Saturday, July 19, 2008

Advice to the young - save 15% of your earnings

I gave an advice to young people - to save 15% of your earnings. Someone commented that this is not possible. Young people do not earn enough, and will find it difficult to save 15%.

I believe that this goal is possible, and here are my reasons. Many young people stay with their parents and do not have to pay for housing and other expenses. Due to their low expenses, they can have savings, if they wish to.

Their priorities should be:
1. Essential expenses for travelling and food
2. Contribute a monthly allownane for household expenses
3. Repay their education loan
4. Set aside money for their savings
5. Use the remainder for other expenses, such as luxury items and holidays.

If they save now, the can use their savings for future expenses. They do not have to take a consumer loan and pay a high interest rate. By avoiding interest payment, they have more money to save and spend.

A fair premium for private Shield plan

Are you paying a fair premium for your private Shield plan? Are you being over-charged? How can you find out?

You can look at the ratio of claims to premiums, as reported by the insurance company for this plan, in their return to MAS.

Take this example. If an insurance company has 100,000 policyholders and pays a total claim of $10 million each year, the average cost of claim is $100 per policyholder. The insurance company needs to incur expenses and to have a reasonable margin of profit. As a rule of thumb, the loading should be about 50% over the cost of claim. A reasonable premium should be $150.

The actual premium charge will differ according to the age of the policyholder and other relevant factors, but the average for all the policyholders should be $150.

If the average premium paid by the policyholder is $500, it can be considered to be excessive. Why should the policyholder pay an average premium of $500, when the average cost of claim is only $100? This means that $400 is taken away to pay commission to the agent, and profit to the insurance company.

Why is this insurance company able to get away with charging such a high premium rate to its policyholders? Here are the ways:

1. It makes it product different from its competitors, so that the policyholders cannot compare the prices.

2. It provides some special features that make the product look very attractive, but the actual claim cost is small. This is a way to mislead customers.

3. It pays high commission to incentive its agents and train the agents on how to market the product aggressively.

As a consumer, you should avoiding paying far too much for a private Shield plan. The money is taken from their Medisave savings. If you spend too much money now on unnecessary insurance, or is overcharged, you will have inadeqaute savings to pay for the medical expenses in your old age.

Invest in an indexed fund

Hi Mr. Tan,

1) I read in many reviews that index funds such as the STI usually outperforms managed funds on average. Is this true and would you advise me investing in the STI at this time and who do you advise I manage and adjust on a regular basis?

2) I am looking for a good financial advisor and institution. So far, I have talked to a few financial planners but none has given me the confidence that I will really get my returns over the long term. I am at a loss on how to ensure I have a robust portfolio and where to seek reliable and effective help from. Do you have any specific suggestions on how I can go about it myself or seek advise from?

3) I cannot assess the link in your blog regarding "Financial Planning tips", can you send it to me or have any books i can self educate myself with?

I advise my readers to invest in an indexed fund for 10 years or longer. A suitable index fund is the STI ETF. As the index is now 25% below the peak, it is at a good level for investing. Even if the market goes down from here, it will recover in6 to 12 months time (just my opinion).

You can buy the STI ETF through your stock broker. It is quoted on the stock exchange. Read this FAQ:

If you need a financial planner, who is willing to give advice for a fee, you can contact X (details deleted).

The link for Tips on Financial Planning in my blog is working. It leads you to this webpage:

Friday, July 18, 2008

Unfair rejection of Shield claim

A policyholder upgraded into an expensive private Shield plan. He had to undergo angioplasty. The insurance company rejected this claim on the grounds for non-disclosure of high cholesterol. The policyholder was not aware that this condition was serious to be disclosed, as his doctor did not ask him to take medication. He asked the insurance company to justify their decision for non-disclosure.

After one month, the insurance company replied that the policyholder did not reply to a question that ask if he has "suffered from any other illness". They consider that the high cholesterol should be answered under this question. This was the position taken by a senior management of the company.

I consider this rejection to be unfair and advised the policyholder to lodge a complaint to CASE or FIDREC.

Returned E-mail

I received a few questions each day from readers of my blog. I usually give a reply within the same day or the following day. Quite often, the replies are returned to me, as the server could not deliver the e-mail. It could be due to a wrong e-mail address or other reasons.

Sometimes I post the questions on my blog, after removing personal details. I hope that my person who ask the question will be able to get the reply through this channel.

Keen to work for an honest insurance company

Hello Mr.Tan,
I am an avid reader of your blog and find the information you have shared with your visitors well written.

I understand from reading your blog, you are starting a new insurance company.I am keen to explore a potential employment with your new company.

Currently, I am working in the IT industry in the private sector.Although I do not have the necessary experience in the financial industry, I am keen to explore the potential and believe in serving the interests of the people.

Hi Mr.Tan,
Thank you for taking the time to go through my resume. The insurance industry is in need of honest and capable people. I will look forward to hearing from you.

Impact of market drop on long term yield

If you have invested in Singapore or Global equity over the past 10 to 20 years, your average yield (computed up to 2007) would have been 8% to 9% per annum. The stockmarkets had dropped by 25% from its recent peak.

If you allow for this drop, the impact on the average yield would be 1% to 2.5%. The average yield would have dropped to 5.5% to 8% per annum. It is still an attractive yield, compared to other asset classes.

The secret: invest for the long term (10 to 20 years) and select a low cost investment fund (which takes away 1% or less). Better still, find the right time to invest - when the market has dropped 25%. This is a good time. Even if the market drops further, it will recover within the next 6 to 12 months.

Paying the right price

Many people are worried about suffering from a critical illness. The insurance agent scare them about the high cost of this event.

Let us take this example. The chance of making a critical illness claim before 65 is probably 10%. The average cost of the illness is $50,000. You should pay a total premium of only $5,000 to cover this risk. Allowing for interest earned from investing your premium, your actual could be much lower, say $2,000, spread over many years.

But, you are asked to pay a premium that is 5 to 10 times of the actual cost, say $10,000 to $20,000. Why should you pay so much? Why should it be so costly?

Although some part of the premium is returned to you as a cash value, the yield is so low. It takes up to 20 years just to break even. The selling expenses and profit margin of the insurance company are too high.

It is better to buy a short term cover for critical illness and pay the right price for it. You can invest the rest of your savings in a low cost investment fund. After 20 years, your savings will be more than the sum assured. You do not need any critical illness cover at that time, as it can be paid from your savings.

A low cost investment fund

You are not familiar with investing your money. You appoint a trusted person to handle your money and take care of investing it.

Thirty years later, you found whom you have trusted had taken away 65% of the investment gains, and left you with only 35% of the gain. Do you feel that you have been cheated?

If you invest $200,000 over 30 years and your total gain is $600,000, your trusted friend has taken away $400,000 and leave you with a gain of only $200,000.

What type of product is this? It is a high-charge investment linked policy.

Would you prefer to have chosen a more trusted person who takes away 20% of your gains (to cover his expenses and earnings) and leave you with 80% of the gains? This person took away $120,000 and return your savings of $200,000 plus a gain of $480,000.

What type of product is this? It is a low cost investment fund.

Read this FAQ:

Buy critical illness for 20 years only

Hi, Mr Tan

I'm currently 34 years old (male). I am interested to obtain a $200k coverage in critical illness for life as I'm concerned about the rising medical costs as I grow older.

My financial adviser has advised me to buy LifeSecure (Limited pay plan) that requires me to pay 20 years' of premium. Thereafter, I need not pay anymore premium.

I would be grateful if you could advise if there are term plans in the market that would provide coverage for critical illness for life. And what is the premium like?


In my view, critical illness cover for a lifetime is very expensive and unnecessary. You should buy this cover for 20 years. If you save the remainder of the premium in a low cost investment fund, your accumulated savings can be more than the sum assured at the end of 20 years.

Read this FAQ

Thursday, July 17, 2008

Buy the right product

Someone told me, "If you are not insured, you stand a 5% chance of being poor. This is the chance of suffering from an uninsured event. If you are insured, you stand a 95% chance of being poor. This is the likelihood of buying an expensive product that takes away too much money from the customer and gives a good commission to the agent. "

If you buy the right insurance product, e.g. low cost term insurance, you avoid the 95% chance of being poor, and avoid the 5% chance of suffering an uninsured loss.

MAS Guidelines on Fair Dealing

18 May 2008

MAS Guidelines on Fair Dealing
Submission by Tan Kin Lian

1. The Monetary Authority of Singapore (MAS) is seeking views on proposed Guidelines on Fair Dealing – Board and Senior Management Responsibility for Delivering Fair Dealing Outcomes to Consumers (Guidelines).

2. The Guidelines emphasise the responsibility of the Board and Senior Management of financial institutions (FIs) to deliver fair dealing outcomes when FIs provide financial advisory (FA) services to retail consumers. The fair dealing outcomes that FIs should strive to achieve are:
(a) Consumers have confidence that financial institutions put consumers’ interests first in the conduct of their business;
(b) Financial institutions offer products and services that are suitable for the consumer segments they target;
(c) Financial institutions appoint competent representatives who provide consumers with advice that meet their financial objectives and suit their personal circumstances;
(d) Consumers receive clear, relevant and timely information to make informed financial decisions; and
(e) Financial institutions handle consumer complaints promptly and in a consistent manner.

3. I agree with the goal to ensure that the consumers are given fair dealing outcomes. I believe that the board and senior management should be made responsible to achieve these outcomes. However, in my view, this requirement is not sufficient.

4. It is difficult for the board and senior management, who are responsible to achieve the “best shareholder value” for the financial institution, to be able to “put consumers’ interest first in the conduct of their business”. We must recognise and address this serious conflict of interest, in order to achieve the desired goal.

5. “Put consumers’ interest first” must be defined clearly. In my view, the financial products must be designed to give good value to the customers and a fair profit margin to the financial institution. If the product contains excessive expense charges and profit margins and are not fairly and clearly disclosed to the public, it will not pass the test of “good value”.
A good test is, “will a knowledgeable person, with no vested interest, buy the product for his own use or recommend it to a friend?”

6. As it is almost impossible for the board and senior management to exercise this responsibility adequately, we need a more effective channel to achieve the results.
In many countries, this responsibility falls on one or both of the following:
(a) Regulator
(b) Consumer advocates

7. Some financial products introduced in Singapore in recent years are complicated. It is not realistic to expect the consumer to be sufficiently well informed about the product to make the right decision, especially if they are pitted against the financial experts working for financial institutions, who have the freedom to design products aimed at maximising profits for the financial institutions.

8. There is a similar situation regarding the approval of drugs for consumption by the public. The regulator, such as the Food and Drug Administration of the USA and the Health Science Authority of Singapore, takes the responsibility to check that new drugs are suitable for consumption by the public. A drug cannot be sold without the approval of the regulator. The regulator does not expert the consumer to be sufficiently educated to make the judgement on their own.

9. It is equally important to ensure the financial health of Singaporeans. They work hard to earn an income and have to save part of the income for their future needs. If they are offered products that do not offer fair value, they are being unfairly exploited by the financial institutions.

10. Over the past ten years, Singaporeans have invested billions of dollars in complicated financial products, including structured financial products and more traditional financial products that give poor value. Most of these products have the following features:
(a) Excessive expense charges
(b) High profit margins
(c) Complex – difficult for consumers to understand

These excessive charges and high profit margins reduce the return to the consumer. Many of them get a poor return relative to the risk that they have to bear. They would have obtained a better return by investing in government bonds, for people who look for risk free returns, or leaving their savings in the Central Provident Fund.

For investors willing to take risk, they would have obtained a higher return by investing in fairly priced unit trusts.

11. Life insurance products, such as whole life, endowment and regular premium investment linked policies have high sales charges that take away more than 150% of the annual premium. These high charges reduce the return to the consumer considerably, and are not justified by the value of the product given to the consumer. The competition appears to be on the recruitment of the right type of agents who are able to “convince” customers to buy these products. There is no attempt to offer more appropriate, lower cost products to the consumers.

12. If MAS were to make a study of the innovative financial products that were sold to consumers in recent years and compare the actual return earned by the consumers against the return on “fair products” offering similar risks, the study will probably show that the investing public had been deprived of at least several hundred of millions of dollars of fair return from their investments.

13. I recommend the following approach:
(a) All complex financial products should be reviewed by two independent experts appointed by the regulator. These experts can ask relevant questions from the product issuer and study the answers to form an opinion on whether the product provides “fair dealing outcome” to the consumer. The experts can study if the charges, profit margin and penalty (to get out of a long term contract) are fair to the consumer. The experts can submit their recommendations to the regulator.
(b) Based on the recommendations of the independent experts, the regulator can disallow the product from being marketed, or be marketed with the views of the independent experts, posted in an easily accessible website.
(c) The regulator can specify the classes of simple and transparent products, such as bank accounts and products traded on the stock exchange, that are excluded from this requirement. These products may require certain guidelines to be observed, such as disclosing the effective rate of interest in a suitably prominent manner.

14. Conclusion
I support the move by MAS to make the board and senior management of financial institutions responsible to deliver fair outcomes to consumers. I recommend that this should be strengthened by an additional measure to get independent experts to review the financial products that are offered to the public.

Tan Kin Lian

Rejection of claim on grounds of non-disclosure

A policyholder switched from Medishield to a private Shield plan. He was not asked about his cholesterol level. He did not declare this condition as the doctor did not advice on the need to take medication.

He had to carry an angioplasty operation. The insurance company rejected the claim on the ground of non-disclosure. They even refused to pay the claim that would have been allowed under Medishield.

The policyholder wrote to the insurance company to ask for the grounds of rejection. There was no reply for one month. He intends to lodge a complaint with Fidrec.

Lesson: There is no point to pay a higher premium under a private Shield plan, if you are not sure about the practice of the insurance company in rejecting a claim on the grounds of unintended non-disclosure.

ERP charges displayed on gantry

The ERP charges are now displayed on the gantry. It shows the charge for the various types of vehicles, i.e. cars, motor cycles, taxis, bus and goods vehicle. The charges change according to the time slots.

Well done to Land Transport Authority.

Price of a product or service

In the free market economy, the price is set by the market. The business decide on the price and sell the product or service to the market.

In my view, there is a better way to set the price. It should be based on the cost plus a reasonable margin for profit. This is a fair way to set the price, and avoids exploiting the consumers.

A cooperative operate on this model. It is an ethical model. I hope that this concept can be applied to many types of businesses.

Some companies make excessive profits by misleading the consumers. They design complicated products, and get marketing people to sell these products to consumers through misleading means.

School should not be a business

The head of a junior college has the title of Principal and CEO. Why should a school be treated as a business, and to have the head carry the title of CEO?

It will be better for our soceity, if a head of a school is the principal and is not a CEO. The school should have the aim of educating students at a specified cost per student, and not be runned as a business to maximise the surplus or to reduce the cost of education (as this can be done by reducing the quality of the teaching).

Wednesday, July 16, 2008

Find out about the charges

Hi Mr. Tan,

I have bought 2 Regular Premium ILP in year 2002 and I do not know if I should continue or teminate both insurance plans.

Total premium paid is $9K plus and the value of investment is $7k plus. Fund purchased are GreatLink Enhancer and ASEAN Growth Fund.

Total Premium paid is $7500 and value of investment is only $3k. Fund purchased is Golden International Bond.

Should I still continue with both plans or terminate them and incur loses? Can you please advise me?


You have to find out about the charges in these two policies. Generally, if the policy has been in force for more than two years, most of the upfront charges have already been spent - so you should continue the policies.

Read this FAQ:

Advice for young people

A junior college student asked me to give a talk on financial planning to her school. My points will be quite simple:

1. Save 15% of your earnings.
2. Keep the money in a bank account to earn interest rate at 1% or 2%.
3 Do not invest the money in financial products that offer poor value
4. When you have sufficient savings, invest in a low cost unit trust (after you learn about the principles of long term investments.
5. When you get married and have family responsiblilities, but a term insurance policy to cover you for 3 to 5 years of your income.

Business ethics

If you know that the cost of your product is $100, and you decide to add a reasonable margin to cover your expense and profit, you will sell it for $150. This is the ethical way to do business.

If you mislead your customer about the true value of your product, you may be able to sell your product for $500. This is taking advantage of your customer and is unethical.

It is quite sad that the business world now finds it acceptable to take advantage of the customer and sell a product at an exorbitant price to make a big profit margin.

Joke: Establish the fact

A man met a pretty girl in a holiday resort and asked her, "Will you sleep with me, if I give you $5,000". She smiled and replied, "yes".

The man continued, "Will you do it for $50". The girl got angry. "What do you take me for?"

He replied, "We have already established the fact. We are now negotiating the price."

Courtesy in use of mobile phone

When I was overseas, I received several calls on my mobile phone from one unidentified caller. As it is expensive to take a roaming call, I rejected these calls. The calls also arrived when I was busy with a meeting.

On my return to Singapore, I returned a call to this number. My call went into a voice mail. There was no clue of the party that made the call to me. I left a voice message for this person to call me back. I learnt later about the identity of the party and the company that made the call to me on a business matter.

I suggest the following telephone courtesy:

1. Do not a person on his mobile phone - unless that person knows you personally and is able to recognise your telephone number.

2. Send a SMS to the recipient to identify yourself and state the purpose and time of your intended call.

3. Make sure that your name is indentified in your voice mail.

Joke: Telling the truth

The priest told the congregation, "Next week, my sermon will be about truthfulness. When you get home from church, you should read chapter 29 of Leviticus."

The following week, the priest asked, "Can those who have read chapter 29 of Leviticus raise your hands?" Most of the congregation raised their right hands.

The priest said, "Just as I expected. And this is why my sermon is about truthfulness. Leviticus has 27 chapters only!"

I hope that the business world tells the truth to their customers and do not keep changing their stories.

Weakness of the Global Financial System

During the Asian Financial Crisis, the fund managers created havoc in the Asian financial markets. It caused high volatility and sound companies to be bankrupted, due to a liquidity crisis.

The same situation is now happening in the US financial markets. Many fund managers are short selling the shares of Fannie Mae and Freddie Mac, causing great stress to the financial markets. The Securities Exchange Commission is introducing measures to stop the short selling of these shares.

A report said that the traders are creating rumours on Leyman, so that they shares can be beaten down.

My reading is that this credit crisis reflects a severe weakness of our current global financial system, which is subject to excessive speculation and manipulation. It is not reflective of the real economy. I hope that the lessons can be learnt and that shortcomings can be fixed.

Large profit margin on Shield plan

One large insurance company collected $100 million on its private Shield plan and pays only $20 million in claims. It is making a huge profit margin.

If you pay $500 a year on a Shield policy to this company, you will get back about $100 in claim from this company. If the average claim payout is $100, a fair premium is $150 and not $500.

This company is able to make its Shield plan looks very attractive, but in reality the payout is poor. The consumers are not able to know about the reality until the time of making a claim.

You can buy another medical insurance plan that offers a higher claim to premium ratio, for example basic Medishield. You will pay a much lower premium. You can keep the rest of the premium in Medisave to earn 5% interest. You will need the savings for your future.

Switch to basic Medishield

Dear Mr. Tan,

My wife and I are both retirees. We both have Enhanced Incomeshiled & Plus Rider.

For the coming insurance year, we will be paying premiums $517 & $311 (payable by Medisave) for Enhanced Incomeshield and $304 & $224 (payable by cash) for Plus Rider for myself & my wife respectively.

I shall be grateful for your advice whether we need such insurance which I consider rather expensive. Or alternatively should we switch to the basic Medishield offered by CPF. If so, how do we go about doing that?


I think that basic Medishield is adequate for retirees, provided that you are willing to be treated in B2 ward. The premium is much lower than a private Shield plan. You can pay the Deductible out of Medisave. Read this FAQ:

You can contact CPF to switch to basic Medishield.

Tuesday, July 15, 2008

Shop around to get a competitive rate

Dear Mr. Tan,
I had just got a quote from the insurance agent, the sum assured for $200,000 decreasing term of 20 years, the monthly premium is $50 (female). Please advise whether it is expensive.


The premium rate quoted is very expensive. You can get the benchmark premium rate from this FAQ.

It is best for you to get a few insurance companies to quote the premium rate, rather than depend on one agent to quote you an expensive rate. Do shop around.

Global recession

Many people are worried that there will be a global recession. For people with savings, a global recession may be all right. With a recession, prices will come down. People will work less, as there is reduced demand. They can spend the time with the family or take a holiday.

For people without savings, it may be difficult. The lesson here - do keep some spare savings for a future emergency. Do not over-stretch and spend all of your earnings. Do not borrow on your future earnings.

I hope that, in the future, the global economy can come out with a new model. People do not need to work for long hours. They can work less and enjoy their leisure time. There is no need to produce more and more goods, which are not really needed.

Why should people change their mobile phones every one or two years, or upgrade their personal computers frequently? Why should they change their cars within a few years? These are wasteful.

SAFRA insurance

Mr. Tan,
I plan to increase my cover for critical illness. To the best of your knowledge, what're the currently available plan in the market with $50 per mth? My agent told me CI plan do not come as a "main policy", instead, i must buy a "main plan" (usu a Whole life policy) & attach a CI rider-true?


I suggest that you insure under the SAFRA scheme, if you are a SAFRA member. Please ask SAFRA.

Choose a low cost term insurance plan

Dear Mr. Tan,

I wanted to buy a term insurance for my husband who is 42 years old. He is currently covered with $80,000. My agent recommend me the below 2 plans.

1. Term Plan (Up to Age 85)
This term plan covers sum assured $50,000 for an annual premium of $786. There is no cash value for term plan.

2. Whole Life Plan (Ltd-Pay 20 Yrs)
Based on sum assured of $50,000 payable for 20 Yrs, the annual premium is $1,938.

Which is better?

I do not like the two policies recommended for your husband as the premium is rather high. I suggest that you ask for a term insurance plan that expire at ag 60 or 65.
Read this FAQ:

A fair rate of return

If someone takes your money and promises to return them to you, and breaks the promise, you will consider that this person has cheated you.

If you invest in a life insurance company and expects to get a certain rate of return, depending on the future investment yield of the Life Fund, and you get less than the fair rate of return, would you feel that you have been cheated? It seems that many life insurance policies give a lot of leeway to the insurance company to decide on how much you can get and how much they can keep!

Monday, July 14, 2008

Joke: Inflation and wages

Twenty years ago, I used to dream about the time when I would be living in fantastic luxury on the same wages that are now keeping me below the poverty line.

Excellent Public Transport in Hong Kong

Read the views of a Singaporean living in Hong Kong:

Tips on personal insurance

1. How much life insurance do I need?

It depends on your personal circumstances. If you have dependents, you should aim to insure for 5 to 10 years of your earnings. If you have accumulated savings, the insurance cover can be reduced by this amount.

For example, if you earn $40,000 a year, you should have life insurance for $200,000 to $400,000. If you have accumulated savings of $50,000, this can be reduced from the amount of your insurance.

As a minimum, you should insure for 5 years of earning. If you are able to afford it, you can increase your coverage to 10 years of earning.

The sum assured is payable on death and permanent total disability.

2. What type of life insurance should I buy?

You should buy decreasing term insurance that covers you up to your retirement age, say 65 years.

If you are now 35 years old, you can buy a decreasing term insurance to cover you for 30 years.

If your sum assured is $300,000, you will be covered for $300,000 during the first year. The sum assured will reduce by $10,000 for each subsequent year, until it disappears completely at the end of 30 years.

The reduction in the sum assured each year will be offset by your savings for the year. As your savings grows, you need less coverage for your life insurance.

The premium that you pay for decreasing term insurance is about 50% of the cost of level term insurance. It is about 20% of the cost of a whole life insurance.

By paying a lower premium for your decreasing term insurance, you have more money to save in a low cost investment fund to earn a higher return for your future needs.

3. Do I need medical insurance?

If your employer covers your medical expenses, you do not need any personal medical insurance.

If you wish to buy a personal insurance now, so that you are assured of continuing coverage after your retire from work, you should choose a low cost Medishield plan provided by the Central Provident Fund.

There are many Shield plans in the market. They cover different classes of wards in restructured and private hospitals.

In selecting your plan, you should consider the total lifetime cost. You should add the premium for the various ages from now until you reach age 85 years. As the premium rate increases with age, you must take the higher cost into account, when you select your plan.

There is no need for you to buy an expensive plan, unless you have a high income. If you enter into a subsidised ward, your medical expenses will be quite affordable and can be covered by Medishield or a lower priced private Shield plan.

Do not spend too much premium on your Shield plan when you are young. You need the savings to cover your insurance premium and medical expenses when you grow old.

The Shield plan has a Deductible and a co-insurance portion, which have to be paid by you. Some insurance company offer a rider to cover these items. As the amounts are not large, you do not need to buy the rider. You can pay them from your Medisave account.

4. How much should I spend on insurance?

You should spend not more than 2% of your earnings on the life and medical insurance on your life. If you include your family, you should spend not more than 3% of your earnings.

By spending less on insurance, you can set aside more savings for your retirement. This should be 10% to 15% of your earnings.

World class transport system

I have given five suggestions on how to improve the transport system in Singapore in
Do you agree with the suggestions?

Sunday, July 13, 2008

Visit to Manila 14-16 July 2008

I will be visiting Manila from Monday to Wednesday of next week. I am conducting the Business Simulation Game (BEST) in Manila.

I have created a few postings that will appear on the scheduled dates and times over the next few days.

Existing Life Insurance Policies

Some people asked for my advice on whether they should continue their existing life insurance policies, or should terminate them and buy a term insurance policy.

Here are the general rules of thumb:

1. If the policies have been in force for more than 2 years, you should continue the policies as most of the upfront charges have already been incurred.

2. If the policies are taken for less than 6 months, it is generally advisable to terminate the policies and take a loss. However, you should buy a term insurance policy first.

3. You should avoid buying a new whole life, endowment or investment-linked policy as the charges are too high. It is better to buy term insurance for your insurance protection and to invest in a low cost investment fund.

Read this FAQ:

Joke: Amputed the wrong leg

A diabetic was admitted into hospital for amputation of a leg. He woke up on the day after surgery. The doctor said, "I have good news and bad news".

The patient wanted to hear the bad news first. The doctor said, "The bad news - we cut off the wrong leg. Now the good news. Your other leg is getting better."

Joke: Planning for retirement

My friend sent this joke to me. "Your insurance agent sells life insurance to help you plan for your retirement. However, the policy gives such a poor return that you cannot afford to retire. Actually, the agent is planning for his own retirement from the high commission that he earns from the policy."

Note: This joke does not apply to term insurance policies and life insurance policies that pays low commission.

Insurance for a child

Dear Mr. Tan,

I am planning to buy an insurance plan for my younger boy of age 7. I am looking at either the LUV plan which is $12 per month for $100K as compared to the Legacy Life CI plan recommended by my agent.

I am in favour of buying LUV, but my agent told me below:

""I have deviated from the basic & giving wrong emphasis and that I have made the 7 common insurance mistakes parents make. No doubts term policies are a lot more affordable & more cost-effective to buy a portion that will last almost as long as you live and the rest to cover just your working years. When come to insurance for minor, health insurance focus is on both CI & H&S & the aim is to lock-in insurability & gifts of love. ""

I am confused. He is right in the above statement? Thanks very much for your time

There is no need to buy insurance for your child, except for medical insurance. It is more important that you should adequate term insurance on your life, to cover your earning capacity.

Read this FAQ:

Complaint to the regulator

A friend asked me for the reason why I decided to set aside the Collective Protest. He said that there was a rumour that I was threatened by Mr. Lim Boon Heng and Mr. Matthias Yao.

I replied that the main reason for my action was the assurance that I have received from Mr. Lim and Mr. Yao on fair treatment of policyholders. This was subsequently stated by Mr. Ng Kee Choe in his address in his address to the Annual General Meeting.

The first two assurances relate to the restructuring of the bonus. I felt that the assurance was adequate in ensuring that policyholders would not be placed in a worse off position. The third assurance, which I asked for, was more important - that "policyholders will receive bonuses that reflect the actual experience".

I have subsequently pointed out to Mr. Lim and Mr. Matthias Yao that the bonuses declared were too low, and did not reflect the actual experience. Mr. Ken Ng (the chief actuary) replied to me that this will be adjusted in 2009 and later years.

I pointed out to Mr. Ken Ng that policies maturing in 2008 would be receiving a maturity value that was far less than the "actual experience". This would be unfair to the policyholders. I quoted the specific case of the Growth policy taken by my wife. I asked for this matter to be reviewed to give a fair payout on the policies that are maturing this year.

After two weeks, I have not received a satisfactory reply from NTUC Income. I intend to lodge a complaint on this matter with the regulator. I am quite disappointed that, after receiving the assurance that the bonuses will reflect the actual exprience, nothing is being done for the policyholders of the maturing policyholders.

I have two policies affecting by the bonus restructuring. The bonuses declared in the past and the cash values are significantly less than the values that reflect "the actual experience". As these policies will not be maturing this year, I am prepared to wait for one or two more years for the bonuses and cash values to be adjusted to reflect "the actual experience". So far, I have not received any indication that this will be done.

Insuring against critical illness

If you are 30 years old, and you wish to insure against critical illness for $100,000, you have the following choice:

1. Buy a "whole life" critical illness policy and pay $200 a month

2. Buy a 30 year critical illness cover and pay $40 a month

If you choose option 2, you can invest $160 a month in a low cost fund to earn an average of 5% per annum, you will get give you $128,000 in cash at the end of 30 years. (This is not a guaranteed return, but it is the likely return).

If you pay $20 a month on a decreasing critical illness cover, you will get $144,000 (estimated)

If you put $200 a month in the critical illness cover, you are likely to get a cash value at the end of 30 years of around $100,000 (plus or minus $10,000).

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