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:
http://www.tankinlian.com/faq/savings.html
Friday, July 18, 2008
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?
REPLY
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
http://www.tankinlian.com/faq/choice.html
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?
REPLY
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
http://www.tankinlian.com/faq/choice.html
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.
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
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.
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.
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.
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).
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.
IPL 1
Total premium paid is $9K plus and the value of investment is $7k plus. Fund purchased are GreatLink Enhancer and ASEAN Growth Fund.
IPL 2
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?
REPLY
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:
http://www.tankinlian.com/faq/ilp.html
I have bought 2 Regular Premium ILP in year 2002 and I do not know if I should continue or teminate both insurance plans.
IPL 1
Total premium paid is $9K plus and the value of investment is $7k plus. Fund purchased are GreatLink Enhancer and ASEAN Growth Fund.
IPL 2
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?
REPLY
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:
http://www.tankinlian.com/faq/ilp.html
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.
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.
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."
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.
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.
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.
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.
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?
REPLY
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:
http://www.tankinlian.com/faq/shield.html
You can contact CPF to switch to basic Medishield.
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?
REPLY
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:
http://www.tankinlian.com/faq/shield.html
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.
REPLY
The premium rate quoted is very expensive. You can get the benchmark premium rate from this FAQ.
http://www.tankinlian.com/faq/term.html
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.
http://www.tankinlian.com/faq/termd.html
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.
REPLY
The premium rate quoted is very expensive. You can get the benchmark premium rate from this FAQ.
http://www.tankinlian.com/faq/term.html
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.
http://www.tankinlian.com/faq/termd.html
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.
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?
REPLY
I suggest that you insure under the SAFRA scheme, if you are a SAFRA member. Please ask SAFRA.
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?
REPLY
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?
REPLY
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:
http://www.tankinlian.com/faq/term.html
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?
REPLY
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:
http://www.tankinlian.com/faq/term.html
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!
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.
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.
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
www.singaporepublictransport.blogspot.com/
Do you agree with the suggestions?
www.singaporepublictransport.blogspot.com/
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.
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:
http://www.tankinlian.com/faq/savings.html
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:
http://www.tankinlian.com/faq/savings.html
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."
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.
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
REPLY
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:
http://www.tankinlian.com/faq/childlife.html
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
REPLY
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:
http://www.tankinlian.com/faq/childlife.html
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.
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).
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).
Saturday, July 12, 2008
Regulation of financial products
Read the debate in this blog:
http://kwayteowman.blogspot.com/2008/05/to-regulate-or-not-to-regulate.html
http://kwayteowman.blogspot.com/2008/05/to-regulate-or-not-to-regulate.html
Blog on public transport in Singaore
The Straits Times Review section published my article about the "world class transport system". the article can be located here:
http://news.asiaone.com/News/the%2BStraits%2BTimes/Story/A1Story20080712-76200.html
The article mentioned that my blog on public transport can be found in this website. The actual website is:
www.singaporepublictransport.blogspot.com
http://news.asiaone.com/News/the%2BStraits%2BTimes/Story/A1Story20080712-76200.html
The article mentioned that my blog on public transport can be found in this website. The actual website is:
www.singaporepublictransport.blogspot.com
Low yield for policies with restructured bonuses
FIRST POSTED ON 10 MAY 2008
NTUC Income earned an investment yield of 10.7% on the participating fund in 2007. The average long term yield (computed over the past 10 years) is 7.8% per annum.
I have two policies that are affected by the restructuring of the bonues. I calculated the yields on these policies as follows.
1. GROWTH (LG SERIES)
This policy commenced in December 2003 with a single premium of $75,000. The estimated cash value at December 2008 (5 year duration) is $85,127, giving a policy yield of 2.5%. There is a gap of 5.3% compared to the fund yield of 7.8%.
If I keep the policy to the maturity date in December 2013, the projected maturity benefit is $112,795 giving a yield of 4.2%. This is still somewhat low, giving a gap of 3.6% compared to the fund yield.
This single premium policy has low expenses and low cost of insurance. I estimate that a fair reduction in yield should be 1%. The actual gap is somewhat high.
2. LIVING (LW SERIES)
This policy commenced in October 1996 with an annual premium of $2,567. The estimated cash value in October 2008 (12 year duration) is $28,383, giving a negative yield of -1.5%. There is a gap of 9.3% compared to the fund yield.
Although a Living policy has higher expenses and a bigger cost of insurance protection, the gap appears to be excessive.
Over the next 3 years, the cash value grows by only 1.8% per annum. This is low compared to the fund yield.
I have three other policies not affected by the restructuring of the bonus. The cash value for two policies increase by more than 4% per annum over the next 3 years and by 2.8% for the Living policy.
CONCLUSION
I believe that the policies affected by the bonus restructuring have not been given a fair rate of annual and special bonuses. This has resulted in a poor policy yield, compared to the long term average yield.
NTUC Income earned an investment yield of 10.7% on the participating fund in 2007. The average long term yield (computed over the past 10 years) is 7.8% per annum.
I have two policies that are affected by the restructuring of the bonues. I calculated the yields on these policies as follows.
1. GROWTH (LG SERIES)
This policy commenced in December 2003 with a single premium of $75,000. The estimated cash value at December 2008 (5 year duration) is $85,127, giving a policy yield of 2.5%. There is a gap of 5.3% compared to the fund yield of 7.8%.
If I keep the policy to the maturity date in December 2013, the projected maturity benefit is $112,795 giving a yield of 4.2%. This is still somewhat low, giving a gap of 3.6% compared to the fund yield.
This single premium policy has low expenses and low cost of insurance. I estimate that a fair reduction in yield should be 1%. The actual gap is somewhat high.
2. LIVING (LW SERIES)
This policy commenced in October 1996 with an annual premium of $2,567. The estimated cash value in October 2008 (12 year duration) is $28,383, giving a negative yield of -1.5%. There is a gap of 9.3% compared to the fund yield.
Although a Living policy has higher expenses and a bigger cost of insurance protection, the gap appears to be excessive.
Over the next 3 years, the cash value grows by only 1.8% per annum. This is low compared to the fund yield.
I have three other policies not affected by the restructuring of the bonus. The cash value for two policies increase by more than 4% per annum over the next 3 years and by 2.8% for the Living policy.
CONCLUSION
I believe that the policies affected by the bonus restructuring have not been given a fair rate of annual and special bonuses. This has resulted in a poor policy yield, compared to the long term average yield.
Friday, July 11, 2008
False advertising
I passed by a shop in Toa Payoh. They were playing a recorded advertisement, announcing that the shop is closing down and they have to sell the products at a low price. I looked at the price labels and found that they were actually charging more than other shops. This is false advertising and amounts to cheating.
There is a similar situation with financial products sold by agents. The agents are able to make mis-representation on the products that are not backed by the printed materials. The printed materials are quite confusing, so the buyer needs an agent to explain the product. The agent has the opportunity to make a mis-representation and get away with it.
Many types of high cost, poor value financial products are sold in this way. You should avoid these products.
There is a similar situation with financial products sold by agents. The agents are able to make mis-representation on the products that are not backed by the printed materials. The printed materials are quite confusing, so the buyer needs an agent to explain the product. The agent has the opportunity to make a mis-representation and get away with it.
Many types of high cost, poor value financial products are sold in this way. You should avoid these products.
Regulation of insurance
Insurance is highly regulated in the United States. The intent is to protect consumers against the unfair practices of insurance companies.
Some of the areas that are regulated include:
* Licening of insurers and agents
* Approval of rates
* Content of policy forms
* Contract interpretation and enforcement
* Sales practices and information disclosure
Some of these requirements are already practiced in Singapore. In other areas, there is a need (in my view) for the regulatiron to be tightened.
For example, our regulators should ensure that the wordings of the policy forms are clear, to avoid future disputes between the insurer and the policyholder. The terms should also be fair to the policyholder.
Some of the areas that are regulated include:
* Licening of insurers and agents
* Approval of rates
* Content of policy forms
* Contract interpretation and enforcement
* Sales practices and information disclosure
Some of these requirements are already practiced in Singapore. In other areas, there is a need (in my view) for the regulatiron to be tightened.
For example, our regulators should ensure that the wordings of the policy forms are clear, to avoid future disputes between the insurer and the policyholder. The terms should also be fair to the policyholder.
Reduction of 4% in yield
I met an independent financial adviser. I told him about an investment-linked plan which projects a gross yield of 9% and a net yield of 5%. The reduction in yield was 4%. If the gross yield was 5%, the net yield was around 1%.
He was shocked. How can an investment product take away so much of the yield? He sells unit trusts, and is not able to recommend any investment fund that have an annual charge of 2% or more.
He asked, "How can insurance advisers sell products that take away 4%? Do they take care of the interest of their clients?"
Note: These high charges apply to most regular premium investment-linked products sold in the market. There are some exceptions, with lower charges. You should ask about the reduction in yield.
He was shocked. How can an investment product take away so much of the yield? He sells unit trusts, and is not able to recommend any investment fund that have an annual charge of 2% or more.
He asked, "How can insurance advisers sell products that take away 4%? Do they take care of the interest of their clients?"
Note: These high charges apply to most regular premium investment-linked products sold in the market. There are some exceptions, with lower charges. You should ask about the reduction in yield.
Avoid being cheated
If a salesman sells you a product and charges you a higher price compared to a similar product of the similar quality, you will feel that you have been cheated. You will probably avoid doing any more business with this salesman or his shop.
Does the same situation apply for financial and insurance products? Do you feel cheated, if you are offered a bad product and charged an excessive price? Can you avoid doing business with the salesman or his company?
The problem with a life insurance product is that you will be stuck with a bad product for 20 years or longer.
How to identify a bad product? Ask this question. Is this an investment product? If so, how much do I have to pay for the first 1 and 3 years. What do I get back if I stop the investment plan? If you do not get back your savings, it is a bad product.
Lesson: Avoid financial products that has high charges, lock you up for a long term, and imposes a high penalty on early termination.
Does the same situation apply for financial and insurance products? Do you feel cheated, if you are offered a bad product and charged an excessive price? Can you avoid doing business with the salesman or his company?
The problem with a life insurance product is that you will be stuck with a bad product for 20 years or longer.
How to identify a bad product? Ask this question. Is this an investment product? If so, how much do I have to pay for the first 1 and 3 years. What do I get back if I stop the investment plan? If you do not get back your savings, it is a bad product.
Lesson: Avoid financial products that has high charges, lock you up for a long term, and imposes a high penalty on early termination.
Win $3 million on the Big Sweep
An old lady was nearly ninety years of age when she won $3,000,.000 in the Big Sweep. Her family were extremely worried about her heart and feared that the news of her large win would come as too much of a shock to her.
They decided to call the doctor and explained the situation to him. The doctor said, "Now, you don't have to worry about anything. I am fully trained in such delicate matters. I can break the news to her gently. Everything will be quite safe, if left to me."
The doctor went to see the old lady and gently brought up the subject of the Big Sweep. He said, "Tell me, what would you do if you have a large win on the Big Sweep, say 3 million dollars."
"Why, " replied the old lady. " I would give half of it to you, of course!"
The doctor fell down, dead from shock!
They decided to call the doctor and explained the situation to him. The doctor said, "Now, you don't have to worry about anything. I am fully trained in such delicate matters. I can break the news to her gently. Everything will be quite safe, if left to me."
The doctor went to see the old lady and gently brought up the subject of the Big Sweep. He said, "Tell me, what would you do if you have a large win on the Big Sweep, say 3 million dollars."
"Why, " replied the old lady. " I would give half of it to you, of course!"
The doctor fell down, dead from shock!
Thursday, July 10, 2008
Additional charges under the fund
Dear Mr. Tan,
I just found out that Y is offering funds, which invest into low cost ETFs. The management fee is 0.75% p.a. and the sales charge is 1.00%. I think this is sufficiently low cost.
http://invest.avivadirect.sg/SG/index.cfm?current=fasttrack/index
HK
REPLY
My colleague did an analysis and found that there are other charges. His observations are set out below:
a. There is a 1% upfront sales charge by Y
b. Annual management fee of 0.75% (for passively managed funds) and 1.2% (for activately managed funds)
However, if we read more deeply into the prospectus, there are more charges as follow:
a. An additional 3% charge (one time), placed under "Initial Service Charge". This amt can be as much as 4% in the future.
b. Up to 0.1% of NAV as Annual Trustee feec.
A separate annual fee of 0.09% to 1.25% to pay for the fund's operating expenses. Realization and switching is free for now but can go as much as 1% in the future.
I just found out that Y is offering funds, which invest into low cost ETFs. The management fee is 0.75% p.a. and the sales charge is 1.00%. I think this is sufficiently low cost.
http://invest.avivadirect.sg/SG/index.cfm?current=fasttrack/index
HK
REPLY
My colleague did an analysis and found that there are other charges. His observations are set out below:
a. There is a 1% upfront sales charge by Y
b. Annual management fee of 0.75% (for passively managed funds) and 1.2% (for activately managed funds)
However, if we read more deeply into the prospectus, there are more charges as follow:
a. An additional 3% charge (one time), placed under "Initial Service Charge". This amt can be as much as 4% in the future.
b. Up to 0.1% of NAV as Annual Trustee feec.
A separate annual fee of 0.09% to 1.25% to pay for the fund's operating expenses. Realization and switching is free for now but can go as much as 1% in the future.
Ideal plan (ID2)
Dear Mr. Tan,
Could you advise me on the two Ideal ILPs I have taken up for my children? I have lost trust in my agent after he started to criticize you and sing praises about the new management.
The primary objective of the two plans is savings for their education. Both are invested in equal proportions of Growth and Singapore Equity funds.
Should I continue with them, terminate them and take up ID7, or terminate them and invest in STI ETF?
Ideal (ID2) taken in 2002
Ideal (ID2) taken in 2007
Thank you sincerely for your advice, Mr Tan.
J
REPLY
You should continue with these two policies. You have already incurred the front end charge, so there is no need to switch now. Anyway, the charge under the ID2 is much lower than similar policies offered by other insurers.
Could you advise me on the two Ideal ILPs I have taken up for my children? I have lost trust in my agent after he started to criticize you and sing praises about the new management.
The primary objective of the two plans is savings for their education. Both are invested in equal proportions of Growth and Singapore Equity funds.
Should I continue with them, terminate them and take up ID7, or terminate them and invest in STI ETF?
Ideal (ID2) taken in 2002
Ideal (ID2) taken in 2007
Thank you sincerely for your advice, Mr Tan.
J
REPLY
You should continue with these two policies. You have already incurred the front end charge, so there is no need to switch now. Anyway, the charge under the ID2 is much lower than similar policies offered by other insurers.
Low Wage in Singapore
The average monthly earnings in Singapore in the first quarter of 2008 is $4,316. In the USA and a few other countries, the minimum wage is about one-third of the average wage. If this concept is applied in Singapore, our minimum wage should be $1,430 a month.
In Korea, the minimum wage is 27% of the national average. In France, it is 66%. In Taiwan, it is 34%. In Singapore, our low income workers earn about $750 a month. This represents 17% of the national average, and is much lower than Korea.
My friend told me that three jounalist from Taiwan visited Singapore to see how the poor live. He brought them to visit some rental flats. The flats were dark as the occupants did not want to spend money on electricity and do not watch television. The journalists said, "The poor in Singapore are poorer than the poor in Taiwan. In Taiwan, the poor can afford to watch television".
In Korea, the minimum wage is 27% of the national average. In France, it is 66%. In Taiwan, it is 34%. In Singapore, our low income workers earn about $750 a month. This represents 17% of the national average, and is much lower than Korea.
My friend told me that three jounalist from Taiwan visited Singapore to see how the poor live. He brought them to visit some rental flats. The flats were dark as the occupants did not want to spend money on electricity and do not watch television. The journalists said, "The poor in Singapore are poorer than the poor in Taiwan. In Taiwan, the poor can afford to watch television".
Education Loan
Dear Mr. Tan
I would like to apply for education loan from NTUC Thrift. Currently, I have some credit cards debts and my scoring with the banks are not good. My credit bureau report are effected by this.
I would like to ask whether do I stand any chance of applying this loan?
P
REPLY
I am not familiar with the credit assessment of NTUC Thrift. You can give it a try. But, as you suspect, it is likely to be difficult.
I sugggest that you pay off the credit card loan first and save a lot of interest charges, before you apply for this education loan.
I would like to apply for education loan from NTUC Thrift. Currently, I have some credit cards debts and my scoring with the banks are not good. My credit bureau report are effected by this.
I would like to ask whether do I stand any chance of applying this loan?
P
REPLY
I am not familiar with the credit assessment of NTUC Thrift. You can give it a try. But, as you suspect, it is likely to be difficult.
I sugggest that you pay off the credit card loan first and save a lot of interest charges, before you apply for this education loan.
Buy term and invest in a low cost fund
Hi Mr. Tan,
I am thinking of purchasing a whole life plan, but my insurance advisor has advised me to go with an endownment plan. Can you advise me?
L
REPLY
My advice is contained in these FAQs:
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/savings.html
I prefer to avoid whole life or endowment plans, as they give a poor return to policyholders.
I am thinking of purchasing a whole life plan, but my insurance advisor has advised me to go with an endownment plan. Can you advise me?
L
REPLY
My advice is contained in these FAQs:
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/savings.html
I prefer to avoid whole life or endowment plans, as they give a poor return to policyholders.
Wednesday, July 09, 2008
Minimum wage in other countries
Taiwan's minimum wage since October 1997 was US$487 per month. This works out to a daily minimum wage of US$16 or around US$2 per hour.
In 2005, it was proposed that the domestic minimum wage could be raised to 40 percent of the average wage of US$1,357 per month. This would give a revised minimum wage of US$543 and would benefit up to 2 million domestic workers as well as 160,000 foreign workers in the manufacturing sector.
The ratio of minumum wage to average wage was:
France - 66.4 percent
Canada - 39.4 percent
Taiwan - 36.3 percent
United States 32 percent.
South Korea - 27 percent
In 2005, it was proposed that the domestic minimum wage could be raised to 40 percent of the average wage of US$1,357 per month. This would give a revised minimum wage of US$543 and would benefit up to 2 million domestic workers as well as 160,000 foreign workers in the manufacturing sector.
The ratio of minumum wage to average wage was:
France - 66.4 percent
Canada - 39.4 percent
Taiwan - 36.3 percent
United States 32 percent.
South Korea - 27 percent
People will buy insurance
Hi Mr. Tan,
I stumbled on your blog a few months back while searching for financial blogs and have since been a regular reader. It has been very interesting to know about your views since I am also involved in the industry.
I agree with your view that 'People will buy insurance', especially so as the public gets more educated and financial savvy. Technology provides a easily accessible platform for consumers to compare insurance products. I am looking forward to more insurance insights on your blog.
I stumbled on your blog a few months back while searching for financial blogs and have since been a regular reader. It has been very interesting to know about your views since I am also involved in the industry.
I agree with your view that 'People will buy insurance', especially so as the public gets more educated and financial savvy. Technology provides a easily accessible platform for consumers to compare insurance products. I am looking forward to more insurance insights on your blog.
Asset Share Methodology
LIFE INSURANCE ASSOCIATION OF MALAYSIA
http://www.liam.org.my/cms/layout/Printer.asp?ProductID=237&catid=13
By 1 July 2005, all new participating life insurance policies are required to use the asset share methodology in computing the surplus to policyholders.
What is asset share methodology? Following are the FAQs on asset share:
1) What are the new guidelines on asset share methodology all about?
The asset share methodology is a method currently used in UK, Australia and South Africa to calculate the distribution of surplus to policyholders for participating life insurance plans (par plans).
This methodology allows for a share of the accumulated premiums plus investment earnings to be returned to the policyholder after allowing for deductions for cost of providing insurance coverage, acquisitions costs and other expenses incurred by the insurer.
2) What type of life insurance products are affected by this new guideline?
The new guidelines are only applicable to par plans. A par plan is one in which the policyholder will receive extra surplus in the form of non-guaranteed bonus or dividend, in addition to the contractual sum assured, which is guaranteed to be paid on death or maturity.
The new guidelines are, therefore, not applicable for insurance policies which only provide protection coverage (e.g. non-participating life insurance, medical, general insurance products) endowment products with only guaranteed benefits and investment-linked products.
3) How do the new guidelines affect the payment of surrender values?
Under these new guidelines, policyholders may receive surrender benefit in the first year. In the past, policyholders who terminate their policies before three years may not receive any cash value. This is because, traditionally, life insurance products being primarily longer term protection and savings purposes, are structured in such a way as to reward more to policyholders who continue to pay their premiums and keep their policies in force.
4) Do I have to pay more premiums on participating life insurance policies under the new guidelines?
The use of the asset share methodology may require some life insurers to revise the premium rates of their existing par plans. This is because life insurers will now have to pay higher surrender values in the earlier years compared to the old products. This additional cost will result in lower surrender and claim values in the later durations compared to the past. If a life insurance company intends to maintain the surrender values and claim values at the longer duration, it may have to increase the level of premiums to pay for the higher early cash surrender values.
5) Are the policy benefits similar for life insurance plans that are designed under the new guidelines?
Life insurer may maintain the same level of projected bonus/dividend for policies designed under the asset share guidelines compared to the old products. This will usually result in an increase in premiums. Since life insurance companies are required to pay out surrender values in the earlier policy years under the new guidelines, they have to maintain a higher percentage of their assets in shorter term and more liquid assets e.g. fixed deposits. The investment returns on these shorter term assets, which are low risk assets, are usually lower than other longer term investment instruments. Therefore the bonuses/dividends projected over the longer term may be revised to provide a realistic projection to policyholders.
6) Will I receive less bonus/dividends under the new guidelines?
Bonus and dividends are not guaranteed in advance. They are distributed from surplus generated from investments and operating profits from the participating fund. The actual amount paid out will depend on the investment performance of the life insurance company, operating experience and overall economic environment. You may receive more or less than the projected bonuses/dividends illustrated to you when you purchase your insurance policy. The distribution of surplus between policyholders and shareholders are governed by the Insurance Act 1996, in the ratio up to 90:10. This means that policyholders receive 90% of the surplus distributed from the life fund.
7) Will the new guidelines discourage policy holders to maintain their policies over a long duration?
Although the new guidelines may bring about higher surrender values in the early years, policyholders should be fully informed of the disadvantages of terminating their life insurance policies early. This is because the surrender value that they receive will be much lower compared to the premiums which they have paid, even under the asset share basis.
Consumers should always note that the purchase of a life insurance policy is a long term commitment and policyholders who hold their policies till maturity will continue to enjoy better values than those who surrender early. Policyholders have to bear in mind that when their life insurance policies are surrendered, they will lose their life insurance protection immediately.
*Issued by LIAM - 4 July 2005
http://www.liam.org.my/cms/layout/Printer.asp?ProductID=237&catid=13
By 1 July 2005, all new participating life insurance policies are required to use the asset share methodology in computing the surplus to policyholders.
What is asset share methodology? Following are the FAQs on asset share:
1) What are the new guidelines on asset share methodology all about?
The asset share methodology is a method currently used in UK, Australia and South Africa to calculate the distribution of surplus to policyholders for participating life insurance plans (par plans).
This methodology allows for a share of the accumulated premiums plus investment earnings to be returned to the policyholder after allowing for deductions for cost of providing insurance coverage, acquisitions costs and other expenses incurred by the insurer.
2) What type of life insurance products are affected by this new guideline?
The new guidelines are only applicable to par plans. A par plan is one in which the policyholder will receive extra surplus in the form of non-guaranteed bonus or dividend, in addition to the contractual sum assured, which is guaranteed to be paid on death or maturity.
The new guidelines are, therefore, not applicable for insurance policies which only provide protection coverage (e.g. non-participating life insurance, medical, general insurance products) endowment products with only guaranteed benefits and investment-linked products.
3) How do the new guidelines affect the payment of surrender values?
Under these new guidelines, policyholders may receive surrender benefit in the first year. In the past, policyholders who terminate their policies before three years may not receive any cash value. This is because, traditionally, life insurance products being primarily longer term protection and savings purposes, are structured in such a way as to reward more to policyholders who continue to pay their premiums and keep their policies in force.
4) Do I have to pay more premiums on participating life insurance policies under the new guidelines?
The use of the asset share methodology may require some life insurers to revise the premium rates of their existing par plans. This is because life insurers will now have to pay higher surrender values in the earlier years compared to the old products. This additional cost will result in lower surrender and claim values in the later durations compared to the past. If a life insurance company intends to maintain the surrender values and claim values at the longer duration, it may have to increase the level of premiums to pay for the higher early cash surrender values.
5) Are the policy benefits similar for life insurance plans that are designed under the new guidelines?
Life insurer may maintain the same level of projected bonus/dividend for policies designed under the asset share guidelines compared to the old products. This will usually result in an increase in premiums. Since life insurance companies are required to pay out surrender values in the earlier policy years under the new guidelines, they have to maintain a higher percentage of their assets in shorter term and more liquid assets e.g. fixed deposits. The investment returns on these shorter term assets, which are low risk assets, are usually lower than other longer term investment instruments. Therefore the bonuses/dividends projected over the longer term may be revised to provide a realistic projection to policyholders.
6) Will I receive less bonus/dividends under the new guidelines?
Bonus and dividends are not guaranteed in advance. They are distributed from surplus generated from investments and operating profits from the participating fund. The actual amount paid out will depend on the investment performance of the life insurance company, operating experience and overall economic environment. You may receive more or less than the projected bonuses/dividends illustrated to you when you purchase your insurance policy. The distribution of surplus between policyholders and shareholders are governed by the Insurance Act 1996, in the ratio up to 90:10. This means that policyholders receive 90% of the surplus distributed from the life fund.
7) Will the new guidelines discourage policy holders to maintain their policies over a long duration?
Although the new guidelines may bring about higher surrender values in the early years, policyholders should be fully informed of the disadvantages of terminating their life insurance policies early. This is because the surrender value that they receive will be much lower compared to the premiums which they have paid, even under the asset share basis.
Consumers should always note that the purchase of a life insurance policy is a long term commitment and policyholders who hold their policies till maturity will continue to enjoy better values than those who surrender early. Policyholders have to bear in mind that when their life insurance policies are surrendered, they will lose their life insurance protection immediately.
*Issued by LIAM - 4 July 2005
FAQ: Traded Endowment Policies
1. What is a traded endowment policy?
A traded endowment policy is a policy that is sold by the policyholder to an investor. The investor pays a sum that is higher than the surrender value offered by the insurance company.
The investor will continue to pay the premium under the policy and will collect the death or maturity benefit on the policy.
The investor expects to get a good rate of return on the amount paid to buy over the policy, and the future permiums paid.
2. Is it advisable to invest in a fund of traded endowment policies, where the fund manager undertakes to manage these policies?
It depends on the following:
> Is the fund manager reliable and trustworthy?
> What are the charges taken away by the fund manager?
> What is the underlying gross and net yield of the fund, after deducting the charges?
> What is the underlying risk of the traded endowment policies?
3. What is the underlying risk of the traaded endowment policies?
These traded endowment policies carry the following risks:
> The future bonuses paid under the policies may be reduced.
> The insurance company may become insolvent
> The fund manager may overlook to keep the policy in force, leading to its termination
These risks have to be factored in considering the net yield on the fund.
4. What is a satisfactory rate of return, considering the risk?
If the investment is in the UK, you should compared the expected yield on the traded endowment fund with the yield from UK Government Bonds.
You should expect to get at least 2% to 3% higher than the bond yield of similar duration, to compensate for the higher risk.
If the fund has a duration of 5 years and the UK bond yield for 5 years is 5%, you should expect to get a net yield (after deducting the fund manager’s fees) of 7% or 8% from the traded endowment fund, to make it worth the risk.
5. Do you invest in traded endowment policies?
I avoid investing in this type of policy as I am not familiar with the risk, the yield and the integrity of the fund manager.
I prefer to invest in Government bonds or equities, as these products are traded on the exchange and there is liquidity. flexibility and price transparency.
Tan Kin Lian
A traded endowment policy is a policy that is sold by the policyholder to an investor. The investor pays a sum that is higher than the surrender value offered by the insurance company.
The investor will continue to pay the premium under the policy and will collect the death or maturity benefit on the policy.
The investor expects to get a good rate of return on the amount paid to buy over the policy, and the future permiums paid.
2. Is it advisable to invest in a fund of traded endowment policies, where the fund manager undertakes to manage these policies?
It depends on the following:
> Is the fund manager reliable and trustworthy?
> What are the charges taken away by the fund manager?
> What is the underlying gross and net yield of the fund, after deducting the charges?
> What is the underlying risk of the traded endowment policies?
3. What is the underlying risk of the traaded endowment policies?
These traded endowment policies carry the following risks:
> The future bonuses paid under the policies may be reduced.
> The insurance company may become insolvent
> The fund manager may overlook to keep the policy in force, leading to its termination
These risks have to be factored in considering the net yield on the fund.
4. What is a satisfactory rate of return, considering the risk?
If the investment is in the UK, you should compared the expected yield on the traded endowment fund with the yield from UK Government Bonds.
You should expect to get at least 2% to 3% higher than the bond yield of similar duration, to compensate for the higher risk.
If the fund has a duration of 5 years and the UK bond yield for 5 years is 5%, you should expect to get a net yield (after deducting the fund manager’s fees) of 7% or 8% from the traded endowment fund, to make it worth the risk.
5. Do you invest in traded endowment policies?
I avoid investing in this type of policy as I am not familiar with the risk, the yield and the integrity of the fund manager.
I prefer to invest in Government bonds or equities, as these products are traded on the exchange and there is liquidity. flexibility and price transparency.
Tan Kin Lian
Universal Life
Dear Mr. Tan,
What is your opinion on the use of "universal lifeinsurance" as a retirement tool. It is highly recommended if the objectives of retirement is to be able to maintain a comfortable lifestyle during retirement and to also preserve wealth to pass it on. Let me have your comments. Thanks
REPLY
Universal life in a life insurance product. It is likely to have high charges taken away from your savings to pay commisison to the agent. You should ask the agent about the charges.
You can read about the charges on investment-linked plan from this FAQ
http://www.tankinlian.com/faq/ilp.html A universal life policy is likely to have similar charges.
What is your opinion on the use of "universal lifeinsurance" as a retirement tool. It is highly recommended if the objectives of retirement is to be able to maintain a comfortable lifestyle during retirement and to also preserve wealth to pass it on. Let me have your comments. Thanks
REPLY
Universal life in a life insurance product. It is likely to have high charges taken away from your savings to pay commisison to the agent. You should ask the agent about the charges.
You can read about the charges on investment-linked plan from this FAQ
http://www.tankinlian.com/faq/ilp.html A universal life policy is likely to have similar charges.
Defamation
Source: Wikipedia.
In law, defamation (also called slander, and libel) is the communication of a statement that makes a false claim, expressively stated or implied to be factual, that may give an individual, business, product, group, government or nation a negative image.
Slander refers to a malicious, false, and defamatory statement or report, while libel refers to any other form of communication such as written words or images. Most jurisdictions allow legal actions, civil and/or criminal, to deter various kinds of defamation and retaliate against groundless criticism.
Related to defamation is public disclosure of private facts which arises where one person reveals information which is not of public concern, and the release of which would offend a reasonable person. Unlike libel or slander, truth is not a defense for invasion of privacy.
In law, defamation (also called slander, and libel) is the communication of a statement that makes a false claim, expressively stated or implied to be factual, that may give an individual, business, product, group, government or nation a negative image.
Slander refers to a malicious, false, and defamatory statement or report, while libel refers to any other form of communication such as written words or images. Most jurisdictions allow legal actions, civil and/or criminal, to deter various kinds of defamation and retaliate against groundless criticism.
Related to defamation is public disclosure of private facts which arises where one person reveals information which is not of public concern, and the release of which would offend a reasonable person. Unlike libel or slander, truth is not a defense for invasion of privacy.
Tuesday, July 08, 2008
How to reduce petrol and gas price..Egg logic
SENT TO ME BY A FRIEND:
A man eats two eggs each morning for breakfast. When he goes to the grocery store he pays 60 cents a dozen. Since a dozen eggs won't last a weekhe normally buys two dozens at a time. One day while buying eggs he notices that the price has risen to 72 cents. The next time he buys groceries, eggs are 76 cents a dozen.
When asked to explain the price of eggs the store owner says, 'The price has gone up and I have to raise my price accordingly'. This store buys 100 dozen eggs a day. He checked around for a better price and all the distributorshave raised their prices. The distributors have begun to buy from the huge egg farms. The small egg farms have been driven out of business. The huge eggfarms sell 100,000 dozen eggs a day to distributors. With no competition, they can setthe price as they see fit. The distributors then have to raise their prices to t hegrocery stores. And on and on and on.
As the man kept buying eggs the price kept going up. He saw the big egg trucks delivering 100 dozen eggs each day. Nothing changed there. He checked out the huge egg farms and found they were selling 100,000 dozen eggs to thedistributors daily. Nothing had changed but the price of eggs.
Then week before Thanksgiving the price of eggs shot up to $1.00 a dozen. Again he asked the grocery owner why and was told, 'Cakes and baking forthe holiday'. The huge egg farmers know there will be a lot of baking going on andmore eggs will be used. Hence, the price of eggs goes up. Expect the samething at Christmas and other times when family cooking, baking happen.
This pattern continues until the price of eggs is 2.00 a dozen. The man says, ' There must be something we can do about the price of eggs'. He starts talking to all the people in his town and they decide tostop buying eggs. This didn't work because everyone needed eggs.
Finally, the man suggested only buying what you need. He ate 2 eggsa day. On the way home from work he would stop at the grocery and buy two eggs. Everyone in town started buying 2 or 3 eggs a day.
The grocery store owner began complaining that he had too many eggsin his cooler. He told the distributor that he didn't need any eggs. Maybe wouldn't need any all week. The distributor had eggs piling up at his warehouse. He told thehuge egg farms that he didn't have any room for eggs would not need any for at least two weeks.
At the egg farm, the chickens just kept on laying eggs. To relieve the pressure, the huge egg farm told the distributor that they could buy the eggs at a lower price. The distributor said, ' I don't have the room for the eggs even if they were free'.
The distributor told the grocery store owner that he would lower the price of the eggs if the store would start buying again. The grocery store owner said, 'I don't have room for more eggs. Thecustomers are only buying 2 or 3 eggs at a time. Now if you were to drop the price of eggs back down to the original price, the customers would start buying by the dozen again'.
The distributors sent that proposal to the huge egg farmers but theegg farmers liked the price they were getting for their eggs but, those chickens just kept on laying. Finally, the egg farmers lowered the price of their eggs. But only a few cents. The customers still bought 2 or 3 eggs at a time. They said, 'when the price of eggs gets down to where it was before, we will start buying by the dozen.'
Slowly the price of eggs started dropping. The distributors had toslash their prices to make room for the eggs coming from the egg farmers. The egg farmers cut their prices because the distributors wouldn't buy at a higher price than they were selling eggs for. Anyway, they had fullwarehouses and wouldn't need eggs for quite a while. And those chickens kept on laying.
Eventually, the egg farmers cut their prices because they were throwing away eggs they couldn't sell.
The distributors started buying again because the eggs were priced to where the stores could afford to sell them at the lower price. And the customers starting buying by the dozen again.
Now, transpose this analogy to the gasoline industry. What if everyone only bought $10.00 worth of gas each time they pulledto the pump? The dealer's tanks would stay semi full all the time. Thedealers wouldn't have room for the gas coming from the huge tank farms. The tank farmswouldn't have room for the gas coming from the refining plants. And therefining plants wouldn't have room for the oil being off loaded from the hugetankers coming from the oil fiends.
Just $10.00 each time you buy gas. Don't fill it up. You may have to stop for gas twice a week but, the price should come down. Think about it.
As an added note...When I buy $10.00 worth of gas that leaves my tanka little under quarter full. The way prices are jumping around, you can buygas for $2.65 a gallon and then the next morning it can be $2.15. If you have yourtank full of $2.65 gas you don't have room for the $2.15 gas.
You might not understand the economics of only buying two eggs at atime but, you can't buy cheaper gas if your tank is full of the high priced stuff. Also, don't buy anything else at the gas station; don't give the many more of your hard earned money than what you spend on gas, until the prices comedown.' Just think of this concept for a while.
A man eats two eggs each morning for breakfast. When he goes to the grocery store he pays 60 cents a dozen. Since a dozen eggs won't last a weekhe normally buys two dozens at a time. One day while buying eggs he notices that the price has risen to 72 cents. The next time he buys groceries, eggs are 76 cents a dozen.
When asked to explain the price of eggs the store owner says, 'The price has gone up and I have to raise my price accordingly'. This store buys 100 dozen eggs a day. He checked around for a better price and all the distributorshave raised their prices. The distributors have begun to buy from the huge egg farms. The small egg farms have been driven out of business. The huge eggfarms sell 100,000 dozen eggs a day to distributors. With no competition, they can setthe price as they see fit. The distributors then have to raise their prices to t hegrocery stores. And on and on and on.
As the man kept buying eggs the price kept going up. He saw the big egg trucks delivering 100 dozen eggs each day. Nothing changed there. He checked out the huge egg farms and found they were selling 100,000 dozen eggs to thedistributors daily. Nothing had changed but the price of eggs.
Then week before Thanksgiving the price of eggs shot up to $1.00 a dozen. Again he asked the grocery owner why and was told, 'Cakes and baking forthe holiday'. The huge egg farmers know there will be a lot of baking going on andmore eggs will be used. Hence, the price of eggs goes up. Expect the samething at Christmas and other times when family cooking, baking happen.
This pattern continues until the price of eggs is 2.00 a dozen. The man says, ' There must be something we can do about the price of eggs'. He starts talking to all the people in his town and they decide tostop buying eggs. This didn't work because everyone needed eggs.
Finally, the man suggested only buying what you need. He ate 2 eggsa day. On the way home from work he would stop at the grocery and buy two eggs. Everyone in town started buying 2 or 3 eggs a day.
The grocery store owner began complaining that he had too many eggsin his cooler. He told the distributor that he didn't need any eggs. Maybe wouldn't need any all week. The distributor had eggs piling up at his warehouse. He told thehuge egg farms that he didn't have any room for eggs would not need any for at least two weeks.
At the egg farm, the chickens just kept on laying eggs. To relieve the pressure, the huge egg farm told the distributor that they could buy the eggs at a lower price. The distributor said, ' I don't have the room for the eggs even if they were free'.
The distributor told the grocery store owner that he would lower the price of the eggs if the store would start buying again. The grocery store owner said, 'I don't have room for more eggs. Thecustomers are only buying 2 or 3 eggs at a time. Now if you were to drop the price of eggs back down to the original price, the customers would start buying by the dozen again'.
The distributors sent that proposal to the huge egg farmers but theegg farmers liked the price they were getting for their eggs but, those chickens just kept on laying. Finally, the egg farmers lowered the price of their eggs. But only a few cents. The customers still bought 2 or 3 eggs at a time. They said, 'when the price of eggs gets down to where it was before, we will start buying by the dozen.'
Slowly the price of eggs started dropping. The distributors had toslash their prices to make room for the eggs coming from the egg farmers. The egg farmers cut their prices because the distributors wouldn't buy at a higher price than they were selling eggs for. Anyway, they had fullwarehouses and wouldn't need eggs for quite a while. And those chickens kept on laying.
Eventually, the egg farmers cut their prices because they were throwing away eggs they couldn't sell.
The distributors started buying again because the eggs were priced to where the stores could afford to sell them at the lower price. And the customers starting buying by the dozen again.
Now, transpose this analogy to the gasoline industry. What if everyone only bought $10.00 worth of gas each time they pulledto the pump? The dealer's tanks would stay semi full all the time. Thedealers wouldn't have room for the gas coming from the huge tank farms. The tank farmswouldn't have room for the gas coming from the refining plants. And therefining plants wouldn't have room for the oil being off loaded from the hugetankers coming from the oil fiends.
Just $10.00 each time you buy gas. Don't fill it up. You may have to stop for gas twice a week but, the price should come down. Think about it.
As an added note...When I buy $10.00 worth of gas that leaves my tanka little under quarter full. The way prices are jumping around, you can buygas for $2.65 a gallon and then the next morning it can be $2.15. If you have yourtank full of $2.65 gas you don't have room for the $2.15 gas.
You might not understand the economics of only buying two eggs at atime but, you can't buy cheaper gas if your tank is full of the high priced stuff. Also, don't buy anything else at the gas station; don't give the many more of your hard earned money than what you spend on gas, until the prices comedown.' Just think of this concept for a while.
Avoid high charges of investment-linked plans
Hi Sir,
May I know if these plans are good or not? (details of plans provided)
REPLY
I suspect that the charges are high and take away a large part of your savings and potential returns.
Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
And my blog:
http://tankinlian.blogspot.com/2008/07/benefit-illustration-for-investment.html
May I know if these plans are good or not? (details of plans provided)
REPLY
I suspect that the charges are high and take away a large part of your savings and potential returns.
Read this FAQ:
http://www.tankinlian.com/faq/ilp.html
And my blog:
http://tankinlian.blogspot.com/2008/07/benefit-illustration-for-investment.html
Avoid policies with high terminal bonus
An independent financial adviser shared this view with me. Most insurance plans now have a high terminal bonus that is not guaranteed.
He finds it difficult to recommend this plan, as the policyholder can not be sure if he will get a fair return on the policy. The percentage of terminal bonus vary from one policy to another. The policyholder may wonder why some other policies are given a higher terminal bonus than his policy.
He has decided that he will not sell any life insurance policy. He prefers to sell unit trust, as it is more transparent and fair to the policyholder, and more flexible.
I agree with his views. It is best for the consumer to avoid all life insurance policies with high terminal bonus, unless the cash and maturity payouts are required to follow the "asset share" method, as adopted in Malaysia.
He finds it difficult to recommend this plan, as the policyholder can not be sure if he will get a fair return on the policy. The percentage of terminal bonus vary from one policy to another. The policyholder may wonder why some other policies are given a higher terminal bonus than his policy.
He has decided that he will not sell any life insurance policy. He prefers to sell unit trust, as it is more transparent and fair to the policyholder, and more flexible.
I agree with his views. It is best for the consumer to avoid all life insurance policies with high terminal bonus, unless the cash and maturity payouts are required to follow the "asset share" method, as adopted in Malaysia.
Avoid private Shield plan
Dear Mr. Tan,
I am currently under a private Shield program with Plus Rider (the premium has gone up quite a lot as compare to last year) with one exclusion condition. I am also cover under my company's hospitalisation scheme. Do you think I should downgrade to Assist Rider with a lower premium but have to co-pay of up to $2,000 - or should I move back completely to Medishield.
REPLY
It is better to move back completely to Medishield. there is no need to pay a lot of premium for a private Shield plan, when you are covered by your employer.
If you are healthy when you retire, you can upgrade to a private Shield plan at that time. If you are not healthy, you can stay on Medishield. For older people, Medishield is quite satisfactory. Private Shield is very costly.
I am currently under a private Shield program with Plus Rider (the premium has gone up quite a lot as compare to last year) with one exclusion condition. I am also cover under my company's hospitalisation scheme. Do you think I should downgrade to Assist Rider with a lower premium but have to co-pay of up to $2,000 - or should I move back completely to Medishield.
REPLY
It is better to move back completely to Medishield. there is no need to pay a lot of premium for a private Shield plan, when you are covered by your employer.
If you are healthy when you retire, you can upgrade to a private Shield plan at that time. If you are not healthy, you can stay on Medishield. For older people, Medishield is quite satisfactory. Private Shield is very costly.
Monday, July 07, 2008
Negligence and insurance
Hi Mr. Tan
Kindly advise me on the following :-
(a) Under S'pore Insurance laws, is payment made out of Medisave of a plaintiff (pedestrain) claimable against the Insurer of a defendent motorist?
(b) What if payment is paid out of any Medishield / Healthshield policy of the patient first, is it claimable against the Insurer of a defendent motorist?
(c) In the above cases, which Insurer is the first party to bear the claim? Insurer of the defendent motorist or Medishield insurer of the pedestrain?
(d) If the a company has a welfare scheme and paid a sum to assist an employee (pedestrain) due to the accident due to financial hardship, and that sum is used to pay part of hospital costs first, can that employee still claim against the insurer of the motorist ? Any implication if the welfare assistance is paid direct to the hospital instead of direct payment to that employee?
Hope you can clarify.
CH
REPLY
This is a legal issue. I am not familiar with this matter. In my view, and I am not a legal expert, the position will be as follows:
> You are entitled to claim for your loss, due to the negligence of the other party
> You are certainly allowed to claim for payment made from Medisave (which is your own savings)
> You can also claim for expenses that are paid by your insurance policy (e.g. Medishield) or by the company's welfare scheme
> The liability for the payment by the negligent party applies to the total expenses (regardless of the status of insurance)
> I do not know if the insurer (of Medishield) or employer will ask you to repay back the expenses that have been successfully claimed from the negligent party - but it is a separate matter.
Kindly advise me on the following :-
(a) Under S'pore Insurance laws, is payment made out of Medisave of a plaintiff (pedestrain) claimable against the Insurer of a defendent motorist?
(b) What if payment is paid out of any Medishield / Healthshield policy of the patient first, is it claimable against the Insurer of a defendent motorist?
(c) In the above cases, which Insurer is the first party to bear the claim? Insurer of the defendent motorist or Medishield insurer of the pedestrain?
(d) If the a company has a welfare scheme and paid a sum to assist an employee (pedestrain) due to the accident due to financial hardship, and that sum is used to pay part of hospital costs first, can that employee still claim against the insurer of the motorist ? Any implication if the welfare assistance is paid direct to the hospital instead of direct payment to that employee?
Hope you can clarify.
CH
REPLY
This is a legal issue. I am not familiar with this matter. In my view, and I am not a legal expert, the position will be as follows:
> You are entitled to claim for your loss, due to the negligence of the other party
> You are certainly allowed to claim for payment made from Medisave (which is your own savings)
> You can also claim for expenses that are paid by your insurance policy (e.g. Medishield) or by the company's welfare scheme
> The liability for the payment by the negligent party applies to the total expenses (regardless of the status of insurance)
> I do not know if the insurer (of Medishield) or employer will ask you to repay back the expenses that have been successfully claimed from the negligent party - but it is a separate matter.
Who's really looking after your money?
There is an excellent article by John Bittlestone in Today paper, 7 July. It shows a list of improvements that should be made by the finance industry. Although the suggestions are made to the banking sector, they apply to the insurance sector as well.
The topics are:
> Drop the jargon
> Cut the "products" by 95 percent
> If a bank wants to act as a broker
> Treat us as customers
> Be transparent
> Make your charges realistic
> Re-examine your "relationship manager" practice
> Reduce your paper chase
> Look at your bonus system
> You are already over-regulated
Here is the soft copy of the article:
http://www.todayonline.com/articles/263596.asp
The topics are:
> Drop the jargon
> Cut the "products" by 95 percent
> If a bank wants to act as a broker
> Treat us as customers
> Be transparent
> Make your charges realistic
> Re-examine your "relationship manager" practice
> Reduce your paper chase
> Look at your bonus system
> You are already over-regulated
Here is the soft copy of the article:
http://www.todayonline.com/articles/263596.asp
Politician and accountant
It is easy for a beggar to tell the difference between a politician and an accountant. If he asks a man for money for a meal saying that he hasn't eaten all day and the man replies, "Sorry, no. But things will be better for you tomorrow" - that man must be a politician.
If the beggar asks the same question and the man replies, "Sorry, no. But I am interested to know how your financial situation compares with the same period last month" - that man must be an accountant.
If the beggar asks the same question and the man replies, "Sorry, no. But I am interested to know how your financial situation compares with the same period last month" - that man must be an accountant.
Sunday, July 06, 2008
A Gracious Society and Dr. Chee Soon Juan
I met Dr. Chee Soon Juan at a BBQ organised by the Online Citizen, and had a nice conversation with him. Read about my views in item 47 of:
http://theonlinecitizen.com/2008/07/important-to-build-a-gracious-society/#comments
http://theonlinecitizen.com/2008/07/important-to-build-a-gracious-society/#comments
Saturday, July 05, 2008
Losing its cooperative character
I met a friend at a cooperative dinner last night.
He made this observation, "Mr. Tan, when you were with Income, you kept the expenses low and offered an alternative to the people that were different from the other insurance companies. I can see that much of what you have done is being reversed and Income is now becoming like the other insurance companies. I feel quite sad for the policyholders of Income."
I told him that I agree with this observation. I hope that the management and board of Income will realise that many policyholders feel this way.
He made this observation, "Mr. Tan, when you were with Income, you kept the expenses low and offered an alternative to the people that were different from the other insurance companies. I can see that much of what you have done is being reversed and Income is now becoming like the other insurance companies. I feel quite sad for the policyholders of Income."
I told him that I agree with this observation. I hope that the management and board of Income will realise that many policyholders feel this way.
Free surplus in the Life Fund
I raise the issue about why the yield on the Growth policy was below the "actual experience of the Life Fund".
In his reply, Mr. Ken Ng from Income said,
I would like to highlight an additional consideration in 2008. Markets were very turbulent because of the sub-prime crisis at the time the bonus declaration was made. Much of the capital appreciation enjoyed in the 2007 has been reversed. They are still are very turbulent. It would not have been prudent to make an significant increase in bonuses and raise expectations at such a time of uncertainty.
I asked Mr. Ken Ng for the following information:
1. How much was the free surplus in the Life Fund at the end of 2007 (that was not distributed to policyholders)
2 How much of this free surplus has since been reversed?
There was no reply and no acknowledgement to my question for about one week.
In his reply, Mr. Ken Ng from Income said,
I would like to highlight an additional consideration in 2008. Markets were very turbulent because of the sub-prime crisis at the time the bonus declaration was made. Much of the capital appreciation enjoyed in the 2007 has been reversed. They are still are very turbulent. It would not have been prudent to make an significant increase in bonuses and raise expectations at such a time of uncertainty.
I asked Mr. Ken Ng for the following information:
1. How much was the free surplus in the Life Fund at the end of 2007 (that was not distributed to policyholders)
2 How much of this free surplus has since been reversed?
There was no reply and no acknowledgement to my question for about one week.
Friday, July 04, 2008
Buy Two Life Annuities
Dear Mr. Tan,
Is it sensible to have two Anunities - one from CPF and the other from NTUC Income? I am more on the preservative type, do not want to take risk in investment.
JL
REPLY
This is an excellent idea. I have recommended it before. Buy an annuity for CPF for its attractive return. Buy a life annuity from the private sector using cash savings.
Read this FAQ:
http://www.tankinlian.com/faq/life.html
Is it sensible to have two Anunities - one from CPF and the other from NTUC Income? I am more on the preservative type, do not want to take risk in investment.
JL
REPLY
This is an excellent idea. I have recommended it before. Buy an annuity for CPF for its attractive return. Buy a life annuity from the private sector using cash savings.
Read this FAQ:
http://www.tankinlian.com/faq/life.html
Fair Treatment of Policy Owners
I found this excellent paper from Bank Negara, Malaysia. It explained the method of using asset share to ensure that policy owners get cash values that are fairly computed:
http://www.bnm.gov.my/files/publication/dgi/en/2004/08.box2.pdf
Here is the FAQ from the Life Insurance Association of Malaysia:
http://www.liam.org.my/cms/general.asp?whichfile=English&productid=237&catid=13
Here is another article printed in The New Paper:
http://newpaper.asia1.com.sg/columnists/story/0,4136,167015,00.html
http://www.bnm.gov.my/files/publication/dgi/en/2004/08.box2.pdf
Here is the FAQ from the Life Insurance Association of Malaysia:
http://www.liam.org.my/cms/general.asp?whichfile=English&productid=237&catid=13
Here is another article printed in The New Paper:
http://newpaper.asia1.com.sg/columnists/story/0,4136,167015,00.html
Long breakeven point for 30 year endowment
My friend is a retired manager of a life insurance company. He found that his daughter, a recent graduate, was sold a 30 year endowment policy. The benefit illustration showed that, for the first 27 years, the cash value was below the premiums paid.
During the last three years, the benefit illustration showed a large amount of non-guaranteed terminal bonus that boost the yield on the policy. The daughter was not aware that she would suffer a loss for 27 years and had not been properly advised by the agent. The agent only highlighted the high maturity value to convince the policyholder to enter into this "saving plan".
My friend said, "How can a saving plan have a breakeven point of 27 years? This is like cheating people". He wanted to ask the agent to refund all the premiums to the daughter. I advised him to get the daughter to lodge a complaint with MAS.
During the last three years, the benefit illustration showed a large amount of non-guaranteed terminal bonus that boost the yield on the policy. The daughter was not aware that she would suffer a loss for 27 years and had not been properly advised by the agent. The agent only highlighted the high maturity value to convince the policyholder to enter into this "saving plan".
My friend said, "How can a saving plan have a breakeven point of 27 years? This is like cheating people". He wanted to ask the agent to refund all the premiums to the daughter. I advised him to get the daughter to lodge a complaint with MAS.
Asset share in 2009
Mr. Ken Ng said that NTUC Income will work on the asset share in 2009 and declare bonuses based on the "actual experience". This is not fair to policies that mature in 2007 and 2008, where the bonuses are far short of the asset share.
It is the duty of the appointed actuary to look at the actual experience to declare a fair rate of bonus. Whether the actuary adopt the asset share or other suitable method, the need for fairness has always been a key consideration in the distribution of bonus.
It is not correct for the appointed actuary or the board of directors to ignore this consideration, as it affects the reasonable expectation of the policyholders and could amount to holding back many thousands of dollars that may be fairly attributed to them. There is the risk of legal action taken by the policyholders.
ADDITIONAL POINT
Mr. Ken Ng asked me to clarify that he became the appointed actuary only in 2007. The bonus declaration for 2006 was recommended by the previous appointed actuary, Nick Rhodes, and supported by me when it was presented to the board of directors in late 2006 (when I was still the CEO).
I replied to Mr. Ken Ng that the bonus declared in 2006 showed a significant increase over 2005. I believe that the bonus for 2007 should show a further increase over 2006, as it can be justified by the excellent investment yield achieved in 2007.
It is the duty of the appointed actuary to look at the actual experience to declare a fair rate of bonus. Whether the actuary adopt the asset share or other suitable method, the need for fairness has always been a key consideration in the distribution of bonus.
It is not correct for the appointed actuary or the board of directors to ignore this consideration, as it affects the reasonable expectation of the policyholders and could amount to holding back many thousands of dollars that may be fairly attributed to them. There is the risk of legal action taken by the policyholders.
ADDITIONAL POINT
Mr. Ken Ng asked me to clarify that he became the appointed actuary only in 2007. The bonus declaration for 2006 was recommended by the previous appointed actuary, Nick Rhodes, and supported by me when it was presented to the board of directors in late 2006 (when I was still the CEO).
I replied to Mr. Ken Ng that the bonus declared in 2006 showed a significant increase over 2005. I believe that the bonus for 2007 should show a further increase over 2006, as it can be justified by the excellent investment yield achieved in 2007.
MySudoku
MySudoku appears in the MyPaper daily. The puzzle on Friday are arranged to show the letters M-Y. Take a look at this puzzle.
The tips to solve the Sudoku puzzles are contained in my website, www.tankinlian.com, under Logic9 (an alternative name to Sudoku).
The tips to solve the Sudoku puzzles are contained in my website, www.tankinlian.com, under Logic9 (an alternative name to Sudoku).
Improve public transport
Do you have any suggestions to improve the public transport in Singapore. Give your views in this website:
http://singaporepublictransport.blogspot.com/
http://singaporepublictransport.blogspot.com/
Thursday, July 03, 2008
Use of asset share in Malaysia
From 2005, the regulator in Malaysia made it mandatory for life insurance companies to use asset share to determine the cash value and maturity value of their participating policies. This is to ensure that the policyholders get a fair value on their policies based on the actual experience of the fund.
Previously, it was quite common for the companies to give out cash values that are lower than the asset share of the policy. The companies can use the profit on the terminated policies to pay higher values on maturing policies. This makes the yield on the maturing policies look more attractive, but it is at the expense of the policyholders of terminated policies. This is somewhat like a ponzi scheme.
The terminated policies already suffer from the high expense and mortality charges. They have to suffer another penalty from the low cash values, which is quite unfair. By adopting asset shares, the regulator ensure that these policyholders are not penalised twice.
After the asset share method is implemented, the companies find that the maturity yields on these policies are not attractive. They are not able to sell these participating policies, due to the high charges and low yields. Most companies decided to withdraw the participating policies and to sell the investment-linked policies with lower charges.
I am in favour of a similar regulation to be adopted in Singapore to ensure that policyholders are treated fairly. It will also put pressure on companies to reduce their high expenses and charges, and will be in the interest of consumers.
Previously, it was quite common for the companies to give out cash values that are lower than the asset share of the policy. The companies can use the profit on the terminated policies to pay higher values on maturing policies. This makes the yield on the maturing policies look more attractive, but it is at the expense of the policyholders of terminated policies. This is somewhat like a ponzi scheme.
The terminated policies already suffer from the high expense and mortality charges. They have to suffer another penalty from the low cash values, which is quite unfair. By adopting asset shares, the regulator ensure that these policyholders are not penalised twice.
After the asset share method is implemented, the companies find that the maturity yields on these policies are not attractive. They are not able to sell these participating policies, due to the high charges and low yields. Most companies decided to withdraw the participating policies and to sell the investment-linked policies with lower charges.
I am in favour of a similar regulation to be adopted in Singapore to ensure that policyholders are treated fairly. It will also put pressure on companies to reduce their high expenses and charges, and will be in the interest of consumers.
Wednesday, July 02, 2008
Cooperative credentials
Dear Mr. Tan,
May I be permitted to make an observation. The new management of Income missed a wonderful opportunity to show that they can embrace the true spirit of being a cooperative and win over the loyalty of over 1 million policyholders that you have built up over the past 30 years.
How? The excellent investment yield in 2006 and 2007 gave them the chance to restore back all of the bonus cuts since the Asian financial crisis. Why did I say this? I read that the investment yield over the past 10 years is 7.8% and that is more than the yield of 6% that was used to project the bonus rates during these years.
I am rather sad that they did not take this opportunity to re-establish their credentials. Instead, they appear to be trying to hide the profits from the policyholders, and give less than what the actual experience would really allow. How disappointing. What are your views, Mr. Tan?
JK
REPLY
I agree with your views. Indeed, if they have restored the past bonus cuts, and they have the surplus to do so, they would have placed NTUC Income is a strong marketing position. This is a reputation that is more valuable than the millions of dollars spent on advertising.
They still have the chance to change their strategy and adopt this "restore the bonus cut". I hope that the board will do so.
May I be permitted to make an observation. The new management of Income missed a wonderful opportunity to show that they can embrace the true spirit of being a cooperative and win over the loyalty of over 1 million policyholders that you have built up over the past 30 years.
How? The excellent investment yield in 2006 and 2007 gave them the chance to restore back all of the bonus cuts since the Asian financial crisis. Why did I say this? I read that the investment yield over the past 10 years is 7.8% and that is more than the yield of 6% that was used to project the bonus rates during these years.
I am rather sad that they did not take this opportunity to re-establish their credentials. Instead, they appear to be trying to hide the profits from the policyholders, and give less than what the actual experience would really allow. How disappointing. What are your views, Mr. Tan?
JK
REPLY
I agree with your views. Indeed, if they have restored the past bonus cuts, and they have the surplus to do so, they would have placed NTUC Income is a strong marketing position. This is a reputation that is more valuable than the millions of dollars spent on advertising.
They still have the chance to change their strategy and adopt this "restore the bonus cut". I hope that the board will do so.
Disclose the Asset Share of the Policy
A COMMENT POSTED IN MY BLOG
Hi --
NTUC Income says, "We don't have the money to pay higher bonuses."
Mr. Tan says, "Based on your high stated yield, it sure looks like you do."
How to know for sure?
As Mr. Tan has pointed out before, it is easy. Simply disclose NTUC Income policyholder fund's "asset share" (for each of its policyholders), as required in other countries like Malaysia, Australia, UK and South Africa.
That would give us the answer. At the moment, there is no way for policyholders to know if NTUC Income is holding back on bonus payments or not.
NTUC Income says it is not -- but declines to provide documentation.
Why? Why not reveal each policyholders' asset share? It is easy to do. There is adequate precedent in other countries for doing it. Everyone agrees it would increase transparency of the policyholders' fund.
Those are rather good reasons for disclosure.
Perhaps NTUC Income can state its reasons for non-disclosure.
Sincerely,
Larry Haverkamp
Hi --
NTUC Income says, "We don't have the money to pay higher bonuses."
Mr. Tan says, "Based on your high stated yield, it sure looks like you do."
How to know for sure?
As Mr. Tan has pointed out before, it is easy. Simply disclose NTUC Income policyholder fund's "asset share" (for each of its policyholders), as required in other countries like Malaysia, Australia, UK and South Africa.
That would give us the answer. At the moment, there is no way for policyholders to know if NTUC Income is holding back on bonus payments or not.
NTUC Income says it is not -- but declines to provide documentation.
Why? Why not reveal each policyholders' asset share? It is easy to do. There is adequate precedent in other countries for doing it. Everyone agrees it would increase transparency of the policyholders' fund.
Those are rather good reasons for disclosure.
Perhaps NTUC Income can state its reasons for non-disclosure.
Sincerely,
Larry Haverkamp
A Gracious Society
Read my article in The Online Citizen:
http://theonlinecitizen.com/2008/07/important-to-build-a-gracious-society/#comments
http://theonlinecitizen.com/2008/07/important-to-build-a-gracious-society/#comments
Public Transport in Singapore
I have created a new blog to share views about improving the public transport system in Singapore.
www.singaporepublictransport.blogspot.com
www.singaporepublictransport.blogspot.com
Low yield on maturing Growth policy
Dear Mr Tan,
I compared the yield for the equivalent policies maturing in 2006 and 2007, as well as the yield in the original benefit illustration. This is not out of line with the maturity yield in 2008, considering that in 2006 and 2007, the long term yields were also quite good. The maturity yield in 2008 of 3.06% p.a. is also higher than the yield shown in the original benefit illustration. I set these out below:
2006 maturity 3.01% p.a.
2007 maturity 2.76% p.a.
2008 maturity 3.06% p.a.
Yield in original benefit illustration 1.65% p.a.
In 2008, we focused on the maintaining yields whilst changing the mix of annual and special bonus going forward. Under the old bonus structure it is an impossible strain on the fund to increase the yield by the extent indicated. To increase the yield by 2% p.a. to the policyholder requires an annual bonus of roughly 10% which will cost $400m when applied uniformly to all Growth policies. This is the more than the cost of bonus for the entire fund of $293m. As a result, the old bonus structure would have delivered the same yields in 2008 by default. A flexible special bonus is the way to go.
The new bonus structure is the first stage of the change. Following this with more flexible special bonus will allow maturity values to reflect asset shares more closely in subsequent bonus declarations. Indeed the Board has made the assurance on fairness of payouts and more work will need to be done to support this assurance. This will be tackled in 2009 as the second phase of the change.
I would like to highlight an additional consideration in 2008. Markets were very turbulent because of the sub-prime crisis at the time the bonus declaration was made. Much of the capital appreciation enjoyed in the 2007 has been reversed. They are still are very turbulent. It would not have been prudent to make an significant increase in bonuses and raise expectations at such a time of uncertainty.
Regards,
Ken Ng
Chief Actuary
NTUC Income
REPLY
Dear Ken Ng,When the policy was issued in 2003, the investment yield was very low and the bonus rate had been drastically reduced due to the previous crisis year. The benefit illustration were made based on the reduced bonus at that time.
In subsequent years, the investment yield had been significantly higher than projected. Under such circumstances, it would be appropriate for the bonus to be increased to reflect "the actual experience", as promised by your chairman in his speech at the recent annual general meeting.
I believe that the yield of 3.06% is far short of the actual experience over the past five years. The actual investment yields during 2006 and 2007 had been exceptionally high.
During 2006, there was a modest adjustment in the bonus rates, but it has does not reflect fully a fair rate of return. I would expect the good performance for 2007 to have justified a further significant increase in bonus (including a once-off bonus), but instead it was virtually kept unchanged.
As I have pointed out in my earlier letter, the actual yield of 3.06% is far short of the average yield of 7.8% earned by the Life Fund over the past 10 years, and far short of the actual yield earned during the last five years (from 2003 to 2007), which is possibly higher than 7.8%. For a maturing policy, you should give a fair return of return to reflect the "actual experience", instead of keeping a large part of the surplus in the Life Fund. The retention of the excess surplus in the Life Fund does not benefit the maturing policyholder and cannot be justified on the grounds of fairness.
I calculate that the difference in payout based on the amount that you are paying out, and the amount that is "fair and consistent with the actual experience", is more than $10,000 in this case. This is not an insignificant amount of money and cannot be just ignored. If you disagree with my calculation, I suggest that you refer this matter to an independent actuary to make the calculation.
I wish also to convey this message on behalf of many other policyholders, especially for policies that have or will be maturing this year and the next few years, who have not been given a fair payout based on the "actual experience".
I hope that you will agree to review this matter. Perhaps this matter can be referred to an impartial, independent party to arbitrate.
Tan Kin Lian
Losing faith
Mr Tan,
Recently, I received an open letter from the current NTUC Income CEO Mr Tan Suee Chieh explaining how the restructuring of bonus will "benefit" us. I am particularly disappointed that the letter did not really explain how.
To be honest, I am losing faith in NTUC Income ever since you have retired from the CEO position. Its policies have become less attractive and I am prepared to pull out totally if they continue to be less transparent.
I will be following your blog closely to see how you engage them. Thanks for your effort.
DC
REPLY
I suggest that you should convey your opinion directly to Tan Suee Chieh and get him to address your concern. It is his duty to address your concern.
DC
REPLY
I suggest that you should convey your opinion directly to Tan Suee Chieh and get him to address your concern. It is his duty to address your concern.
Delay in handling a theft claim
Dear Mr Tan,
My car was stolen in May 08 at HDB carpark (open space). Currently under police investigation. My car was insured under X.
On the day of discover my car was missing, I had called up X's hotline and seeked their advise on the reporting procedures. I went to the branch and submitted my police report and given details to the counter staff. I had also requested the staff to get the officer-in-charge of my claims to call me in briefing me the process of claims.
After 6 days I filled the report, I have not receive any phone call from claim dept. I rang up the claim dept and shock to me that there was "NO RECORDS" of my filling as was told by the staff who receive my call. I was very frustrated and demand them to check it out.
One day later, the customer support staff advised me to re-submit my police report to her as "the investigation of the loss of my documents was still in progress".
After emailed my document to the claim dept and I had again requested the officer in charge to brief me on the claim process. After two days of my email, again I recieve NIL call. I called up again and was told that "the routing of document may need 3-4 working days".
I started to show my anger and demanded the staff to check on my submission immediately. After a day, I only receive a call from customer support officer with brief message on " waiting for 3 months after police close the case and also the COE/OMV rebates from LTA have to surrender to X". The claim officer in charge couldn;t even bother to call me directly and just passed the message via another person.
I'm very disappointed on the responsibility and response of X in this entire process as they just take their own sweet time in handling my case,
In view of the above situation, I have lost my confidence in X in giving me a "fair estimation of my car market value" of my stolen car. As the claim will be effected after 3 months, I have no ideals on how to prepare myself in avoiding an "unfair" compensation to my loss.
Hope Mr Tan could enlighten me with advise and guide me on this claim. Hope to hear from you soon.
REPLY
You can write to ask X to give you a FAQ to explain how the market value of the vehicle is determined. If you find that the claim has not been handled promptly and fairly, you can lodge a complaint with the service quality manager.
If this is not settled satisfactorily, you can file a complaint with FiDREC.
http://www.fidrec.com.sg/website/faq.html
My car was stolen in May 08 at HDB carpark (open space). Currently under police investigation. My car was insured under X.
On the day of discover my car was missing, I had called up X's hotline and seeked their advise on the reporting procedures. I went to the branch and submitted my police report and given details to the counter staff. I had also requested the staff to get the officer-in-charge of my claims to call me in briefing me the process of claims.
After 6 days I filled the report, I have not receive any phone call from claim dept. I rang up the claim dept and shock to me that there was "NO RECORDS" of my filling as was told by the staff who receive my call. I was very frustrated and demand them to check it out.
One day later, the customer support staff advised me to re-submit my police report to her as "the investigation of the loss of my documents was still in progress".
After emailed my document to the claim dept and I had again requested the officer in charge to brief me on the claim process. After two days of my email, again I recieve NIL call. I called up again and was told that "the routing of document may need 3-4 working days".
I started to show my anger and demanded the staff to check on my submission immediately. After a day, I only receive a call from customer support officer with brief message on " waiting for 3 months after police close the case and also the COE/OMV rebates from LTA have to surrender to X". The claim officer in charge couldn;t even bother to call me directly and just passed the message via another person.
I'm very disappointed on the responsibility and response of X in this entire process as they just take their own sweet time in handling my case,
In view of the above situation, I have lost my confidence in X in giving me a "fair estimation of my car market value" of my stolen car. As the claim will be effected after 3 months, I have no ideals on how to prepare myself in avoiding an "unfair" compensation to my loss.
Hope Mr Tan could enlighten me with advise and guide me on this claim. Hope to hear from you soon.
REPLY
You can write to ask X to give you a FAQ to explain how the market value of the vehicle is determined. If you find that the claim has not been handled promptly and fairly, you can lodge a complaint with the service quality manager.
If this is not settled satisfactorily, you can file a complaint with FiDREC.
http://www.fidrec.com.sg/website/faq.html
Tuesday, July 01, 2008
Ask for relevant information
Dear Mr. Tan
I read your blog today on the "Bonus that reflect the actual experience" and "A poor yield on single premium endowment expired in 2 month time" with a projected return of 3.06%.
Will it be a scenario that the 10 year Growth plan compare to a 5 year plan bought in the same period - 10 year may only get a little bit higher return upon maturity since smoothing start in April this year.Let us take two policies as an example.
Will it be a scenario that the 10 year Growth plan compare to a 5 year plan bought in the same period - 10 year may only get a little bit higher return upon maturity since smoothing start in April this year.Let us take two policies as an example.
5 year plan for $50K from 01 May 2003 and matured on 30 April 2008 for $58,100-00 @ 3.06% against a 10 year plan buying at the same year.
(details removed)
I suggest that you write to ask NTUC Income on the following:
a) What is the cash value of your policy now, if you terminate it
b) What is the yield on the cash value
c) What is the projected maturity value of the policy?
d) What is the yield at that time.
e) What is the yield earned by the Life Insurance fund during the years that your policy has been in force, and the projected yield up to the maturity date.
Bonus that reflect the actual experience
Siewkhim asked if NTUC Income has responded to my question about adjusting the bonus to reflect the "actual experience".
I had sent a question regarding the maturity value of the 5-year Growth policy belonging to my wife that will be maturing in August. I pointed out that the maturity value is far short of and does not reflect the "actual experience" during the past five years. I have received a reply that my issue will be attended to "officially". I have not received any further communication after two weeks.
This is the style adopted in most organisations of Singapore. Keep the customer waiting. Do not engage in any conversation. When you are finally ready, give an official reply and defend it strongly. It reflects a disrepect for the rights of the customer.
As this is a complicated matter, I will wait for another one or two weeks, before I take it up at a higher level.
I also intend to raise the issue of the bonuses and cash values of other existing policies that are far short of the "actual experience". A few of my personal policies fall in this category.
I had sent a question regarding the maturity value of the 5-year Growth policy belonging to my wife that will be maturing in August. I pointed out that the maturity value is far short of and does not reflect the "actual experience" during the past five years. I have received a reply that my issue will be attended to "officially". I have not received any further communication after two weeks.
This is the style adopted in most organisations of Singapore. Keep the customer waiting. Do not engage in any conversation. When you are finally ready, give an official reply and defend it strongly. It reflects a disrepect for the rights of the customer.
As this is a complicated matter, I will wait for another one or two weeks, before I take it up at a higher level.
I also intend to raise the issue of the bonuses and cash values of other existing policies that are far short of the "actual experience". A few of my personal policies fall in this category.
Outsourcing of work
Some government agencies identify their non-core activities and engaged in outsourcing the work. Some examples are cleaning of premises and answering of telephone calls.
Most people are familiar with the tendering approach, as follows:
> specify the standard of work
> award the work to the contractor that gives the lowest cost.
The consequence is that the contractor will find the cheapest source of labour, including foreign workers. Eventually, the standard of service deteriorates. Wages continue to be depressed.
There is another way of approaching this outsourcing of non-core work, as follows:
> specify the contract price, including the wages to be paid to the workers
> award the work to the contractor that is able to give the best standard of service.
If a specified wage is given, the focus is to select the best candidates for the job. This will ensure better standard and quality of service. The contractor's task is to ensure that the human and other resources are organised efficiently to meet the rapid changes in the business environment.
I hope that more attention can be paid to this new method of outsourcing, which is based on quality of service, rather than reducing cost.
Most people are familiar with the tendering approach, as follows:
> specify the standard of work
> award the work to the contractor that gives the lowest cost.
The consequence is that the contractor will find the cheapest source of labour, including foreign workers. Eventually, the standard of service deteriorates. Wages continue to be depressed.
There is another way of approaching this outsourcing of non-core work, as follows:
> specify the contract price, including the wages to be paid to the workers
> award the work to the contractor that is able to give the best standard of service.
If a specified wage is given, the focus is to select the best candidates for the job. This will ensure better standard and quality of service. The contractor's task is to ensure that the human and other resources are organised efficiently to meet the rapid changes in the business environment.
I hope that more attention can be paid to this new method of outsourcing, which is based on quality of service, rather than reducing cost.
Saving regular to buy a Life Annuity
Dear Mr. Tan,
From what i know most insurance company annunity plan premium are lump sum. Do you know any company (beside Z) that premium can be paid monthly till age 65.
REPLY
In my view, it is better to invest in a low cost investment fund to get a good return on your savings until your retirement age (which can be at, before or after age 65 ).
You can take the savings to buy a life annuity (by paying a lump sum premium) at that time. This gives you the greatest flexibility and a better yield.
Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/life.html
From what i know most insurance company annunity plan premium are lump sum. Do you know any company (beside Z) that premium can be paid monthly till age 65.
REPLY
In my view, it is better to invest in a low cost investment fund to get a good return on your savings until your retirement age (which can be at, before or after age 65 ).
You can take the savings to buy a life annuity (by paying a lump sum premium) at that time. This gives you the greatest flexibility and a better yield.
Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/life.html
Switching to a new rider for Shield plan
Dear Mr. Tan,
I just received a notice from X advising existing policy holders of the Plus Rider to switch to the Assist Rider. The rationale being that it will assist policyholders to save more in the long run. Medical cost according to their notice has increased as much as 30%. The difference between the Plus Rider and the Assist Rider is that the Plus Rider ensures that the patient does not have to co-pay whereas the Assist Rider would require the patient to pay up to $2000 or 10% of whatever is claimable. The Plus Rider will no longer be available to new policy holders.
What is your view? Would you switch to this? Do I have to take a healthcheck in order to renew my policy or are existing applicants automatically ensured coverage?
REPLY
You have the choice of discontinuing the rider or switching to the new rider. I hope that this FAQ can help you to make your decision:
http://www.tankinlian.com/faq/shield.html
You are not required to do a healtheck to switch to the new rider.
I just received a notice from X advising existing policy holders of the Plus Rider to switch to the Assist Rider. The rationale being that it will assist policyholders to save more in the long run. Medical cost according to their notice has increased as much as 30%. The difference between the Plus Rider and the Assist Rider is that the Plus Rider ensures that the patient does not have to co-pay whereas the Assist Rider would require the patient to pay up to $2000 or 10% of whatever is claimable. The Plus Rider will no longer be available to new policy holders.
What is your view? Would you switch to this? Do I have to take a healthcheck in order to renew my policy or are existing applicants automatically ensured coverage?
REPLY
You have the choice of discontinuing the rider or switching to the new rider. I hope that this FAQ can help you to make your decision:
http://www.tankinlian.com/faq/shield.html
You are not required to do a healtheck to switch to the new rider.
Monday, June 30, 2008
Is it time to invest in the stockmarket?
JUST A PERSONAL OPINION.
If you are a long term investor, it is about the right time. The global stockmarkets have corrected down by about 20 percent. It is almost one year, since the subprime crisis surfaced. Most of the bad news have been discounted. The recovery is likely to occur over the next three months to six months (just a guess). It may be earlier.
Something may happen that will trigger a recovery. By that time, the market may move up quite rapidly, and you miss miss the boat. So, as a long term investor, it may be time to start investing.
If you are a long term investor, it is about the right time. The global stockmarkets have corrected down by about 20 percent. It is almost one year, since the subprime crisis surfaced. Most of the bad news have been discounted. The recovery is likely to occur over the next three months to six months (just a guess). It may be earlier.
Something may happen that will trigger a recovery. By that time, the market may move up quite rapidly, and you miss miss the boat. So, as a long term investor, it may be time to start investing.
Investing to get a retirement income
Dear Mr. Tan,
You have always talked with much sense & wisdom. I would like to seek your views.
I have been told by my insurance agent that with my impending retirement, it is good to invest in Investment Linked Policies (ILPs). Let the investments grow and sell little bit by little bit, when I need money.
But with market turbulence and falling equity prices, I have a feeling that this may not be the way to invest. What is your opinion here. Please help out with your opinion.
E
REPLY
Please read these FAQs and see if they are helpful in your decision:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/seniors.html
If you are investing for the long term, say 10 years or longer, it is all right to invest now. You can ignore the market turbulence in the meantime. It is difficult for you to catch the right time to invest anyway. In a turbulent time right now, you have the chance to buy the equities at a lower price and make a bigger gain when the market recovers.
It is all right to invest in a ILP and have a monthly withdrawal to get your retirement income. You should choose a single premium ILP (where the upfront charges are 2% or less, and the annual fee is less than 1%).
Wish you all the best.
You have always talked with much sense & wisdom. I would like to seek your views.
I have been told by my insurance agent that with my impending retirement, it is good to invest in Investment Linked Policies (ILPs). Let the investments grow and sell little bit by little bit, when I need money.
But with market turbulence and falling equity prices, I have a feeling that this may not be the way to invest. What is your opinion here. Please help out with your opinion.
E
REPLY
Please read these FAQs and see if they are helpful in your decision:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/seniors.html
If you are investing for the long term, say 10 years or longer, it is all right to invest now. You can ignore the market turbulence in the meantime. It is difficult for you to catch the right time to invest anyway. In a turbulent time right now, you have the chance to buy the equities at a lower price and make a bigger gain when the market recovers.
It is all right to invest in a ILP and have a monthly withdrawal to get your retirement income. You should choose a single premium ILP (where the upfront charges are 2% or less, and the annual fee is less than 1%).
Wish you all the best.
Financial planning and inflation
For the first time in 20 years, we have to deal with high rates of inflation. Are you saving enough and earning a sufficient return to cope with inflation?
Here are some simple tips on how to deal with this matter. Read this FAQ:
http://www.tankinlian.com/articles/financial.html
Here are some simple tips on how to deal with this matter. Read this FAQ:
http://www.tankinlian.com/articles/financial.html
Sunday, June 29, 2008
Put People First
I hope that our business policies are made on the concept of "put people first", rather than "make more profit".
By putting people first, the business can still earn a good profit margin. They will get the loyalty of their customers.
Some businesses make more profit by overcharging customers or degrade the service to customers. They may reduce their expenses, but they add more cost to the customers. Some examples are:
1. SMRT reduces the number of trains during off-peak hours. The commuters have to wait longer for a train. The train will be nearly fully packed, even during the off-peak period. By adding more train, SMRT will increase its cost marginally, but it will improve the comfort level of the commuters significantly.
2. Businesses make customers waste a lot of time in navigating through their automated call center systems. It reduces the expenses to the businesses marginally, but add a lot of wasted time and telephone bills for the customers.
3. Businesses make customers wait a long time at their customer service counters. If they increase the manpower to serve customers, they may increase their cost marginally, but reduce the waiting time for customers. Wasted time is costly to customers.
If there is genuine competition, businesses will put their best effort to "put people first", so that they win over the loyalty of their customers. Unfortunately, in Singapore, many businesses are operated by near monopolies. In competitive situations, these businesses apply unfair methods to lock their customers into term contracts and then treat the customers badly during the lock-in period.
I hope that there is a stronger voice to speak for the consumers in Singapore.
By putting people first, the business can still earn a good profit margin. They will get the loyalty of their customers.
Some businesses make more profit by overcharging customers or degrade the service to customers. They may reduce their expenses, but they add more cost to the customers. Some examples are:
1. SMRT reduces the number of trains during off-peak hours. The commuters have to wait longer for a train. The train will be nearly fully packed, even during the off-peak period. By adding more train, SMRT will increase its cost marginally, but it will improve the comfort level of the commuters significantly.
2. Businesses make customers waste a lot of time in navigating through their automated call center systems. It reduces the expenses to the businesses marginally, but add a lot of wasted time and telephone bills for the customers.
3. Businesses make customers wait a long time at their customer service counters. If they increase the manpower to serve customers, they may increase their cost marginally, but reduce the waiting time for customers. Wasted time is costly to customers.
If there is genuine competition, businesses will put their best effort to "put people first", so that they win over the loyalty of their customers. Unfortunately, in Singapore, many businesses are operated by near monopolies. In competitive situations, these businesses apply unfair methods to lock their customers into term contracts and then treat the customers badly during the lock-in period.
I hope that there is a stronger voice to speak for the consumers in Singapore.
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