or to be. Our youngsters are looking for guidance on how to succeed in life.

Encouraging them to go for money is easy. Teaching them how to earn money in the correct way is a different matter. To teach them good values in words is also not difficult.

Some common words used include: love your parents; have integrity, be caring for others, avoid the four vices, etc. But to teach others how to live these values is not so easy. This is especially so when our society places strong emphasis on money making above everything else. To do anything different from the newly introduced acceptable norms will cost our young opportunities, effort, money, fun and with no materialistic or other tangible returns.

But as grandparents and elders we still have a role to play to guide the future generation to keep them on the “straight and narrow path” which are good for us all now and for our future generations.

Extracted from:

Farewell to Dr. Lee Kum Tatt

I am deeply saddened to inform you that my very good friend, Dr. Lee Kum Tatt, passed away this morning.

For the past year, I have helped him to maintain his blog. He shared his passion about science, research, innovation and the values that are good for Singapore. We will not be able to learn from his wisdom any more.

Do read his blog,

Bonus based on long term yield


I find it puzzling that Income said that the yield is unsustainable and they cut the bonus to 1.3%.
I bought a policy for my wife in 2003 when my insurance adviser told me that Income is a cooperative and that strengthened my belief to buy one from Income. Now that trust has been betrayed.

If the yield is unsustainable, is Income saying that all other insurance companies are unable to sustain it also. The annual yield is only declared when all other costs are being deducted.

I understand that in certain years the yield may be negative but policyholders are looking at the long term, of at least 20 years, for the average returns to be in the region of 5 - 7%. If Income wants to pay only 1.3% every year, if for that year the yield is 5%, what is Income going to do with the difference of 3.7%? The compounding effect of this nett 3.7% over 20 years can be very substantial.

And how would policyholders know how much every year they have earned if they are only being compensated when they surrender or a claim is made. Is there transparency?

Already the true cost of insurance is exorbitent and now they still want to cut bonus rates! If they are all out to s*** policyholders then in the long run, it will be only the insurance companies which will suffer, as nobody can be convinced to pay for a high cost for a small coverage.

Although the annual bonus has been reduced to 1.3%, Income has stated that they will increase the special bonus to compensate for the reduction. If the special bonus are paid as projected, the policyholder will not be worse off.

In the future, it is better to buy term insurance for the insurance protection, and to invest in a low cost investment fund. This is explained here:

Higher interest rate for Government bonds

Dear Mr, Tan,
The past week saw the drop in price of Singapore Government bonds. What is the reason for the drop and is this the right time to buy the 10 or 15 year bonds, considering that their yield is well over 3%? Are they not better than some of the single premium products offer by insurance companies?

I do not follow the market in Government Bonds. I suspect that the drop in price is due to a general rise in interest rate. The world may be entering a period of higher inflation, which is being reflected in the increase in interest rate.

If the level of interest rate increases further, you may see a further drop in the bond prices. I do not know if this is the right time to buy Government bonds, as it depends on whether interest rate will rise further.

Perhaps, if you buy a bond for 3 to 5 years, it may be all right. However, the yield may be lower than 3%.

Here are the yields on Singapore Government bonds, taken from the Fundsupermart website:

Maturing Remaining Yield
year duration
2011 3.1 yr 1.79%
2013 5.1 yr 2.51%
2018 10.2 yr 3.38%
2022 14.2 yr 3.39%
2027 18.7 yr 3.80%

Drop in maturity benefit

Dear Mr. Tan,
You should know the implication, a new page in Singapore insurance ....

20 year ago, I bought a 25 yrs endowment with premium payments limited to 20 year from X. The maturity benefit was projected to be $24,583 with an annual premium of $500. After paying for 20 yrs, I received a statement from X stating the projected total maturity benefit is $19,810 instead of $24,583 - a 20% drop.

Since NTUC is the largest, all other insurance company will follow and I believe not only endowment policy, other policies are also affected. This will affect every citizen. I pity those agents whose customers were mostly friends and relatives.

The drop in the maturity benefit is due probably to the lower investment yield earned during the past 20 years, compared to the expected yield at the time that the policy was sold to you. Based on the revised maturity benefit, the yield is 3.9%.

I agree that the yield on this poilcy is somewhat how, compared to the yield earned by company X during the past 20 years. I hope that life insurance companies will reduce their charges and give a better yield to their customers in the future.

Reason for Restructuring of Bonus

If you like to know Income's reason for the restructuring of bonus, you can read their statement in their website:

Here are some key points from the press statement issued by Income:

> We will work always with customers’ interests at heart. Every decision we take is calculated to protect their interests individually and as a whole. What we seek to do is to deliver the best possible returns to policyholders, now and also in the future.

> Although special bonuses are not guaranteed, they are set to ensure that the reduction in annual bonus is fully compensated. Where the strength of the Fund and investment outlook permits, this will continue in future. Should this compensatory special bonus reduce in future due to poor investment conditions, we are committed to restoration when conditions improve.

> We will ensure that the bonus allocated to policyholders result in payouts which are fair and consistent with the experience of the fund.

I remember that these points are also reiterated in the speech given by chairman Ng Kee Choe at the annual general meeting. I believe that his full speech will be posted in the website over the next few days.

Restructuring of EV series

Dear Mr. Tan
I have just voted in your Poll that I disagree with your decision to call off the Collective Protest. I attended the annual general meeting and heard your question about the EV series, introduced recently, where the bonus has not been restructured.

Is it fair to restructure the bonus for the old series and expose the policyholders to the uncertainty, and at the same time sell new policies (i.e. EV series) on the unrestrucutred bonus? If the restructured bonus is good for the future, why is it not applied to the EV series? (Remainder of statement deleted)

I urge you to continue to lodge the Collective Protest.

I have followed up on this matter after the annual general meeting with Mr. Matthias Yao. Let us wait for his reply.

There are three products under the EV series. One has been restructured. Maybe, the other two products will be restructured next year (just my guess).

Gold Link Capital Protected Fund

Dear Mr. Tan
What are your view of this product?
> 100% Capital Protected
> 3 years
> MAX annual return 23% - 25%p.a.
> No service charge if hold until maturity
> A small portion in invested in JP MORGAN GOLD INDEX
> The balance is invested in 3 years NRID

This fund will invest in the gold market in June. What is your forecast on its performance? Is now a good time to do in Gold-LINK products?? Is commodity related funds favorable to go in at this point of time?

I dislike all capital protected and capital guaranteed products. My reasons are stated in this FAQ:

If you are willing to take a risk in gold, it is best to invest in it directly, and not through a structured product. However, if you are not sure about the risk, you should stay away from it.

Personally, I find gold, oil and commodity prices to be too high, due to speculation. I avoid them at this time.

Convert Life Annuity to Cash

Dear Mr. Tan
My 61 yr old mother has a Income Life annuity purchased with CPF retirement funds. We are thinking of converting the CPF annuity to a cash annuity using cash payments (since we bought the annuity at good terms previously). Then she would have funds both in CPF (from the annuity refund) and the Life annuity, which would both offer stable returns for a retiree.

Do you know whether NTUC Income allows policy holders to convert an existing CPF annuity policy to cash annuity if we pay cash?

You can ask Income directly. The head of life insurance is Peh Chee Keong,

Capital adequacy ratio of 170%

Dear Mr Tan
I do not understand why Income change its policy?

1) Does it mean they are not making enough to pay like the old system?

2) Is it still safe to buy insurance from Income which I am consider Growth plan despite the bonus change which is lower in return? I read Saturday May 31st in Straits Times reported that such scheme was to improve Income solvency position. Will they go burst for year to come?

3) If there have decided to change the bonus plan. Why not take effect from 1 June 2008 after the AGM instead of from year 1993 which is not fair for those who bought during that year onwards. A vote for this to all policyholder to decide.

4) Yearly AGM, should they declare the special bonus that is put aside at Income but is not payable. This will give policyholder a peace of mind when their policy is due for payment as a form of some guarantee.

Income is still financially strong with a capital adequacy ratio of 170% (2006), compared to a minimum of 120%. It is quite safe to invest with Income, from this standpoint.

I hope that they will be able to earn a good yield in the future, and distribute it to the policyholders. The chairman had made a statement that the board is committed to give the best value to the policyholders. I hope that this means that the policyholder will get a better yield, compared to similar policies in the market.

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