Saturday, April 03, 2010

Credit risk in making advanced payments

Many customers paid a few thousand dollars on spa packages and lose the money when the spas closed  down. If you have to pay in advance to enjoy a discount, do not pay for more than three months of services. Do not take the risk of paying for one or two years.

I do not know if the spa closed down due to bad business, or they were set up to deceive the customers. I hope that the authority will investigate if the owners had intended to collect deposits and run away with the money. If money is taken out by the directors for unauthorised purposes, it would amount to cheating. We should not allow this type of cheating to go unchecked.

Tan Kin Lian

Training video on Forex Trading

Here are excellent training videos on Forex Trading.

Singapore health care system

Here is an article published in Temasek Review.

It's more than just shopping in Johor

Read this article by Seah Cheang Nee.

Poor financial future for Singaporeans

I feel sad for the people of Singapore. Most of them work hard and are frugal. They save for their future and for their children. But, when they come to retire, you do not have enough savings and are asked to continue to work longer.

What went wrong? Most of them get a poor deal from the financial products that they invested in. Take an example of a family which saves $500 a month over 35 years. They should have earned a return of 5% p.a. and received $570,000 for retirement,. But the yield obtained by most of them would probably be 2% p.a. giving them only $306,000 (or 54%). The difference of $264,000 (i.e. 46% of the total) went to pay the high earnings and profits of the financial services industry. I am not aware of any other country in the developed world where as much as 46% is taken away from the hard earned life time savings of the people.

If each family contribute $7,500 a year (i.e. $264,000 over 35 years), the total contribution from one million families would amount to  nearly $8 billion a year. This is a lot of money. This is why the top executives in banks and life insurance companies can earn several million dollars a year. And in recent years, higher salaries are being paid for top executives who are willing to be unscrupulous in over-charging customers and giving them a poorer deal.

This arrangement works well for the board of directors, as their fees are benchmarked to the profits and to the government leaders whose remuneration are benchmarked to the top earners in the country. Of course, the people are condemned to a bleak financial future, but the government leaders do not seem to care.

Tan Kin Lian

Friday, April 02, 2010

Singapore Goal 2010

In 1998, Prime Minister Goh Chok Tong said in a National Day speech that one day Singapore could qualify to play in the World Cup. The Football Association of Singapore set Goal 2010 as the year that Singapore could achieve this dream. We are now at year 2010 and this dream is still far away. It seems that the last 10 years have been quite disappointing for Singapore on many angles, including sports. More information here.

Develop your child's thinking with the shape quiz

The shape quiz can help your child's thinking, creativity and problem solving. Watch the video here:

Special promotion. Buy 10 mini-paks for $15  (usual price $20) as a gift for children and friends.
To order:

A valuable gift to your children or friend

If you invest $12 and 6 hours in my book, Practical Guide on Financial Planning, you will be able to save $12,000 by avoiding the wrong type of investment. For example, if you save $500 a month in a life insurance policy and the distribution cost is 24 months, you will be losing $12,000 of your savings.

You can also help your children or friend to avoid wasting their savings on the wrong financial product. Present them with this book for them to read and keep. This may be a much appreciated gift.

Order here.

Hub and spoke system for public transport

A few people have written to the newspaper to complain about the proposed change to the hub and spoke system for public transport. They do not like having to transfer from one bus to another. They prefer the current system of many buses that travel long distance.

I believe that the hub and spoke system is more efficient and will benefit commuters as a whole. It will simplify the transport system and encourage more people to take public transport. The only drawback is the need to make a transfer, but this can be an advantage as the short walk will be good for health.

Commuters do not like to spend 10 minutes to wait for a transfer. When the new system if fully implemented, I expect that the waiting time will be shorter as there will be more buses to run the shorter routes.

Some people argued that the elderly and disabled will be inconvenienced. I believe that it is better for some other arrangements should be made for them, instead of using public transport.

Tan Kin Lian

Platform fee on Fundsupermart

Hi Mr Tan,
I am unsure if you are aware that the famous online Unit Trust distributor Fundsupermart is imposing a platform fee in a month's time.

Many retail investors are very unhappy about this new fee to be implemented in such a short notice. In addition, we always try to keep our cost down but FSM, due to various reasons, go in different direction as its clients.

I have not receive any email or letter regarding this change in fee structure until a forumer alerted the rest.


Please ask Fundsupermart to show you where, in the contract, they have the legal right to impose such a fee. If you withdraw from this platform, are you able to keep your record directly with the unit trust or move the units to another platform? You can also ask the unit trust that you invested in.

Fundsupermart plans to levy a quarterly fee of 0.125% (0.5% p.a.) plus GST for equity funds. A lower charge applies for investments above $500,000. This is rather high, as the investor has to bear a management fee to the asset manager as well.

An investor told me that she plans to transfer her funds to Dollar Dex. There is no transfer charge. Dollar Dex indicated in their website that they do not plan to implement a platform fee. She said another option is to tranfer to POEMS.

Goods and services tax (GST)

The Goods & Services Tax is a bad tax in the following ways:

- it is a regressive tax and hits the people at lower income most
- it is a wasteful tax as it incurs a heavy administrative cost to the tax collector and the payer

A better solution is to abolish GST and have higher income tax. If a country needs to lower income tax to attract higher income earners (a strategy for which I personally disagree) and needs to find an alternative source of revenue,  here is a better approach to GST:

- levy a flat rate tax of 4% on payroll and investment income (which produce the same revenue than 7% GST)
- the payroll tax is a cost to the employer but can be recovered from employees earning above a threshold salary

There is a mistaken concept that GST is fair as it is imposed on consumption and encourages savings. A better way to encourage savings it to pay a higher rate of interest (which can be achieved through monetary policy) or to exempt interest from tax. Many retirees earns a low rate of interest on their savings and yet have to pay higher prices through GST.

GST has become so complicated, costly and open to abuse that it is time to abolish it and replace it with a more efficient tax.

Tan Kin Lian

Cost of a home

Every family needs a home to live in. A high property price translates into the high cost of a home and a high cost of living. When a family buys a costly property, they have to work hard for many years to pay off the mortgage to the home. They cannot afford to be unemployed or to have reduced earnings, as they cannot afford to pay the mortgage.

There was a mistaken belief that high property prices benefit the people at large, as the value of their asset has increased. In reality, they are paying a higher cost of living and have to work harder to survive. They are not able to unlock the value of their asset, as they still need a place to live in (unless they move to a smaller size property).

A small number of people benefit from the escalating property prices - people who own land and properties that they can sell to those who need a home. The families that need a home suffer from the higher cost.

Tan Kin Lian

Work-life balance and the economics of workplace flexibility

Here is a report prepared by the Presidential Council of Economic Advisers in the USA.

Thursday, April 01, 2010

NATO: No action talk only

Someone passed a cynical comment that the comments on land banking in this blog is "no action, talk only". This person posted anonymously and did not indicate whether he is a land banking investor or cynic or just a nuisance. If he is willing to come forward and propose some concrete action, I would be happy to post his offer.

Someone suggested that a rally be held in Hong Lim Park about land banking. Another person suggested to protest against the lavish spending at the annual general meeting of NTUC Income. Can the people who make these suggestions offer to arrange the rally or attendance?

On a positive note, a few investors in land banking are now in contact with each other and discussing some form of collective action, including visiting the office of the land banking company together to ask for re-payment of their investment. However, some investors still think that they will have a better chance to be re-paid if they give the land banking company more time to sell their land.

Tan Kin Lian

Painful experience of land banking investor

This message has been edited by Tan Kin Lian. Other investors who wish to join this action to visit the office of X collectively can send an e-mail to

I wish to share my experience. X (land banking company) is not interested or motivated in repaying the investors. Their main focus currently is to hold more road shows to attract more new and unsuspecting investors so as to further line their own pockets.

In my case, I have personally went down to CAD a couple of times and also seen my MP twice to try to recover my money since August last year. However, till today I am still at a loss as to when I could ever recover my money from X.

I also went down to X's office many times to recover my money but they kept giving excuses and use all sorts of ways and excuses to delay payment. I have also called up X 'hundreds of times' but they simply either refused to take my calls or give excuses that their directors are out of town (their directors are basically out of town 365 days in a year).

Personally I think that the best way to get my money is to constantly 'harass' X for payment personally at their office. In fact, that could be the only way to get our money back unless CAD decides to take action against X.

However, X would not be bothered with our 'harassment' if we go to their office individually. Therefore I suggest that if we are serious in getting our money back, maybe we could gather more investors like ourselves and together pay X a visit to settle payment dued to us once and for all. We need to really force X to pay us back our hard-earned money before it is too late.

UK - action taken against land banking companies

Comment: surely it is time for the Singapore authorities to act against similar shady practices in Singapore?

....were all involved in operating an unscrupulous land investment business. The companies falsely claimed to provide the best land and property in the UK with future development potential and the capacity to deliver maximum returns to investors including selling land they had no right to.

The grounds for winding up the companies were that they made misleading and unfounded statements in marketing the plots of land to the public; sold land on two sites (Worplesdon and Thorndon) that they had no right to sell and that over a third of company receipts were found to have gone to those involved in the running the business, namely.....

In ordering the companies into liquidation Registrar said: “This is a very serious case where considerable amounts of money have been obtained from members of the public. I am satisfied that the evidence, based on a very full report, substantiates all of the allegations. The evidence shows diversion of funds and the intermingling of funds by the companies that can’t be unravelled. I am satisfied that Mr .... and Mr ..... have demonstrated complete lack of co-operation and that this is very obviously a case where winding up orders should be made.”

The investigation also found that the companies had failed to keep proper accounting records; had failed to comply with Companies Act requirements; failed to co-operate fully with the investigation and operated with a serious lack of transparency as to who controlled the companies and with a lack of clarity regarding the structure and roles of the companies.

Coping with a critical illness

When a person meets with a critical illness, there are two financial losses:
- medical expenses to treat the critical illness
- loss of earnings

The medical expenses have to be managed in a sensible manner. I know of a few people that spent a lot of money on treating the critical illness, usually at private hospitals and specialists. In many cases, the large sum that was spent did not make any difference. If the illness was serious, the patient died.

I also know of other people who survived cancer or heart surgery. Those who were treated in a restructured hospital did not spend a lot of money as they benefited from the government subsidy. They were also covered by catastrophic insurance (i.e. MediShield or private Shield).

The best way to handle the loss of income is through personal savings that can be drawn down in an emergency. You do not need to depend on critical illness insurance to give a lump sum payment. If you put all your money in a critical illness policy, you may find your claim to be rejected for some technical reason, at a time when you need the money most. It is better to invest the savings on your own and be free of this uncertainty.

The proportion of people that suffered from a critical illness during the working life is estimated to be less than 10%. More than 90% will retire without suffering from a critical illness.

Tip: Spend less than 2% of your earnings on insurance against death or critical illness. Invest the rest of your savings in a low cost investment fund.

Read my book on "Practical Guide on Financial Planning". Spend $12 and save a lot of money (say $12,000) on wasted premiums.

Tan Kin Lian

Personal risk management

We need to accumulate savings and invest them wisely to get an adequate return that is higher than inflation. Most people invest too much of their savings in a life insurance policy that locks them up for 20 years or longer, is inflexible and gives a poor return. When they need cash for emergencies, they have to borrow on credit cards or on their own policy and pay a high interest rate.

Most insurance agents frighten them about the risk of premature death or critical illness (which is less than 10% during their working life) but did not tell them about the risk of insufficient savings for retirement or future emergencies (which represents more than 90% chance of occurrence).

The solution is to buy a low cost term assurance (covering death and critical illness) or personal accident policy (with less than 2% of your earnings) and invest the rest of your savings in a low cost investment fund. If the insurance cover is not available at a low price, it is more important to take care of the 90% risk and have adequate savings for the future.

What are your views about this approach to personal risk management? Share your personal experience.

Tan Kin Lian

Wednesday, March 31, 2010

Public transport in Singapore

What percentage of people in Singapore uses public transport to go to work? I guess that it must be 80%, but I wonder if the proportion is lower? Can someone help to do some research?

Tuesday, March 30, 2010

Old fashion investment advice

Jack Bogle has been giving the same advice for 50 years. Read this article.

His advice, in short: Invest consistently and for the long haul in a widely diversified portfolio of stocks and bonds. Pay attention to taxes and costs. But leave your investments alone.

Day trading is a bad idea

Read this article. This includes day trading in the stock broker's office.

15 money rules for children

Read this article.

UK - Bank staff mis-selling to be scrutinized under government plans

By Victoria Bischoff  25 March 2010

Financial services firms that force staff to promote and sell products to consumers in order to meet sales targets will be reformed, under plans revealed in the budget this week.

The government has said it will set up a ‘working group’ to consider how staff targets and incentives might lead to poor outcomes for consumers and employees.

This is building on the Retail Financial Services Forum’s remit to make financial services work better for consumers.

The group will meet with a number of banks, consumer groups and trade unions, to discuss the need for reform, before reporting to the Chancellor in time for the Pre-Budget Report.

Unite Union has welcomed this investigation into bank sales culture, describing it as a ‘victory’ for staff in banks across the UK.

Rob MacGregor, Unite national officer said: ‘There is now an opportunity to eradicate the murky practices which put pressure on staff and customers. This new examination by the Government is a win for consumers and a win for those workers on the front line of the banking sector.’

‘Unite members feel uncomfortable with having to pressure customers to invest in products which they often don’t feel they need, simply because the staff have to meet unreasonable sales targets,’ he added.

Consumer champion Which? recently sent out mystery consumers to 37 branches of banks and building societies, and found just four gave consumers good advice to consumers investing a lump sum. Meanwhile, the remaining 33 banks often recommended inappropriate products, failed to properly explain the risks or simply couldn’t get the basics of good advice right.

Which? chief executive, Peter Vicary-Smith, said: ‘Banks and building societies need to buck up their ideas and make sure that their sales practices don’t exploit consumers by encouraging their staff to recommend inappropriate products’.

A spokesperson for the British Banker’s Association said they are not currently aware of any invitation to the new group on remuneration and incentives, but they will be pleased to participate if asked.

Estate duty in US on non-residents

Dear Mr Tan
I'm a keen follower of your blog and appreciate your efforts in educating the public on financial planning.

I attended a will writing talk recently and was informed that the US estate tax on assets such as stocks bought in the NYSE can be as high as 55%!  I have invested quite a bit in the ETFs listed on the NYSE and needless to say, I was quite stunned to hear about that.  I did some research about this and it seems there is an exemption provided the total value of assets owned is less than US$60,000 based on fair market value.

I have asked my broker about this, but they claimed that there won't be any estate duties on US stocks.  But this doesn't seem to be the case based on what is stated on these 2 sites: (opinion from a local Independent Financial Advisor)

If this estate tax does apply to Singaporeans owning US stocks, you might want to blog about this to inform the public as I believe there are quite a number of people who own them but are not aware of the tax.

 I am not familiar with estate duty in US on non-resident. I shall post your email in my blog and see if there is some response from the experts.

Practical Guide on Financial Planning

Nearly 1,000 copies of the book has been sold during the past few weeks. All my stock in the office has run out. I have to retrieve some stock from FISCA, while waiting for the re-print. They are still available at most bookstores.

The response to this book has been better than expected. Most people sent me their feedback that they find the book to be easy to read and useful.

Order here.

Customer service at call center

Here is a simple way for any call center to improve its customer service.

If the call center staff meets with a problem that they cannot answer (which represents about 10% of incoming calls), they should record the nature of the problem and the contact of the customer. This call should be passed to a specialist to call back the customer.

This method will improve customer service significantly. It will also improve life for the staff handling the incoming calls.

Tan Kin Lian

Educate the public and decision makers

The postings in my blog are intended to educate the public and the decision makers on various issues involving financial, social and economic matters affecting the future of our country, including productivity, quality of service and treatment of the public.

I believe that the decision makers are monitoring this blog and that my postings, together with the comments, will be read by them. (For example, where I have made factual errors, these have been politely corrected in my blog from knowledgeable people - posting anonymously). I have also forwarded some of these postings to the relevant decision makers. The mainstream media also took up some of these points and contacted me for more information.

Some cynical people asked, "what is the point of making complaints in this blog?" Their cynical attitude is  wrong - this is not a place for complaints, but is a place for positive contribution to educate the public and decision makers and improve the quality of life in Singapore.

There are many things that are not moving in the right direction in Singapore, as the decision makers are out of touch with the reality. I hope that this blog will help to bring these points to their attention.

For example, I have posted articles about how other countries approach their issues, especially where their approach is different from Singapore. I hope that this will allow the public and decision makers to consider the merits of the different approaches.

Tan Kin Lian

Australian Associated Press Financial News Wire: Lehman's victims seek damages following High Court decision

LEHMAN MELBOURNE, March 30 AAP - Local councils and other investors who suffered losses of over $600 million from Lehman Brothers Australia Ltd's liquidation can still seek damages following a decision by the High Court of Australia.

The High Court on Tuesday dismissed two appeals against a judgment of the Federal Court of Australia which found that a deed of company arrangement approved by Lehman Australia's creditors on June 12, 2009, was void and of no effect.

Reasons for the decision will be delivered at a later date, the Court said in a statement.

The decision against Lehman Brothers Asia Holdings and Lehman Brothers Holdings Inc means investors in Lehman Australia and other companies in the Lehman Group can commence litigation to recover hundreds of millions of dollars in losses.

The investors, including about 90 local councils, are owed over $600 million in investments that went bad following Lehman Brothers' collapse in New York in September 2008 under debts of $613 billion.

Lehman's collapse was the the biggest US bankruptcy in history, and subsidiaries around the world followed suit as their source of funding disappeared during the credit crisis of September 2008.

Listed litigation funder IMF (Australia) Ltd on Tuesday said claims made by 70 of its clients against Lehman Australia now would proceed following the High Court's decision.

The decision confirms that the deed is ineffective and Lehman Australia will remain in liquidation, IMF said in a statement.

The deed was proposed in early 2009 by Lehman Brothers Asia Holdings, Lehman Australia's single biggest creditor, which itself went into liquidation. The deed was recommended by Lehman's administrators, Stephen Parbery and Neil Singleton of liquidation firm PPB.

Wingecarribee council and others had begun legal action against the investment bank, arguing Lehman Australia engaged in misleading and deceptive conduct.

Wingecarribee council crystallised its losses of $4 million by selling its soured investment products.

At the time, Mr Singleton told AAP that the deed should bring litigation to an end.

"The benefit of that is it enables us to pay the employees and general creditors in full, early, and it provides a very reasonable return to the contingent creditors (the former investors including councils and charities)," he said on May 28, 2009.

But several creditors of Lehman Australia later later brought proceedings before the Federal Court claiming they were not bound by the deed and that it would extinguish their rights to sue other companies in the Lehman Group.

On September 25, 2009, the Federal Court found that the deed was void and of no effect, before ordering that Lehman Australia be wound up by the Court.

Lehman Asia and Lehman Brothers Holdings Inc then appealed the decision in the High Court.

Western Australia Business News: Councils win Lehman court case

Councils and charities involved in the collapse of Lehman Brothers Australia have had a win in the High Court today.

Litigation funder IMF (Australia) said the High Court dismissed an appeal against a Federal Court judgement that found the deed of company arrangement approved by creditors of Lehman Bros Australia was void and of no effect.

"It was argued by the Councils seeking to have the DOCA set aside that the DOCA was unfair and particularly prejudicial to the interests of those creditors with damages claims against Lehman Australia, principally being the local councils, charities and other investors in collateralised debt obligations marketed by Lehman Australia," IMF said.

"In particular, the councils argued that the DOCA could not contain terms which required creditors to release claims against other Lehman Group companies."

The High Court win now paves the way for the councils and charities, as clients of IMF to proceed action against Lehman Australia and other companies within the group.

The City of Melville was one council which used to be advised by Lehman and had paid more than $20 million for a portfolio of CDOs.

Stability and choice

This political situation in Tunisia is described to me by my host in Tunisia. The current government in Tunisia has been in power for many years and has produced stability and economic progress. The government has strong links to most of the organisations in the country, that it is difficult for other political parties to compete with the ruling party. The people are not unhappy with the current situation but they would prefer to have more freedom and choice. There is much similarity with the situation in Singapore.

Tan Kin Lian

Improve online service

I wish to quote this real life example for government agencies to improve their online service. Although this case involves the CPF board, the same type of situation occurs with other big organisations.

I wanted to top up the special account for my wife. I had to go through the spider-web of the CPF board. I finally managed to submit an online application.

I did not receive any news for 1 week. I did not know if anyone is responding to my application and how I would be informed. I sent a follow up enquiry. I managed to get an approval a few days later. I send the top up amount by cheque to CPF board.

I received a communication that my cheque was received after the expiry of the approval. They gave me only 5 days to respond. I had to submit a new application.

Surely the CPF board knows that it would take a few days for a person to prepare and mail the cheque and for their big organisation to open the letter? Five days is far too short. Even if the approval has expired, there has been no change to the application, and there is no need to ask the member to submit a new application - which is a lot of hassle to go through their spider web.

Perhaps the CPF board is not aware that their members have many other things to attend to, and that the cannot spend a lot of time to meet their bureaucratic and unreasonable process.

I find the CPF board to be quite helpful and responsive on many matters, so this is an exception. Furthermore, this type of inconsiderate approach is quite applicable in many large organisations (and is not confined only to CPF). We need a process in Singapore for the people who designs websites and online applications to be more responsive to feedback and to make things simple for the public.

Tan Kin Lian

Customer service at call center

I had difficulty to access the Internet. I called Starhub. The hotline staff transferred me to a technical expert. I was left holding on to the line for 5 minutes waiting for the technical expert to receive the call. As I was using my mobile phone, it was quite costly to be holding on.  I gave up.

The call center staff should ask for my mobile phone and get the technical expert to call me. This is only fair to the customer. But most call centers have a policy not to call the customer. This policy should be changed.

Monday, March 29, 2010

Low yield for a 5 year investment

Dear Mr. Tan,
My mother is thinking of buying a 5 years insurance plan with a single premium of $10,000. She is still in good health and the reason she's buying is to get safe returns that are higher than the bank interest. I've attached the
benefit illustrations and hope you can give your view on this.

The non-guaranteed yield varies from 1.55% to 2.8% p.a. for 5 years. It is rather low for an investment that is locked up for 5 years. However, I am not able to suggest any better investment.  Let me post this in my blog and see if someone else has better suggstion.

Sunday, March 28, 2010

Insurance for taxis

Hi Mr Tan
What are your views about the taxi driver who discharge his insurance company from paying a third party claim for damage to their car? It is not fair to the third party who have to sue the taxi driver to recover the repair cost of $2,000. The offer of $300 by the taxi driver is ridiculously low.

Currently, it is compulsory for a car owner to have insurance for third party injury, but not damage. In granting the licence to the taxi company, the Land Transport Authority should make it mandatory for the taxi to have insurance for third party damage as well.

The cost of insuring a car is about $1,000. The cost of insuring a taxi should be about $3,000 a year. This will add $10 a day to the cost of renting a taxi. I think that the taxi company should be required to buy the insurance and add this to the cost of the rental. The taxi should not be inadequately insured for property damage.

Life insurance in Asia

Extracted from Economist magazine:

Stephan Binder of McKinsey, a consultancy, thinks that people should be insured for 10-12 times their annual income. By this measure, Asians (and, for that matter, everybody else) are woefully underinsured. What’s more, social-security entitlements in the region are paltry compared with other rich countries. So annuity schemes are a natural supplement for retirement income. Japan, the greyest of the Asian countries, is already seeing the effects of demographic change. The dankai generation—which refers to the 8m people born between 1947 and 1949—spent 14.5 trillion yen ($125 billion) on insurance with individual annuities in 2006. And that was before most of them had retired.
Another avenue for growth is in health-care plans, which are undersupplied. In the Japanese market, over half of new policies cover medical costs such as cancer. Other Asian countries are sure to follow as the savvy pre-retirement generation—who no longer believe that their families will care for them, and do not think government schemes will suffice—start to think about their future. Joseph Ngai of McKinsey reckons that rich Asia could see 11-12% growth in insurance premiums

Insurance loophole? Cabby refuses to pay up for car accident

Cabby refuses to pay up for car accident and discharges insurance firm from payment but he is only willing to pay $300 out of a $2,000 bill.

Invest your savings in a low cost investment fund

Hi Mr Tan, 
I have read your article on not buying Critical illness insurance. Recently my insurance agent has been advising me to embark on a 15 year limited Critical illness Insurance of coverage 100K, premium of 4.6k per year. I will be paying only for 15 yr, but the coverage will still continue. The return is 131.5k (total premium paid is 70.3K) after 30 yrs should I surrender then.

I have told my agent that Medishield or private shield should be enough to cover should a critical illness strike, this is what he said:

1) Shield covers hospitalization but does not cover all kind of medications as well as recuperative treatments, for eg.TCM, hospice care, medical equipment, and all miscellenous charges.  For eg, it does not cover shots of Herceptin which cost $4k per shot to kill cancer cell. This shot need to be administer 17 times, once every 3 weeks to tackle breasts cancer.

2) Many long term illnesses like heart attack, stroke, paralysis, brain diseases total permanent disability and cancers require long term medication and aftercare. These if not hospitalised will never be taken care by Shield plans.

3) Shield requires co-insurance. Co-insurance can be a huge amount. For eg, chemotherapy is charged on a package by doctors depending on different conditions. On avg, it comes in 8, 12, 16,24 cycles which avg cost around $25,000 -$60,000 over a 2-3 month period. A min 10% co-insurance will be at least $2500 to $6000 every 3 months. If chemo treatments consistently needed, they can come up to more than 32K -50K per year just on co-insurance and misc expenses.

 I would really like to have your comments on this.

If you invest $4,600 for 15 years in a low cost investment fund and is able to earn 5% p.a. the accumulated sum at the end of 15 years is $104,000 and at end of 30 years is $216,000. The chance of making a critical illness claim in 30 years is likely to be less than 10% and this is likely to occur towards the end of this period (when you get older). For these people, the accumulated sum may be more than the payout under the critical illness policy.

The chance of surviving 30 years without a claim is more than 90%. For these people, they will get the projected sum of $131,000 and lose $75,000 (compared to $216,000). Both figures are not guaranteed.

The people who benefit from a critical illness policy are those who contracted it within the first 15 years, and the chance is small. I would prefer to take this chance than to have a 90% chance of losing out on one third of the accumulated savings.

It is better to buy a rider to cover critical illness for 15 years (and you can get it from a policy under SAFRA, for example)  and invest your savings  in a low cost investment fund., If this cover is not available at a low cost, it is better to take the risk of not having a criticial illness cover.

Blog Archive