Saturday, June 21, 2008

Bonus should be based on actual experience

Dear Mr. Tan,
Sorry if my posting seem to attack you, but i just want to clear the issue of the statement you said about me of " taking consumer for a ride".

I did mention that as a consumer, if the insurance company can provide me the projected maturity return at the end, I will be happy. (Higher return seem like a dream, lower return I will not trust that company anymore).

I do not support the insurance companies but accept that it thing we can't change. I never bought growth plan from ntuc income before, therefore want to find out whether did you previously as CEO of NTUC provide consumer higher than the projected return. (I know you gave good return for regular endowment).

Finally, I'm not an agent or manager from Income, but ex-agent from your competitor.

During my 30 years as CEO, Income give a good return to policyholders as follows:
> expenses are kept low
> 98% of the surplus are distributed as annual and special bonus to policyholders

During the 1980s and early 1990s, the bonus rates were increased every few years - made possible by the good investment yield. From 1998 to 2003, the bonus rates were reduced due to the low interest rate environment and two financial crisis.

Since 2004, the investment yields have been exceptionally good. In my view, the surplus is more than adequate to restore the bonus cuts in recent years.

This approach should be applied to all participating policies, i.e. regular and single premium policies. All participating policies should be treated fairly.

Do not terminate your policies

An Income agent said that several of his policyholders have terminated their policies as they have lost trust in Income. I wish to advise policyholders not to terminate your policies for this reason, as you will be incurring a large loss due to the high upfront charge.

The chairman of Income have given three assurances regarding the restructure of the bonus. His speech is posted in Income's website:

Para 17 and 18 of his speech are reproduced below:

17. 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.

18. I hope I have managed to give you a better understanding and appreciation of the position regarding the bonus restructuring. We will not hurt policyholders and shareholders. And we shall also not allow NTUC Income to be hurt.

I have written to Income that the payout on a 5 year Growth policy that is reaching maturity this year is rather low and does not meet the standard of "fair and consistent with the experience of the Life Fund". This probably applies to many other Growth policies that is maturing in the near future.

Let us give some time to Income to sort out this problem.

I will also be writing to Income to suggest that higher bonuses be allocated to existing policies (even if they are in non-guaranteed form) to reflect the good experience of the Life Fund in the recent years. I hope that the final outcome will give a better return for Income policyholders.

Offensive Postings

There are a few postings from zhummmeng that are offensive to insurance agents and to NTUC Income. I am not able to edit the views to remove the offensive words, so I have to block the entire posting.

I have also blocked a posting by vfocus that attacked me personally. If vfocus (who is probably an agent or manager for Income) uses his real identity, I will be happy to post his comments and give a reply. It is not ethical for a person to attack another person under the cloak of anonymity.

Adrian Khiat expresses some views which disagree with my views. He uses his real name and does not have to attack me personally. I respect Adrian Khiat and allows his views to be posted.

Thursday, June 19, 2008

Harrassment by lawyer acting for third party

Dear Mr. Tan,
It my pleasure to see such a senior and high ranking person who is willing to contribute your knowledge and experience to help public continuously after your retirement. You offer an excellent channel for ordinary people such as me to seek help on problems related to insurance.

In February, my car grazed another car at a turning point in a car park. Both of us have made reports to our insurance company accordingly.

After that, I received three letters, pertaining to the claim issues, from a lawyer appointed by the third party. The first letter is to me, the second is to my insurance company and copied to me. However, the third one in June is to me and inform me that they have filed a civil claim loss and damage. The proceedings is against me.

My insurance agent always told me those are all normal procedures until the last letter while she asked me to collect the Writ myself and then pass to insurance company. I am not sure whether it is the right way for me to do so, is there any legal impact?

Should the appointed solicitors of the insurance company accept service of the Writ of Summons on my behalf instead of me? What are the possible consequences if the issue is escalated to Court? Can I get back my insurance premium if I have to present in the Court and compensate the third party? Who should pay the legal charges?

Your insurance company is required to handle the third party claim. After you have informed your insurer about the accident and notified the third party about the identity of your insurer, there should be no need for the lawyer acting third party to harrass you with these matters. I suggest that you should lodge a complaint with the Law Society and let them decide if the lawyer is acting in a professional manner.

It is all right for you to accept the writ and pass it to your insurer to handle the third party claim. Your insurance company will pay the legal expenses as well.

Products that give poor value to consumers

Some life insurance companies design complicated products that are difficult for the consumer to analyse.

It is easy for the agent to get the consumer to buy the product, as the agent can make a misleading presentation of the product. In some cases, the product is designed to take advantage of the ignorant customer.

After buying the product, the consumer is stuck with it for 20 years or longer, as they have already incurred a large upfront cost.

I hope that the regulator will look after the interest of the consumers and disallow these types of poor value products from being marketed to the general public.

My advice to consumers: Avoid all these types of complicated products, as they are likely to give you a poor return. Do not trust any company that market these types of products.

A complicated product, with low yield

Dear Mr Tan,
I brought a 25 years anticipated endowment plan from P in Year 2003. This plan with monthly premium of S$137.67 allows annual cashback of S$1,000 (from 2nd year onwards).

The guaranteed surrender value start from S$1,000 on the 2nd year and increased up to S$1,413 on the 15th year, and then decreased to S$1,000 on the 25th matured year.

The Non-guaranteed surrender value start from S$110 on the 3rd year and increased up to S$24,811 on the 25th matured year (based on 2.78% projected investment yield to maturity).

I have done a quick calculation as follows:

Annual Premium = $1,652.04
Total Premium paid for 25 years = S$41,301
Total Cashback received (from 2nd years onwards) = S$24,000
Guaranteed maturity benefit = S$1,000 (5% of sum assured)
Total guaranteed benefit with total cashback received = S$25,000
Total Non-guaranteed maturity benefit: S$24,811 (based on 2.78% projected investment yield to maturity)

After 25 years, if the 2.78% projected investment yield to maturity is met, I will only received a total of S$8,510 after deducted the total premium paid, or even lower if the actual investment yield decreases.

After coming to 5 years of enforcing this plan, I have realised that I may have make a wrong choice to buy this policy as the returns seems rather low. I would like to seek your advice on the followings:

1) Do you think I should continue with this plan till 25 years?
2) What plans are there with better guaranteed returns?

I find it difficult to analyse this complicated product. The maturity benefit is uncertain, as a large part is not guaranteed. I also do not know what is the loss that you have to face, if you decide to terminate the policy now.

If you decide to terminate the policy, you can buy a decreasing term insurance policy for the insurance protection and invest the difference in a low cost investment fund. Read this FAQ:

Business Ethics

In olden Chinese society, the respected occupations were the government officials, teachers, doctors, farmers and craftsmen. The merchants were considered to be near the bottom of the ranking. Why were the merchants given so low a ranking in the past?

Today, the merchants (i.e. businessmen, entrepreneurs, traders, bankers) are the most lucrative occupations. They earn large amounts of money, especially in financial services and corporate dealings.

Even the professionals (i.e. doctors, lawyers, accountants and teachers) want to be converted into businesses to make more money.

The drive to "make more profit" has resulted in a deterioration of business ethics. Nowaways, businesses find it all right to "skim off the consumers" to increase their profits, so long as they do not break the law. It has become an acceptable business practice to take advantage of the ignorant or weak consumers to maximise profits. .

I believe that there will be a backlash. I hope that the business community will understand that fair treatment of consumers is for the long term benefit of the free market system.

A poor yield on single premium endowment

My wife's single premium endowment will mature in 2 months time. She will get a yield of 3.06% for the past 5 years.

During the past 10 years, the insurance company reported that the averge yield was 7.8%. I found the yield of 3.06% to be unsatisfactory, for a participating policy.

Here are some key figures:

Single premium $50,000
Insurance company earned 7.8% for 5 years, giving a total of $72,800
Maturity benefit: $58,100

By giving a low payout of $58,100, the insurance company kept $14,700 for the 5 years, or $2,940 a year. That is a lot of money to keep from the policyholder for the small insurance protection provided by this policy. The actual expenses for this policy are quite low anyway.

If the insurance company had earned a low return, they would have reduced the payout (i.e. cut the annual and special bonus). As the insurance company had actually earned a high return, they should increase the payout to the policyholder on the maturity, instead of keeping a large part of the unexpected gain in the fund. This is the "promise" of a participating policy.

I have raised this matter with the insurance company. I believe that they payout has not meet the standard of "fair and consistent with the actual experience".


Sudoku is a popular game. It appears in many daily newspapers around the world. It appears in Today and MyPaper in Singapore.

I have asked many people in Singapore. Over 90% said that they are not familiar with the game. I taught them the technique of solving the Sudoku puzzle in 5 minutes. Many of them found the game to be stimulating and interesting.

It takes only 5 minute to learn a skill that can be useful in life. If you are interested to learn this skill, click here:

Incontestable Clause

Most life insurance companies have an "Incontestable Clause". It states that the insurance company will not contest any claim after two years, except in the case of fraud. Some insurance professionals claim that they can contest a claim if there is material non-disclosure, on the grounds of fraud.

I hold a different view - that the insurance company has to prove that there is fraudulent intent, in order to reject a claim after two years. I find that insurance professionals are too ready to reject a claim, even on weak grounds.

My position appears to be supported by this chapter from a textbook on "Principles of Risk Management and Insurance" by George Rejda.

The incontestable clause states that the insurer cannot contest the policy after it has been inforce two years during the insured's lifetime. After the policy has been in force for two years, the insurer cannot later contest a death claim on the basis of a material misrepresentation, concealment, or fraud when the policy was first issued. The insurer has two years in which to discover any irregularities in the contrct. With few exceptions, if the insured dies, the death claim must be paid after the contestable period expires.

The purpose of the incontestable clause is to protect the beneficiary if the insurer tries to deny payment of the claim years after the policy was first issued. Because the insured is dead, he or she cannot refute the insurer's allegations. As a result, the beneficiary could be financially harmed if the claim is denied on the grounds of a material misrepresentation or concealment.

The incontestable clause is normally effective against fraud. If the insured makes a fraudlent misstatement to obtain the insurance, the compnay has two years to detect the fraud. Otherwise, the death claim has to be paid.

However, there are certain situations where the fraud is so outrageous that payment of the death claim would be against public interest. In these cases the insurer can contest the claim after the contestable period runs out. They include the following:

> The beneficiary takes out a policy with the intent of murdering the insured.
> The applicant for insurance has someone else take a medical examination.
> An insurable interest does not exist at the inception of the policy.

Wednesday, June 18, 2008

Rejection of Shield claim

Dear Mr. Tan,
I am writing to you to seek your advice on how I should go about seeking redress with regards to my claim with Y.

I bought the Shield plan from Y. I was hospitalised 9 months later for angioplasty (ballooning). Y had written to state that they are not covering me because my hospital discharge summary indicates the diagnosis as : Primary - Ischaemic Heart Disease, Secondary - Hypertension and Hyperlipidemia and that I did not declare that I had high cholesterol.

I did a health screening with my GP and results showed that my cholesterol level was slightly high. My GP advised me to do more exercise and lead a healthier lifestyle. He deemed it was not necessary for me to be on medication. I carried on my life as usual without making much changes at all as I didn't take the condition seriously.

I did another health screening a few years later. My GP told me that my cholesterol level had improved slightly. It was not necessary for me to go on medication.

All this while, it has never occurred to me that I have high cholesterol because I was not on medication. As a layman, I sincerely and honestly didn't know the seriousness of having high cholesterol which may lead to heart disease.

When I was asked questions about my health during the proposal, I had declared whatever I know (ie, on medication for high blood pressure which was under control.) In Y's proposal form, there was no question asked about cholesterol. If it is an important factor in risk assessment, I think it is only fair to include this question.

I suggest that you write to Y and pose them the facts that you have presented. If they wish to reject your claim due to non-disclosure, it is their duty to prove that you have deliberately hidden a material fact.

As they did not ask about your high cholesteral, and you were not aware about its significance, you have a right to press for your claim to be approved. Let us see what is their reply to this matter.

If you feel that your claim has not been handled fairly, you can lodge a complaint with FiDREC. They will appoint an independent assessor to look into this matter. Their contact is:

Tuesday, June 17, 2008

Loss of goodwill

A met an Income policyholder at a cocktail party. He told me that in the past, he did not have to think twice about buying insurance from Income, as he was sure that being a cooperative, he would get a lower price and better return.

With the recent change, he is not not sure whether Income will continue to give the same good value. He is worried about the higher expenses and the recent change in bonus to make Income follow the practice of other insurance companies. He would check carefully before he buy a policy from Income.

He said that a lot of goodwill is being lost through the recent changes.

Saving for an early retirement

Dear Mr. Tan,
I am in my mid 20s. I need your advise on planning for retirement, savings and life protection. Frankly speaking, I have checked many products and are confused with what I need. I do not have much spare cash in the past as I have dependants.

My current pay allows me to set aside about 20% for savings. If I have $500 a month, what are the insurance/ savings I should save? Can I plan for a comfortable retirement at 50 years old?

My agent recommended me Vivolife, limited payment for 10 yrs. But I am also not sure if the critical illness portion is guranteed. Based on my savings, should I buy Vivolife? Or go into endowment? Or save up as cash? Or medical?

Please read these FAQs

Personal insurances - making the right choice

Here are some tips about making the right choice on your personal insurance, i.e. life, medical and accident insurance.

Financial Planning Tips

I have often be asked to give advice for a specific situation. I am not able to find the time to do a proper job.

I often refer my readers to the FAQs contained in my website, as follows:

The popular FAQs are:

> Financial Planning for the Young
> Financial Planning for Seniors
> Investing your Savings
> Benchmark Premium Rates
> Buy Term Insurance Directly
> Buy Motor Insurance Directly

There are many other FAQs contained in this website that may be relevant to you.

A few financial advisers have indicated that they are willing to provide advice for a flat fee, based on time. I plan to introduce them at a later date, after I have the chance to discuss with them on their proposed mode of operation.

Monday, June 16, 2008

See if you're getting a GOOD DEAL

Are you getting a good deal from your participating policy. Dr. Money has this advice:,4136,167015,00.html?

Read more about Dr. Money's articles in:

He who pays the piper

In recent years, we had several corporate scandals, involving accounting irregularities. The accounting firms were appointed by the management of these companies. These professional firms received large fees and were suspected of not doing their work diligently in discovering the irregularities.

In more recent years, we have the subprime crisis. The rating agencies were appointed by the issuers of the collateralised debt obligations. They are now suspected of having a conflict of interest in giving a favourable rating to these complex structures.

Consultants are appointed by management to give advice on business strategy. These consultants are likey to be selected to give advice that are favourable to the management's thinking.

There must be a better way to have access to independent professional advice, especially on matters involving the public interest. The current approach is not working well. As the saying goes, "He who pays the piper calls the tune".

What is a better way to protect the public interest?

Town Transport in Java

I passed through a few small towns in Java during my trip to Bandung from Jakarta. In each town, there is a service called "Angkutan Kota" or "Town Transport".

This service uses a passenger van that can take 6 to 8 passengers. The service runs along a designated route. The driver can pick and drop passengers anywhere along the route. The fare is from 50 to 80 cents.

This is similar to the light bus service in Hong Kong. I find it to be quite practical and useful. It has several of the advantages of a taxi and is much more affordable.

I hope that Singapore will adopt a similar service to serve the local town and to bring commuters to the MRT station, bus terminus or town center.

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