Saturday, July 26, 2008

Joke: Count the legs

"I bet you don't know how many sheep ther are in this field?" said the English farmer to the Irish visitor.

"The Irishman glanced around the field and then replied, "Three hundred and eighty six."

The farmer was astonished. "That's incredible! You're perfectly right. How did you manage it?"

"Oh, it was quite simple," said the Irishman. "I just counted the number of legs and divided by four."

How to improve the traffic flow at CTE

My friend has a suggestion. Read:

High charges for ILP products

Which insurance companies have the highest charges for ILP products?

You can find the study in Dr. Money's website:

Life annuity with capital protection

Dear Mr. Tan,

I have just turned 55 and my wife will be, at the end of the year. We are interested to take up annuity policy with capital protection of $150,000 each. What are the monthly payouts like? Please provide details for both genders for payouts from 55 and 62.


You can read this FAQ to understand the annuity, so that you can make the right decision:

You can contact the insurance companies directly and ask them to quote to you. Their telephone numbers are available from this webpage:

Difficult to time the market

Hi Mr. Tan,

In view of the market volatility, I have been advised by my financial adviser to switch to commodity related fund (Pru Global Basics ). I invest in a wrap account and am entitled to free switching. I am not sure if i have made the right decision because the value of this fund keep dropping. I hope you could enlighten me.

I am not able to advice on selecting the right market sector at any point of time. I normally advise people to invest in a well diversified fund comprising of all market sectors and to invest for the long term.

Read my FAQ at "Investing your savings".

Improve public transport in Singapore

Read the suggestions here and give your views:

Did you buy a high cost ILP?

A few months ago, a university student showed me a benefit illustration for an investment linked policy that was being proposed to him. He was still studying and had no source of income. His mother wanted to buy the policy for him. He asked my advice.

The benefit illustration contained 24 pages of details. It is incomprehensible to most people, unless it is "explained" by the adviser. The student was clearly confused.

Here are the key figures. The monthly premium is $200 (which would represent 10% of the income of a graduate who started to work).

At the end of 42 years, when he reached age 65, the total premiums paid would have been $50,400 and the non-guaranteed surrender value would have been $53,900 (if the life fund earned 5% p.a.) or $185,900 (if the life fund earned 9% p.a.). The next column showed the effect of deduction to be $341,915.

What is this effect of deduction, and why is this figure so big?

Hidden on one of the 24 pages are the following explanation:

The deduction relate to all the charges taken from the policy. These include distribution costs, expenses, mortality and morbidity costs, surrender penalty, expected transfers to shareholders and expected tax payments. The figures illustrated relate to the effect of deductions based on the projected investment rate of return of 9% p.a.

Wow! This means that if the Life Fund was able to earn 9% p.a., the insurance company would take away $341,915 and leave the policyholder with a cash value at 65 of only $185,900. The policyholder would get only 35% of the total (which includes the savings). The insurance company and the adviser would get most of the remainder.

If the Life Fund earned only 5% p.a. , the insurance company would have taken away nearly all of the investment return and give back only the savings (in deflated dollars) to the the policyholder.

How many people have bought this type of policy at these astronomical charges? Maybe 1 million Singaporeans? How many each year? Maybe, 100,000 people?

Are you one of these people? Check your benefit illustration. Ask your insurance adviser (who was supposed to take care of your interest and explain this fact to you at the time of sale). Ask your insurance company. If you feel that you have been shortchanged, and was not properly advised at the time of the sale, you should lodge a complaint with the regulator (i.e. MAS).

I hope that the regulator will put a stop to these type of high and excessive charges, which is unfair to unsuspecting consumers. The adviser is likely to avoid mentioning this high charges to the consumer.

Joke: A lawyer sleep in the barn

A Jew, a Hindu, and a lawyer were traveling from Chicago to Los Angeles when their car broke down late one night in Kansas. They walked to the nearest farm house and explained their situation to the farmer who answered the door.

"Ya'll be welcome to spend the night here if you want", the farmer said. "The only problem is I only have room for two. One of you will have to sleep in the barn."

"I will," exclaimed the Jew, and with that the men went to retire. A short time later came a knock at the door. It was the Jew.

"I'm sorry", the Jew said, "but I can't sleep in the barn. There's a pig in there, and my religion forbids me to sleep in the same room as a pig."

"Then I will go sleep in the barn" exclaimed the Hindu, and once more the men went to retire. Soon there came another knock at the door. It was the Hindu.

"I am very sorry", the Hindu said, "but I cannot sleep in the barn either. There is a cow in there, and my religion forbids me to sleep in the same room as a cow."

"Oh, for gosh sakes!", the lawyer cried. I'll go sleep in the damn barn!" and once again the men went to retire.

A few minutes later there came yet another knock at the door. It was the cow and the pig...

Raymond T

Friday, July 25, 2008

Low return for 10 years

Dear Mr. Tan

I bought a Pru-link Assurance Account policy with sum assured of $120,000, crisis cover (critical illness) of $60,000, and a disability provider of just $6,000. I pay a yearly premium $3,800.

The policy started in Jan 1999 and the current surrender value is just $20,170/-
I would like to know what I should do with this policy since it is not excatly making good money. The surrender policy is much lesser than the total premiums paid to date which the policy is coming close to its 10th year.

You can ask the insurance company to give you a projection for the next 5 years, say up to the 15th year, based on 5% and 7% gross investment yield, and deducting the charges. You may get a better idea about whether to continue or stop the policy.

4 months to settle a claim

Dear Income

I am delighted to receive the claims discharge voucher and cheque. I am extremely thankful for my resolved dispute, but, regrettedly my problem was only solved after I see the MP and approached Mr Tan Kin Lian. Why can't X solve my problem 4 months ago in a friendly manner? I want to be a kind and friendly person, why must he force me to be a typical complainingly Singaporean?

In April 2008, after calling the hotline, X got back to me and said confidently "I have checked the claims. EVERYTHING IS CORRECT". He probably thought I am a fool and he can bluff me by telling me that. I then sent him all the proofs of my claim dispute, but he played pattern to me for the past 4 months by telling me:

"Still processing"
"Waiting for hospital to resubmit claims"
"still processing"
"still doing"
"Waiting for officer in charge to finalise claims" (i said "huh? i thought u r the officer in charge?")

Recently X told me that the officer in charge is Y, another person. I got her contact and called her, but over the phone she did not know my case. Hence the past 4months basically nothing was done, except X's smoking words. I am very sure X "played pingpong" and push the whole matter to another junior officer after failing to smoke me and shake me away for 4months.

Last week Y promised that she will settle by this week. Indeed she has delivered her promise - I have received the discharge voucher and cheque.

I am sure Y put in lots of hard work to speed up my claims these past week. I sincerely thank her hardwork for expediting my case and solve it up. Now I neither need to go to independent parties nor publicise my dispute.

Y was friendly to hear my problems and ackowledge receipt of my documents sent to her. Unlike X who never email me at all ever since the start of this whole problem. Absolutely nothing!!! Does he knows how to use an email?

But now I am wondering does X ever exist at all or am I dreaming?

With sincere thanks for resolving dispute.


Become sales oriented and may tell lies

1. Why is NTUC offering this Capital Plus? A non-NTUC agent said that NTUC is trying to raise funds. I am afraid they will drag for a few months and the interest will become lower than 2%

Reply: I do not know the answer.

2. Is the Growth policy a safe product ? I read NTUC has been over declaring the bonus in the past years .

Reply: It should be quite safe.

3. I had a NTUC life policy for 5 years. The surrender value stated in BI is $2200, but when I surrendered it, it was $1900. I surrender the policy to change to a limited pay whole life like Vivolife.

Reply: It is better to keep the life policy. Do not surrender it to buy another life policy, as you will be incurring the upfront cost again.

4. I am afraid the same thing may happen to the Growth policy, i.e. overpromise, under deliver. I think without you, Ntuc income has changed to be more sales oriented and have more tendency to tell lies. Don't know whether they really want to help people?

How to get a good deal on life insurance

In this article, Dr. Money explains how to get a good deal on your life insurance policy:,4136,167015,00.html

Minimum wage in USA

The US government has raised the nation's minimum wage to USD 6.55 per hour (SGD 9) as part of the Fair Minimum Wage Act of 2007. The previous revision was made in 1997. A final increase, scheduled for July 24, 2009, will raise the minimum wage to $7.25 per hour (SGD 10).

The government's efforts may not be enough to help struggling workers, according to labor-backed Economic Policy Institute (EPI). Even with the increase, the institute believes that a full-time, minimum-wage worker earns below the poverty line for a household of two.

Businesses are concerned that higher labor costs will make an already adverse enconomic environment even more difficult.

Financial Planning Tips

Read the relevant FAQ in:

This link is also provided in the right panel of this blog.

Thursday, July 24, 2008

Get ready for the hard times

Dr. Money advised readers to get ready for the hard times. High inflation may be here to stay.,4136,165866,00.html


Cheating is an act of lying, deception, fraud, trickery, imposture, or imposition. Cheating characteristically is employed to create an unfair advantage, usually in one's own interest, and often at the expense of others. Cheating implies the breaking of rules. The term "cheating" is less applicable to the breaking of laws, as illegal activities are referred to by specific legal terminology such as fraud or corruption.

Unjustified increase in premium for motor insurance

Insurance companies have increased their premium rates by about 20% this year. Dr. Money said that the increase is not justified, as these companies have made a lot of profit from their investments. Here is his article:,4136,168843,00.html

Wednesday, July 23, 2008

Invest in Foreign Currencies

Dr. Money gives some tips on how to invest in foreign currencies to get a higher return:,4136,166429,00.html

Complain about a poor deal

An insurance agent in Indonesia sold a large investment-linked policy to a senior government official. The annual premium was SGD 15,000 a year. The policyholder was angry when he learned that 15% of the premium was deducted as first year charge. He was not told about this deduction by the agent. He lodged a complaint with the insurance company.

The insurance company was worried that this official could give a lot of problem. They asked the agent to accept a lower commission of, so that only 5% was deducted, allowing 95% of the premium to be credited to the policyholder's investment. The agent agreed. Although this deduction was probably mentioned in the benefit illustration, the policyholder was able to get this special treatment because of his high position.

Actually the deduction of 15% was quite reasonable. In Singapore, 80% of the first year's premium is deducted, leaving only 20% to be invested. Most policyholders were probably not aware about this high deduction. When they found out, they are probably to ashamed or reluctant to lodge a complaint.

Policyholder given a misleading figure

A young man bought an investment linked policy with a saving of $200 a month. He was mistaken that the premium payable for 42 years was $33,600 when the actual premium was $100,800.

He realised that the policy did not give an attractive return. He sent this message to me:

"I think the figure I received were a bit misleading and I have asked and confirmed to the advisor. I have now terminated the ILP. I have paid S$6400 and will only get back around $3,100. I guess this is a lesson learned for me. Anyway, I hope that you will keep educating people from your blog and site so that the public will be more aware about their financial planning. "

Unethical conduct of insurance agent

Hi Mr. Tan,

Last week, I went to an insurance company to terminate my regular investment link policy. It was only purchased last December and I had considered carefully about the huge financial loss that I will incurr upon closing it. I had decided to close it despite incurring huge losses as I feel that this is in my best interest that I do not have any dealing with this company anymore.

I put up a request through my agent to reduce my monthly premium as I found the premium rather heavy for me as im currently funding my own part time studies. This delay has been dragged for more than 2 months and despite assurance from my agent,i did not receive any official writing from the company either. He told me that his admin dept was having some problems and will take some time to process my application. But I did remember filling up a form when I met him earlier to reduce the premium,he did not give me a copy either, I found it strange that he did not gave me a copy of the application form. I didn't probe much as i trusted him but..

My agent called me up shortly after I terminated my polices, he was agitated and said that I was rash in my decision and did not respect him by informing him beforehand. He wants me to reinstate my policies as my withdraw will affect his promotion and he still assure me that he had submitted my application. I told him that it was taking too long to process my reduction of premium and I do not wish to carry on any dealing with his company anymore. I was disappointed.

I called up the insurance company to check this morning and found out that there was no record of any pending application form from my account to reduce any premiums for the past 4 months. I also asked if there was any manpower shortage for the processing dept for the past few months, the Customer Service officer replied 'No'. He has been lying to me all these while, I thought that he is a responsible agent and is sincere in helping clients to plan for their future. I try to help him initally by introducing my friends to him, lucky they did not buy from him else I will feel guilty.

I paid a total of $X and only got back less than 10%. Can I get his company to compensate me as this is largely due to their agent manipulation. Can I claim for personal disappointment? I also withdraw my CPF OA investment account with this company as I was ready annoyed with them, I lose about $X in total for this account.

Who can I seek to redress my grievences and personal damages? I want to teach this agent a lesson, can I file a complaint against him?

I have written an email to them last night asking them to explain why my application was not processed and asked them for an compensation as this incident was largely due to their incompetence and insincerity. They replied by saying that they will look into this matter and give me a reply soon.

Hope you can give me your advice on this as this is causing much inconvenience and frustation to me


I suggest that you write a complaint to the Insurance Department of the Monetary Authority of Singapore. They have a section that is responsible for market conduct, which includes the conduct of insurance agents. MAS will bring this matter officially to the insurance company. Your complaint is likely to be acted on promptly.

Tuesday, July 22, 2008

More uncertainty with private Shield

Dear Mr. Tan,

I understand from MOH website that "Since 1 July 2005, each of these Medisave-approved plans have been integrated with MediShield to form a single integrated plan."

I bought a private Shield plan in 2002. I think at that time, the insurer will cancel the CPF medishield for me. Since the medisave-approved plan has been integrated with medishield from 1 July 2005, does it mean I am covered under the private Shield while retaining the benefits of MediShield membership? Or only people who signed up after 1 July 2005 for the private shield plan will benefit from the changes on 1 July 2005.

If I am retaining the Medishield membership though I signed for a private shield plan in 2002, does the medical underwriting for this medishield component starts from 2002 after I signed up for the private Shield (which may include exclusions imposed by the private insurer) or does it starts from the first day I had my Medishield which is many years ago before 2002 which has no exclusion?


When you bought the private Shield in 2002, you are subject to the underwriting requirements at that time. If you have any pre-existing conditions that are not disclosed, the insurer is likely to reject your claim. A few people have approaced me on the rejection of this claim under a private Shield plan.

The "integration" exerise is a private arrangement between the insurer and CPF. It does not have any bearing on the contract between you and your Shield insurer, regarding the disclosure and exclusion of pre-existing conditions.

This is my understanding of the likely practice. It is best that you confirm with your insurer on this matter.

I understand that some private Shield policy has a clause that read as follows: "For the avoidance of doubt, any Pre-existing illnesses, Diseases or Impairment that have been covered under Medishield shall continue to be covered under this Policy up to the Medishield policy limit .... etc."

If you have this clause, you will continue to be covered for the conditions previously covered under the Medishield policy.

Low cost insurance and investment funds

I am now working as a consultant to a life insurance company in Singapore. It intends to launch low cost insurance and investment funds in early 2009.

Details of suitable products are set out in these FAQs:

Generally, my advice is:

1. Buy low cost term life and medical insurance to protect your earnings
2. Invest your savings in a low cost fund to get an attractive return
3. Avoid high cost and complicated financial products
4. Educate yourself to make the right choice
5. Buy directly, to avoid paying the high commission insurance agents

Business ethics

We need strong business ethics, to operate business honestly and give fair value to consumers. I am speaking on this topic at a dinner of the alumni of an American university.

Here are some points contained in my speech:

In Ancient China, the “four categories of the people” was a hierarchic social class structure developed by scholars as far back as the late Zhou Dynasty (c. 1046–256 BCE). In descending order, these were the shi (gentry scholars), the nong (peasant farmers), the gong (artisans and craftsmen), and the shang (merchants and traders).

Why are the merchants and traders treated at the lowest rank?

The merchants, traders, and peddlers of goods were viewed by the scholarly elite as essential members of society, but were placed on the lowest of the four grades in the social hierarchy. The scholars in their writings denounced the merchant class as greedy and lacking moral character. Merchants were seen as somewhat parasitic to the needs of all other groups in society, since they used the goods that others produced and made their own profits from them. In essence, they were seen as business savvy, but not morally cultivated enough to be venerated representatives of Chinese culture.

I wonder if our business community of today fall into the same description of "greedy and lacking moral character?"

Identity card - lost & found

I lost my identity card last month. I applied for a new card, but was advised to wait for two weeks, in case the card was found.

After four weeks, I received a letter from the relevant department. Someone found my identity card and returned it to them. The letter asked me to collect the card from their office.

What a wonderful service!

Car insurance - where to get lower premium

Dr. Money wrote this article about car insurance:,4136,170194,00.html

You can find more articles from Dr. Money at:

Monday, July 21, 2008

Non-disclosure and medical insurance

Someone asked me to explain about the impact of non-disclosure of pre-existing condition on medical insurance.

Under the contract, the insurance company has the right to reject a claim due to the non-disclosure of a pre-existing condition. They are likey to reject the claim, even if the non-disclosure was unintended, namely the policyholder was not aware about it.

What is pre-existing is also a matter of judgement. Most medical conditions can be traced to be pre-existing. For example, if the patient has a high cholesterol and does not disclose it, the insurance company may reject a claim that is related to this condition.

As a person grows older, most illnesses are likely to have some pre-existing connection. It is quite unfair for the insurance company to reject a claim on flimsy grounds. From my experience, many insurance companies in Singapore are quick quick to find a reason to reject a claim.

Hence, it is very important that you choose an insurance company that you can trust, and take act fairly in the interest of their policyholders. Unfortunately, many insurance companies are too driven by their profits and are willing to sacrifice the trust of their policyholders.

Consumer protection in Singapore is weak. Consumers are not willing to fight for their right in a court of law, as the legal cost is high.

Poor cash value

I find the practice of life insurance companies in giving low cash values to be most unfair to policyholders.

Here is an example. The policyholder took an endowment policy 15 years ago, and paid an annual premium of $5,925. After 15 years, the cash value of $86,299 represents a yield of 0% on the premiums that have been invested.

The insurance company projected a maturity value of $166,622. This would give a yield of about 5% per annum for 18 years.

If the insurance company had indeed earned a net yield of 5% for the past 15 years, the "asset share" should have been $127,000. The payout of $86,299 represents a penalty of $40,000 from the "asset share".

How can the insurance company justify this large penalty on a customer who has entrusted the CPF savings for 15 years?

The policyholder, who has now retired, is forced to find the premium to pay for the next three years, to avoid this huge penalty.

I advise the policyholder to lodge a complaint with the Monetary Authority of Singaore on the poor cash value that is being offered by this life insurance company.

I advice the public to avoid all life insurance products that offer low cash value and project a large terminal bonus on maturity. If you are not able to pay the premium to the maturity date, a large part of your savings will be confiscated. Even if you continue to the maturity date, you can never be sure that the terminal bonus will be paid.

I hope that the Monetary Authority of Singapore will take action to enforce payment of cash value that is close to the "asset share" - a practie which has been adopted in Malaysia. Do not let the ordinary people be deprived of a fair return on their savings.

Sunday, July 20, 2008

Many policyholders give up their whole life policies


Whole life product advocates and especially insurance agents argue that a whole life policy is useful during old age, a time when one is most likely to contract dread illnesses.

Apart from other economic reasons, I want to show that whole life policies are hardly kept beyond age 65. Why is it not kept beyond this age, the obvious reason is many don't believe that it is necessary and many believe in self insurance, a wise idea because liquidity at a time like this is more flexible and better choice.

What if you get and what if you don't get a disease , the probability seems 50/50 but I bet it is more than 80% chance you don't get. If you do, have an H&S is enough plus what you provided for in cash as self insurance will adequately address this problem.

Maintaining a whole life policy at this age is expensive and a waste of money and self insurance is a better option.

Therefore the case for a whole life policy is weak and you are better off if you have a term insurance plus investment with better return. The chances of having a better life and retirement are best via "buy term and invest the rest".

I want to show you statistics from MAS website to corroborate my argument and my findings. If you look at the life insurance persistency from 2001 to 2007 you see a pattern. You see high decline immediately in first 2 years and henceforth persistency declines at a rate of about 4%. This pattern is seen in all the last 5 years.

If I extrapolate the rate of decline to next 20 to 30 years I can see that only about about 10% or less of life policies will in force.

Assuming a 30 year old man buys a policy, by the time he is 60 or 65, he would have terminated or surrendered his policy. This phenomenon is supported by another statistics, the surrender statistics and it has been a whopping high of about 65% compared to maturity of about 35%. In other words a lot of people surrendered their policies earlier.

What do these figures tell you? Very few kept their policies beyond 65 years old. Why buy whole life insurance if you don't keep till old age? Let me tell you, it is burdensome; cash return too low.

I have done another research earlier and posted somewhere on death claim. I found no claim beyond the magical age 65, not that no one died or no one got dread disease but no one or very few kept whole life insurance beyond this age.

Death claim median age is 45 and average claimed amount is only a miserable $45K and the highest of $200k was from a term insurance.

Conclusion: insurance is most needed during time when your responsibility is the highest and you should have enough to address the needs at that point in time. Term is the best instrument, cheap and efficient.

Do not believe what the insurance agents tells you about whole life insurance. Their argument is obvious, it is high commission for themselves and life long source of revenue and income for the insurer.


Bus services - express and feeder services

Read my suggestions in:

Ownership of a life policy

Dear Mr. Tan,

My uncle (as policy holder) bought a life policy for his wife (as insured). If the policy holder passes away, does it mean that the ownership of the policy automatically transfers to his wife (the insured)? Or does it become a 'no ownership policy'. If it is the latter, who has the rights to deal with the policy, for instance, to take a policy loan/terminate it?

Your uncle is the owner of the policy. On his death, the policy becomes part of his estate and the administrator of the estate (which is usually his wife) can deal with the policy in any suitable way, such as taking a loan or terminating it.

Your uncle has the choice of transferring the policy to his wife now and write in his will to transfer the policy to the wife on his death.

Unforgettable sight in Beijing

My friend saw an unforgettable sight during his recent visit to Beijing - something that he has not seen before, and will never see again in the future.

He looked up and saw a blue sky. In preparation for the Beijing Olympics which will start soon, the authority has asked the factories to stop or reduce their production within a large part of Beijing. This reduces the pollution and makes the air clean.

He expects that, after the Olympics, things will get back to normal in Beijing - and that is a polluted environment.

Cost of Private Shield

A reader asked how it is possible for the cost of a private Shield plan to be more than $100,000 for ages 30 to 85.

You can add up the total cost from the websites of the insurance companies. Here is an example from NTUC Income:

For the enhanced plan (subject to deductible and co-insurance):

For the plus rider (to cover the deductible and co-insurance)

Add up the premium rate for plan P (which covers private hospital) for the ages from 30 to 85. Remeber to muliply by the number of years in each category. I got a total of $102,344.

This does not include the cost beyond age 85, and also for future increases in premium rates due to medical inflation. These rates are not guaranteed at the current level and can be adjusted in future years.

You can find out the premium rates charged by the other insurance companies for their private Shield plan. I believe that the total cost will be higher, i.e. more than NTUC Income.

How banks lose the trust of their customers

An elderly person told me, "Long ago, many people can trust their bank to give them a fair return on their savings. Nowadays, the banks make a lot of profit by selling bad financial products to their customers. Many customers now distrust the banks".

What has happened during the past ten years, that makes the banks lose the trust of their customers?

Long ago, the banks are tightly controlled by the regulator. They have a few common products that their customers can understand, such as a saving account, a current account and fixed deposits. The customers can compare the interest rate paid on these savings and deposits. The banks have to offer competitive terms to attract and retain their customers.

The situation changed in the past decade. Banks started to offer complicated financial products. They employ marketing officers to sell these products, such as high cost life insurance products. Later, they sell structured investment products.

There is a change in the role of the regulator. They are not concerned about ensuring fairness to the consumers, and decide to leave this matter to the market. The consumers are left at the mercy of the issuers of these products. The issuers have the objective of maximising their profit and do not mind "ripping off the consumers". Business ethics disappeared.

The banks market these products to their consumers. They make a handsome profit from the commissions paid by the product issuers. But the poor consumers are given poor financial products. They only realise it after 3 to 5 years, but by then, it is too late.

This is how banks lose the confidence of the customers.

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