Joke: Wrote a check

Mr. John Johnson was a rich old man was dying from a rare disease. On his deathbed, he called for his insurance agent, doctor and preacher:"

I trusted each you my entire life. Now I want to give each of you $30,000 cash in an envelope to put in my grave. I want to take it with me."

Mr. Johnson died and at the funeral, each one placed the envelope on top of the man, then he was laid to rest.

On the way from the funeral, in the limo, the doctor confessed "I must tell you gentlemen, I only put $20,000 on top of Mr. Johnson, I wanted buy this new machine that would enable me to diagnose his rare disease and save others. It's what he would have wanted."

Then the preacher said: "I have to confess, I only put $10,000 on top of Mr. Johnson. We needed that money to help more homeless, and it's what Mr. Johnson would've wanted"

The insurance agent was angry at both the man, and said: "I can't believe both of you, stealing from a dead man. I wrote Mr. Johnson a check for the full $30,000!"

Practice trading with this simulated game

66 people have registered and started to play this simulation game:

http://project.projects.tankinlian.com/trader/

It provides a simulated environment for the user to trade stocks, bonds, US dollar and gold. The prices of these product move according to the news.

You can practice as a single player first. Afterwards, you can compete with other players under the multi-player mode. The auto-game starts within 15 minutes and those players can join in.

Give it a try!

A painful learning experience

Hi Mr. Tan,
Recently, I bought a whole life policy from a particular insurance company. I paid them a year of premiums in advance already. However, 4 months into the policy, after reading your blog and doing some self reading, I decided to end this high cost product early. My agent informed me that I will not be able to get back the future 8 months of premiums that I have paid earlier. What should I do now? Can I complain to FiDREC?

REPLY
I think that you have paid an annual premium under the policy. There is usually no surrender value, if you cancel the policy during the first two or three years. It will be difficult for you to argue that you are entitled to a refund of 8/12 of the annual premium on termination after four months. If you like, you can try FiDREC and see if they agree with you. (Most likely, they will not take up your case).

Hi Mr. Tan,
Thanks a lot for your kind attention and input you have given me. I greatly appreciate it. Please continue with your great work in educating the public about the pitfalls and truth with regards to insurance products. I was also "awakened" to all these after reading your blog and website! Guess i have treat this experience as a painful learning lseeson.

Joke: Let the boss have the first say

A insurance agent, an administration clerk and their manager are walking to lunch when they find an antique oil lamp. They rub it and a genie comes out in a puff of smoke. The Genie says, "I usually only grant three wishes, so I´ll give each of you just one."


"Me first! Me first!" says the admin clerk. "I want to be in the Bahamas, driving a speedboat, without a care in the world." Poof! She´s gone.


In astonishment, "Me next! Me next!" says the sales rep. "I want to be in Hawaii, relaxing on the beach with my personal masseuse, an endless supply of Pina Coladas and the love of my life." Poof! He´s gone."


OK, you´re up," the Genie says to the manager. The manager says, "I want those two back in the office after lunch."


Moral of story: always let your boss have the first say.

Honesty and business ethics

Is your insurance agent honest? Is your insurance company trustworthy? Do they observe ethics? Read about my comments on business ethics in:

http://theonlinecitizen.com/2008/08/business-ethics-%e2%80%93-honesty-while-making-profits/#comment-17387

Effect of Deduction

Dear Sir,

I have an enquiry to make regarding the Effect of Deduction after reading your blog. I took out my policy and I am pretty stunned to see the amount that is written under the effects of deduction.

My annual premium is $3,000 and assuming that I live till 65, it will be a full 44 years. I was 21 when I signed the plan.

Looking at it, Total premium paid is $132,000, total distribution cost is $5468, Non-Guaranteed Cash Value at 5% is 205,600 and at 9% 691,800. Effects of deduction is $882,776. I was not told about the effects of deduction when I signed up the plan and looking at it, I am pretty much being shortchanged for the amount of money that I put in.

Kindly advise on what should I do.

REPLY

You can write a letter of complaint to the deputy managing director in charge of market conduct in MAS, as shown below.
http://app.sgdi.gov.sg/listing_expand.asp?agency_subtype=dept&agency_id=0000008384-

The agent has a duty to disclose and explain this important point to the policyholder. It is shocking that the Effect of Deduction is higher than the Cash Value (assuming an investment yield of 9%).

Pro Trader (Trading of Financial Products)

This website allows you to practice your trading skills:
http://tankinlian.com/trader/

You are given simulated prices for 4 financial products which change in response to economic news. You can buy or sell up to 10 contracts of these products. You will see your gain or loss each second, as the prices change.

You have to register an account and select the single player mode. There are instructions for how to trade. You can play the multi-player game and compete with other players.

All the best.

Opt out of Eldershield

Dear Mr. Tan,
My wife received an "opt out letter on Eldershield" from Great Eastern. She is not a customer of Great Eastern. How did Great Eastern get her particulars? Is it fair to apply "opt out", especially to people who are illiterate?

REPLY

The Ministry of Health makes it mandatory for everyone reaching age 40 to be covered under Eldershield. This is provided under the Eldershield legislation. Although it is compulsory, the insured person has the right to opt out. If they do not opt out, they automatically join the scheme and the premium for Eldershield is deducted from Medisave.

The Ministry divided the people reaching age 40 into three groups and passed them to the three participating insurers, namely Great Easter, Income and Aviva. Your wife is probably in the group that is given to Great Eastern by M of Health. This is how Great Eastern got her particulars.

When Eldershield was first introduced, about 35% of the people opted out, as they found the premium to be too high, relative to the benefits. The opt out rate has fallen (but I do not know the current level today). I have not analysed the premium and benefit recently, so I am not able to give an opinion if it is worth joining Eldershield.

Insurance agent does not tell the truth

Dear Mr. Tan,

I met an insurance agent on the street, and was introduced to their "savings" plan. I read through your website and understand that such a policy is called a regular premium ILP policy, which provides life insurance cover and also an investment portion.

The agent told me about the "percentage that is allocation for investments", which is described as the distribution cost in your website. She did not mention anything about this percentage as being a cost.

I asked her what is the minimum amount and number of years needed for the plan. She said that the life insurance policy portion of the plan will need a minimum amount of $100 per month and take 13-15 years just to break even, and I understand from your website that this means the company has high expenses.

I told her I could buy term insurance and invest the rest in index funds and get better returns based on what I read from newspapers. Also, I told her that I understood that the commission she gets from selling ILP/life insurance policies is more than what she would earn from selling term insurance policies.

She said for the investment portion, the cost is 1-1.5% per annum. I asked her if her commission and other expenses are included, what is the total cost like ?
She said she was unable to tell me the figure.

She then introduced a medical insurance plan which she said enhances cover for Medishield, as its coverage is very low.

I asked her to provide me a copy of the terms and conditions for the earlier ILP Policy and the medical insurance plan. She said she would only provide me the benefits illustration (with terms and conditions) for the medical insurance plan.

Questions:

1) The agent said that the commission she gets from this ILP policy or a term insurance policy is the same (50% in the first year). I did not ask her the percentage for the subsequent years. In the end, she did not introduce any term insurance policy to me (although she said she also sells them) , which I had at least shown some interest in.

Does this mean she is dishonest or does the insurance company earn much more from the ILP policy than the term policy (and she earns the same from both) ?

2) What do you think of this insurance agent ?

3) I had in the past encountered insurance agents from the same company selling this type of ILP policy at least 4-5 times on the street during their roadshows. I understand other companies do sell the same thing too, but they are much less aggressive and seem to organise very few roadshows compared to this particular company.

What is the reason for this ?

This has become very irritating to me, and I would try to avoid this company once I see them from afar.

REPLY

I believe that this agent is dishonest and is not looking after the best interest of the client. Unfortunately, this type of behaviour is typical of most insurance agents from most companies. It is a sad state of affairs.

I hope that clients like you, are willing to write to the MAS and tell them about the real behaviour of insurance agents. If MAS acts against the dishonest agents, it may improve the situation and make the agents more ethical.

Large "effect of deduction" on Living policies

Dear Mr. Tan

I am considering terminating the Living Policy for myself and my husband and buying term insurance instead.

About the effect of deduction, wow, I really didn't know about that until you mentioned it in your blog. And I read again our policies, they really take away such big amount from us! Is this the standard practise? Do other insurance companies do this also?

REPLY

It is true that the Living policy takes away a lot of the premium. But the coverage is wider than a Term policy (unless you buy a Term policy that covers the critical illness as well).

My advice on buying Term insurance applies to a new policy (and not to the termination of an existing policy). Usually, after a policy is taken, I advise people to continue the policy as they have already incurred the high initial expenses. I have two Living policies on my own life as well, which I am continuing.

If you wish to terminate an existing policy, you should look at the yield over the next 5 years. This is explained in this FAQ:

http://www.tankinlian.com/faq/exist.html

The effect of deduction for similar policies sold by other insurance companies is likely to be higher.

Joke: that's not covered

A client calls up his insurance agent and tells him he needs to file a claim.
Agent: “Tell me what happened?”
Client: "This is how it happens ....."
Agent: "I’m sorry but that’s not covered.”
Client: “Well, let me explain better what happened.”
Agent: “I´m sorry but that´s not covered either.”
Client: "I´ll tell you what, you tell me what´s covered and I´ll tell you how it happened!”

Encourage people to use public transport

I find public transport to be quite convenient. But there are ways to improve our bus and train services, so that more people can take public transport. Top priority is an improved feeder service, such as the system used in Hong Kong.

More ideas can be found in:

http://www.singaporepublictransport.blogspot.com/
http://www.tankinlian.com/articles/transport.html
http://www.tankinlian.com/articles/express.html

Regulate selling

It is important to regulate “selling”.

If salesman goes around to sell products, they are likely to make the sale by misleading the customer. The regulation of selling should include the following:

1. The product is inherently fair to consumers (e.g. the manufacturer cannot make false claims)

2. Suitable information is provided to the customer (i.e. the information has to be verified by an expert)

3. The selling process has to meet standards of good conduct.

If the other conditions are not met, the selling should be considered as “touting” and the product should be suspected to be bad for consumers.

Present partial information only

I met a property agent. He was taught to adopt the following approach:

> present the postive aspects of the property to be sold
> tell the negative aspects, only if the buyer ask about them

If the buyer does not ask, then the negative aspect is not disclosed. This is what "professional ethics" is being taught. I consider this approach to be dishonest.

Motor accident reports

The General Insurance Association implemented a new framework to handle motor accidents from 1 July 2008. During the past two months, a total of 33,100 accidents were reported, representing an increase of 35% over the same period last year.

Derek Teo, President of GIA, claimed that the new framework is a success. I wonder how the insurance companies are able to bring down the claim cost, when the number of insurance claims has increased.

I remembered that the framework included roadside assessment by the assessors sent by the insurance company. I wonder if this new measure has been implemented, as it is a major strategy in the new framework to avoid inflated claims.

Happy National Day

Read my wishes for the future in:

http://theonlinecitizen.com/2008/08/we-the-citizens/#comments

Invest in the Exchange Traded Fund

Dear Mr.Tan,

I am new to investing and will like to start investing after getting my bonus next month. I read some of your blogs and the Exchange Traded Funds seems like a good choice. I am interested in investing in ETFs but not familiar with the process. How much do i need to invest in ETFs? Can i do the investment on my own or through a broker? I do not have any trading accounts, do i need to get a trading account first?

REPLY
If you go through a stockbroker, you need about $3000 to buy 1000 shares of ETF.

If you wish to invest in smaller amounts, you can go through Philips Securities. They have a plan to allow you to invest monthly, but they impose a monthly charge. I do not know the details. You can ask Philipps Securities.

Private Shield with Riders

What is the cost of a Private Shield plan, covering medical bills as charged in a private hospital, together with a rider to cover the Deductible and Co-insurance of 10%?

I calculated the total cost from age 30 to 85 to be more than $100,000, based on the premium rates today. If you add the cost beyond age 85, it will be much higher. The premum rates will increase in future years, but the future increase can probably be covered through the interest earned on your savings.

If you wish to have a private Shield plan to cover your expenses in a private hospital, you must have $100,000 in your Medisave account by the time you retire.

Insurance agents advice you to buy a private Shield plan. I hope that they have pointed out to you about the lifetime cost, so that you are well informed.

If you have to set aside $100,000 for your private Shield insurance, how much of that money is actually paid in claims? Based on the figures available from MAS website, the claim payout is 43%. This means that you are paying $100,000 in premium to get $43,000 in claims. Can you afford to give away the additional $57,000 of your savings to the insurance company?

After paying so much in premium, are you worried that your claim may be rejected due to "non-disclosure of pre-existing medical conditions", especially if you were not aware about these conditions? This has happened to many policyholders.

Think about the lifetime cost, if you wish to buy the insurance plan that covers all expenses "as charged". Make sure that you have sufficient money to pay the premium up to age 85 and beyond.

Note: If you take a private Shield plan without the rider, the total cost is $66,000. In this case, you have to pay the Deductible and Co-insurance.

Opening of Beijing Olympics

The Beijing Olympics opening ceremony started at 8:08:08 pm on 8 August 2008. How creative!

The opening ceremony is a combination of:

> modern technology
> art and culture
> discipline and focus of the people.

China can be proud of its remarkable achievements during the past two decades. Many people now forget that China is a Communist controlled country. China has shown that a Communist system can deliver peace, progress and prosperity for its people. I am amazed at the pride and loyalty of the people towards China.

Gracehaven Children's Home

The Salvation Army, Gracehaven Children's Home would like to cordially invite you to join us for a day of fun at our Carnival on 6 September 2008, Saturday, from 10am-6pm. This day has been set aside by the Home to raise funds for the children and young persons residing with us.

The proceeds from the Carnival's targeted amount of $150,000 will go into providing for their educational needs, social and rehabilitative programs.

Your support in every way would be most valuable to us. To join us in this partnership of care, you may support us in any of the following areas below:

1) Sponsorship in cash for the food and drinks for sale, logistical items such as power generators, tentage, fans, tables, games and food stalls, etc.

2) Purchase of carnival coupons. Each coupon is priced at $10 per piece, and it has 5 portions of $2, and a special redemption coupon for your free gift.

Tax exemption receipts can be issued for your donation upon request.

For any enquiries and donation in cash or kind, please feel free to contact our Program Co-ordinators,

- Ms. Goh Kailin at 64881531, email - goh_khai_ling@smm.salvationarmy.org
- Mr. Liu Minjie at 64881700, email - liu_min_jie@smm.salvationarmy.org

Help the low income people

Dear Mr. Tan,
I see many poor people in Singapore. In your opinion, what is the best way to help them? In some countries, certain essential goods are subsidised, but they tend to be abused. Is there a better way to give the help, and prevent abuse?

REPLY
Here are some ways to help the low income people:
1. Pay them an adequate wage
2. Encourage them to save, and help them to get a higher return
3. Help them to avoid debts and paying high interest
4. Keep down the cost of essential goods (but not through a subsidy)
5. Help them to get access to eduation and health care, paid through taxation

Transfer savings into CPF special account

Hi Mr. Tan,

I am contemplating transferring my CPF-OA funds over to CPF-SA to earn more interest.
However, I am concerned that if I transferred too much over, I may not have the minimum OA amount at retirement for withdrawal. Besides this, what other withdrawal restrictions is likely to happen for such a case of large OA-to-SA funds transfer?

REPLY

It is better to transfer to SA to earn higher interest rate. The SA can be withdrawn during your lifetime. If you have excess amount in SA over the minimum sum, the balance can be withdrawn at that time.

Personal insurance

Dear Mr. Tan,

I read that it is important to get a H&S plan althought our employer do cover us ? Since we may not work for the same employer next time. Plus, a H&S plan is more important than a Critical Illness plan ?

REPLY

Read this FAQ:
http://www.tankinlian.com/faq/choice.html

Agent prefer to sell ILP

A, an American living in Singapore, recently bought some properties and was looking for insurance. He turned to his friend, B, who works in the insurance industry, to help him out.

B recommended that A purchases term insurance, either level term or mortgage protection, as the insurance need was to just cover off the mortgages. B drafted a letter up on behalf of A, requesting term quotes to the top 10 insurance companies in Singapore.

A received quotes for unit linked investment plans from all the companies, and some companies stated they didn't sell term, or that they didn't know what "level term" was. A & B decided to follow up with company X, as they had the cheapest quote so far. They were told that "X doesn't offer level term", to which B replied "Yes you do, it's called x-Term". They requested that a senior agent come out and meet with them.

At the meeting, the agent pulled out his laptop and started to show ILP's. Again, A said that he is looking for term. The agent replied that term was not worth his time to do. This would have been the easiest sale in the world, as A was ready to sign on the dotted line right there, no hard sale to do, just fill out the paper work.

They also requested a meeting with company Y. They never showed up, and when they called, they said sorry and never arranged another meeting.

So, A & B decided to get some quotes from the USA, since he's American. The term quotes coming in from the USA, where about 50% cheaper than the quotes from Singapore. Even taking into account that they were for preferred underwriting, and underwriting tests are cheaper in the US, this is a large markup in Singapore. Particularly since Singapore mortality is better than the US!

So the morale of the tale, even if you want to buy term, it is very difficult to do.

Joke: Hazel Wood

After going into Hazel Wood with his girl friend, Fred wrote below the sign which said "Hazel Wood" the words "But Janice wouldn't".

Auction Rate Securities

Citigroup sold auction rate securities to retail investors on the representation that these securities are "cash alternatives". It implies that they are liquid and can be converted to cash at any time. During the credit crisis, there is no liquidity for these securities.

The District Attorney office of New York took up a case on behalf of the retail investors. It negotiated a settlement that require Citigroup to buy back the securities from the retail investors and compensate those who have suffered a loss. Citigroup had to buy back USD $8 billion of these securities.

I wish that our similar action is taken in Singapore on behalf of retail investors that were misled into investing in structured financial products and life insurance products that offer poor value to the investors.

Benefit illustration

Hi Mr. Tan,

I am 20 this year. I had just graduated from diploma and had just starting my first career. Being the breadwinner of the house, I think having a insurance/policy will be safer. I am currently thinking which type of policy should I take. However I am kind of confused. After reading through your website and blog, I get exposed to more information which I neglect previously. However there are still several question which i will like to clarify with you.

Is cash value equivalent to surrender value Where can I fine the cash value in my benefit illustration ? What is gross yield and net yield? Where can I find the gross yield and net yield in my benefit illustration ?

REPLY
Cash value is the same as surrender value. The gross yield is the yield that the insurance company expects to earn by investing your premium. This yield is not guaranteed. The net yield is the yield that you can earn (not guaranteed) after the charges have been deducted by the insurance company.

You should ask the insurance agent to show you these figures in the benefit illustration.

Due to the high charges, a life insurance policy gives a poor yield. It is better to buy a Term insurance and invest the difference in a low cost fund. This is explained in this FAQ:
http://www.tankinlian.com/faq/fptips.html

Insurance for a child

Dear Mr. Tan

I would appreciate if you could advise me on what insurance package/company should I take up for my new born son. I'm overwhelmed by the different insurance packages and companies in the market.

REPLY

Read this FAQ
http://www.tankinlian.com/faq/childlife.html

Joke: The wife wanted to tell it herself

The posh dinner party has been a great success until, over coffee, one of the guest decided to tell a detailed blue joke.

The host was appalled, "This is an outrageious joke. How do you tell this story before my wife!"

The guest replied, "I's sorry. I did not know that you wife wanted to tell this joke herself.

Business ethics

I write about honesty and business ethics in this article:

http://theonlinecitizen.com/2008/08/business-ethics-%e2%80%93-honesty-while-making-profits/#comment-16764

posted in
www.theonline.citizen.com

Profiteering

Source: Wikipedia

Profiteering is a pejorative term for the act of making a profit by methods considered unethical. Business owners may be accused of profiteering when they raise prices during an emergency (especially a war). The term is also applied to businesses that play on political corruption to obtain government contracts.

Some types of profiteering are illegal, such as price fixing syndicates and other anti-competitive behaviour, for example on fuel subsidies (see British Airways price-fixing allegations), or restricted by industry codes of conduct such as aggressive marketing of products in the third world such as baby milk (see Nestlé boycott).

Overcharging

Source: Wikipedia

Overcharge is an economic term that refers to the difference between an observed market price and a price that would have been observed in the absence of collusion. The latter is often called a "but-for price" or a competitive "benchmark price".

When collusion is not in use, such as by privately-owned businesses, overcharge is considered as a markup of the observed market price for the sole profit of the business and in some states is considered illegal, similar to profiteering and price gouging.

An overcharge may be expressed as a mark-up on the benchmark price, or it may be divided by the observed market price. When the benchmark price is equal to the marginal cost of production, as it is in perfect competition, then ratio of the overcharge to market price is the Lerner Index of market power.

When the overcharge is multiplied by the quantity purchased, it becomes the monetary injury or damages incurred by a buyer of goods sold by a cartel.

Touting

Source: Wikipedia

In British English, a tout is any person who solicits business or employment in an importune manner (generally equivalent to a solicitor in American English).

A ticket tout is someone who engages in ticket resale for more than the face value of the ticket. In recent years some British ticket touts have moved into Internet ticket fraud.

According to the American Bar Association, touting is where a person advertises, promotes, or otherwise describes a security for sale without disclosing that the person is being paid to do so.

An example would be a person who frequents heavily touristed areas and presents himself as a tour guide (particularly towards those who do not speak the local language), but operates in on behalf of local bars, restaurant or hotels, being paid to direct tourists towards certain establishments.

In a similar fashion a tout could be someone who, acting upon his own initiative, loads or unloads the baggage from a bus, then demands payment for his services from the passengers.

In gambling parlance, a tout is a person who sells sports betting information to bettors.

Illegal to tout and overcharge

I read a newspaper report that taxis now put up a sign "It is illegal for electronic stores and tailors to tout and overcharge".

What is touting? Are financial products being marketing at MRT stations considered as touting?

What is over-charging? Many financial products have excessive charges that give poor value to consumers.

Will it be illegal for financial institutions (i.e banks and insurance companies) to tout and over-charge for their financial products?

Why only go after electronic stores and tailors, when the overcharging in financial products is 10 times or more?

Investing in Foreign Currency

A few readers have asked my views about investing in AUD due to its recent drop. It is difficult to make a judgement on the trend, due to its volatiity. Even foreign currency traders find it difficult.

Here are some general tips about investing in foreign currencies:
http://www.tankinlian.com/faq/foreign.html

Premium buses

Some people are willing to pay a higher fare to get a better seat in an airplane. They are called first class and business class. We can have the same arrangement for a bus.

Read more about this concept in:
www.singaporepublictransport.blogspot.com

Joke: Passed by the manager

Notice in a foreign hotel: The water in this hotel is hygienic. It has been passed by the manager.

Freely negotiated fees

To: Consumer Association

The Competition Competition has mandated that fees should be freely negotiable. The apply this requirement to doctors and property agents.

The Commission think that this is to the benefit of consumers. It is likely to work the other way. If fees are freely negotiated, and the standard and scope of service is not clearly defined, consumers can be put to a disadvantage. The industry players (i.e. doctors and property agents) are more knowledgeable about the playing field and will be able get away with higher charges, as consumers are not aware about the market.

A better approach is for the Commission to get the industry association to define a few standard services and require the providers to advertise their fees for these services.

I hope that the Consumer Association can look into this matter.

Taxi without driver

Imagine that you can board a taxi that is driven automatically (i.e. without a driver) and take you quickly to your destination, without any traffic congestion.

This is called a PRT. Read about this concept in
www.singaporepublictransport.blogspot.com

Joke: Black or white

The American from Alabama was in a coffee shop of an expensive hotel in London.
Waiter: How do you like your coffee
American: I like it like my woman, strong and sweet.
Waiter: Black or white?

Personal Accident Insurance

Hi Mr. Tan

I currently have SAFRA Essential Term (http://www.income.com.sg/insurance/safraterm/ ) and SAFRA Living Care ( http://www.income.com.sg/insurance/safracare/ ) policies.

Effectively, the two policies cover Death, TPD, the 30 major CI, and hospitalization.

In addition, as a employee of my company, I am covered for basic medical expenses incurred for seeing a doctor.

I have an agent from NTUC trying to sell me personal accident insurance. In your opinion, is there any further benefit to me for taking this up?

REPLY

A personal accident policy is low cost and is useful to supplement the cover under your life policies. If the total sum assured under your life policies is not adequate, you can buy a personal accident policy to supplement the coverage. The annual premium to cover $100,000 should be less than $80 for most occupations.

Key man insurance

Dear Mr. Tan,

My friend bought a Prulink product for himself many years back. The company paid the premium. He is the one of two directors and shareholders of this company. This insurance is purchased under the keyman policy. He is the insured person and the company is named as the owner of the policy.

Unfortunately, my friend met with an accident and is paralysed. The insurance paid out S$800,000. Cheque was issued to the company.

Should this money belong to the company or should it be paid to the insuree? Can this money be held at the company since it was paid by the company and was purhcased as a key-man policy? Or, can this money be construed as gratitous payment to be paid to the family member immediately?

REPLY
It depends on the agreement between your friend and the company. If the company took the policy and pays the premium, the company is the owner. The compnay has an insurable interest in the key man of the company, as the disability of the keyman can cause some loss of profit to the company.

If the company has an agreement with the keyman to pay the proceeds to the keyman or his family, then the payment should be made according to this agreement.

Rights Issue

Dear Mr. Tan

I would like to seek your invaluable adivce on the upcoming rights issue offered by X. Do you think it is a good investment? What actually is a rights issue?

REPLY

If a company wishes to raise additional capital, it offers a rights issue to its existing shareholders. The price is usually lower than the current market price of the shares.

Let me give an example. A company has 10 million shares. It is now trading at $3. The company needs raise an additional $10 million in capital. It decides to issue 5 million shares at $2 to the existing shareholders. Each shareholder is allowed to buy 1 share for every 2 shares that they now own.

Many shareholders will take up the new shares because it is offered at a price ($2) lower than the current market price ($3). After the rights issue have been completed, the share price may drop below $3 due to the dilution of new shares issued at $2.

If the shareholder does not wish to invest in the new shares, the shareholder can sell the rights in the market. The value of the rights depend on supply and demand and is likely to be around $0.30.

I am not able to give an specific comment about the rights issue of X.

Joke: Ring bell with elbow

A: Would you like to come to my house-warming party on Saturday?
B: Where is it
A: 6 Chestnut Drive. Please ring the bell with your elbow.
B: Why can't I ring with my finger?
A: You're not coming empty handed, are you?

Double coverage under Medishield and private Shield

Dear Mr. Tan

Being a old timer with Income, I know that you are always helping the policy holders with your valuable knowledge. I have a problem now and hope that you could give me your advice.

I switched from CPF MediShield to IncomeShield Plan B in year 2002 with the payment deducted from my MediSave account annually.

In Year 2007 I subscribed to Enhanced IncomeShield Rider on top of the IncomeShield Plan B. The Rider's was cash payment as required. In view of saving the MediSave account fund with better interest rate, I changed the payment mode for my IncomeShield to cash payment as well in September 2007. As I was not free to make payment on the due date and Income had comfirmed via email that the payment due date has 30 days' grace period as usual. Hence, I made the payment about 1 or 2 weeks later.

To my surprise, when I got my CPF Statement of Account, I realised that my MediShield had reactivated with the deduction of MediShield payment from my Medisave account. I queried CPF on this and was told that this is the usual practice that when the payment was not made on the due date for IncomeShield the MediShield would be reactivated.

I wish to have your advice of whether this is double insured and whether there is any benefits of more coverage when I make a claim or this is totally overlapping of the same coverage. I heard that now CPF's MediShield has better coverage than other similar plans, hence I don't know whether I should terminate which one to save my unnecessary additional payment.

Could I appeal to Income for the reimbursement of the IncomeShield payment for not informing me this consequences which result to my additional incurred cost.

REPLY

You can ask NTUC Income to help you to sort out this problem. You should NOT pay two premiums for the same coverage. NTUC Income should have notified CPF that you are covered under Incomeshield (by cash) and prevent the re-activation of Medishield.

If this is not possible, you should ask NTUC Income to refund your premium for Incomeshield, in full. It is all right to be insured on Medishield only.

All the best.

Vitamin Account

My friend invested SGD 40,000 in a Vitamin Account offered by a bank. This is a structured product. The total payout for the past 3 years is 4.1%. The current value is 89.5%. The investor lost 6.4% for the past 3 years. During this time, the stockmarket showed a positive gain.

Lesson: Avoid all types of structured product, even if it is capital guaranteed. They are likely to give a poor yield if you keep it to maturity (5 years). If you terminate it before maturity, you are likely to suffer a loss.

Read this FAQ:
http://www.tankinlian.com/faq/sinvest.html

Cyber Defamation Law

South Korea plans to introduce a Cyber Defamation Law to regulate Internet freedom.

The new law is intended to deal with harmful Internet messages and to improve security and stem false information. It will bring the online medium in line with its tradtional counterparts.

Some measures being proposed are:
1. Suspend sites that go beyond limits
2. Require people posting their comments to use their real names

I believe that these measures are necessary. I have always used my personal name, in posting views on the Internet.

Financial advice

My blog aims to educate the public about financial matters.

I do not give specific advice to any person. If you want advice, you have to find a financial adviser.

You can get information on the list of FAs regulated by MAS by visiting the MAS website at http://www.mas.gov.sg/. under "Financial Institutions Directory".

Here is the specific list:
http://www.mas.gov.sg/fi_directory/index.html

What is a financial planner?

Q4: Does MAS regulate all financial planners? What is the difference between a financial planner and a financial adviser?

A: MAS regulates firms and persons that give advice on investment products to consumers. MAS does not regulate tax and estate planning activities.

Under the FAA, only firms licensed as a FA and firms that are exempt FAs can use the term "financial adviser". This helps you identify whether you are receiving financial advice from an entity regulated by MAS. MAS does not restrict the use of titles such as "financial planner", "financial analyst" or "financial consultant". You should be aware that persons who use such titles may or may not be regulated by MAS. You can get information on the list of FAs regulated by MAS by visiting the MAS website at www.mas.gov.sg. under "Financial Institutions Directory".

This advice, and other useful tips, can be found in this webpage:
http://www.moneysense.gov.sg/publications/guides_publications/Consumer_Portal_FAAGuide.html

Comparing yields on policies taken from two insurers

Dear Mr. Tan

I wish to seek your advice as to whether I am getting a fair share of the maturity sums I obtained from two policies maturing with two different companies.

For a 25 year term endowment policy with sum assured of $15,000 with AIA, I was paid the maturity sum of $30,271.95 which was $5,233.05 short of the projected amount in their original quotation when the policy was first taken up in 1983. On my appeal, they paid a further $2,469.63 making it a total of $32,741.58.

As for the NTUC Income Education Policy with a sum assured of $10,000 for a 20 year term, I was paid the maturity sum of $19,432.50 which was $2,137.50 short of the projected amount in their original quotation first taken up in 1988.

I have appealed to NTUC Income to pay the sum as projected originally but they have rejected this. They did not exercise understanding and flexibility as did AIA.

What I cannot understand is its agents have been telling Singaporeans that they charge lower premium and makes higher payout mainly becaused NTUC Income is a co-operative as against commercial Insurance companies like AIA, Prudential and Great Eastern. Instead, I now find AIA to be more compassionate, understanding and flexible while NTUC Income does not even bother to consider my appeal.

I seek your kind understanding and assistance on this matter. Hope you can advise whether what NTUC Income claims about giving me a better yield as compared to AIA is true.


REPLY

The yield on the AIA policy is 4.69% p.a. (25 years) and the yield on the Income policy s 5.44% (20 years). The yield from Income is better than AIA, although the policy was taken for a shorter period. In both cases, the yield has been satisfactory, as you get more thn 4.5% p.a.

AIA
25 year policy,
Premium: $57 monthly
Maturity benefit: $32,742
Yield 4.69% p.a.

Income
20 year polcy
Premium: $44.30
Maturity benefit: $19433
Yield 5.44% p.a.

Joke: Record your gossip

Frank Smith bought his wife an answerphone. His wife recorded this message, "This is the Smith residence. Unfortunately, Mrs. Smith is out, but you can leave a message. Please start your rumour or gossip after the tone. "

Change in business culture of banks

Dear Mr. Tan,

I witnessed the changes in the banking industry first hand. When I joined a bank in 1989, bankers were well regarded even though our salaries were not as high as today. Integrity was the most important quality, as we are given the responsibility to look after depositors' money.

Banking is a business where the product is easy to sell, as we are giving out money and many people need a loan from the bank. Bankers must put the depositors' interest above sales.

The bank will assess your character and your technical skill sets. Once you are selected to join the bank, it is a privilege. If you are selected to be a credit manager you have arrived as the bank has empowered you to give loans. You have a long term career with the bank.

Foreign exchange dealers were there to support the lending business and not there to gamble or speculate on the bank's balance sheet.

Investment bankers are not allowed to take in public deposits. They start with a clean page every day. In essence, they were brokers, they have to hustle to make a living. No qualms about misleading investors. However they were highly paid but they put their money back into the firm as they were partnerships. That acts as a check to their excesses.

Later when they became listed companies, they took even more risk with other peoples money. Inevitably, all the commercial bankers wanted to be investment bankers as they are so well paid.

Allowing commercial banks to become investment banks is a recipe for disaster, as they have the balance sheet and public deposits to gamble with and have access to a large retail franchise to exploit. I never thought I will live to see the day when banks are selling their credit cards in Raffles Place like tourist touts. We sink to a new low when we out sourced it to a third party.

Where is the bank culture now ? Greed is acceptable. Well paid, short term careers is the order of the day because someone else can pick up your mess. Any way you are paid more than if you have worked longer with the institution.

Continue life policy after migration?

Hi Mr. Tan,

My mother is a big fan of your blog and she's been nudging me to seek your advice on my NTUC Income Life Policy Insurance.

I would be going to look for work in Sydney and looking to stay there. Should I terminate my policy and get back my money? Should I continue feeding this policy?

REPLY

In the globalised world, it is quite easy to continue your existing policy in Singapore, even if you live overseas.

You should decide on your existing life policy based on the future yield. Generally, I advise a person to continue an existing life policy, as they have already incurred the upfront charges. Going forward, the policy should be able to give a fairly satisfactory return.

You can ask your insurer to quote you the cash value now and in 5 years time for you to make a decision.

Read this FAQ:
http://www.tankinlian.com/faq/exist.html

For your future financial planning, you should read this FAQ: http://www.tankinlian.com/faq/fptips.html

All the best.

Can newspapers be trusted ?

In the past, newspapers could be trusted to tell the truth. They were objective in their reporting and were not driven by commercial consideration.

This laudable practice has changed in recent years. It is now quite common for newspapers to print articles that give a favorable slant to their big advertisers.

At one time, these articles were printed under the headline "Advertorial". This was intended to warn the readers that the article was contributed by the advertiser and that the newspaper did not verify the statements in the article.

Nowadays, the label of "advertorial" has disappeared. Some journalists are engaged to write a story for a big advertiser. The article has to be approved by the advertiser, in return for a big advertising budget.

This is how some newspapers get advertising revenue to cover the large expenses and to make good profits for their shareholders. This is necessary for the commercial success of the newspaper, and is now more important than independent and honest reporting.

Logic9 (Sudoku)

I am surprised that Logic9 on my website is one of the most frequently visited. It rank second to my FAQs.

http://www.tankinlian.com/logic9/

There are many other websites offering Sudoku puzzles, but it seems that my website has some attractive features. They are:

1. Can play online
2. Easy to play
3. Can play 4 levels
4. Option to choose flowers and letters, instead of numbers.

I shall be updating the website to have more puzzles.

Enjoy.

Joke: race horse telephoned

John had a restless night and keep on calling "Eva, darling" in his sleep. His wife Joan asked him who Eva is.

John replied that she was his favourite race horse. His wife accepted the explanation.

On returning home, he found his wife furious. He asked why. She replied "Your race horse telephoned today".

Advice on Financial Planning

Hi Kin Lian,
I have read your articles in your website and found that they were very informative and also gave us very good advices.

I would to find out do you provide financial planning for us. If you do, I would like to seek your advice.

REPLY
I do not give specific financial planning advice. You can read the FAQs in my website and decide for yourself.

Read the FAQ on "Financial Planning for the Young". It tells you how much to set aside for your retirement and how to invest in a low cost fund. You can read the FAQ on "Personal Insurance" to decide on the type of low cost insurance that you need.

Land Banking Scam

Hi Mr. Tan,

I've just read your blog on land banking scam and though I would share a email that I sent to ST a while back when they had a relatively positive article on land banking back in 2007. I feel ST has not been as investigative as they should have been and many times, have articles that doesn't give a complete picture of investments , almost to the extend that it would appear they dare not provide any additional information or view other that so called "experts" with vested interests.

LETTER TO STRAITS TIMES JOURNALIST

I wonder if you have done a proper investigation into the whole land banking issues, especially about companies like X since there has been numerous discussion about scams by them in the internet ? A simple search on the internet will throw up lots of information about such scams and how these scams works even if the titles or funds are put into escrow until the sales completed.

Your article by not addressing such issues does a great dis-service to the general public. I hope that ST will follow up with the investigative style that expose the previous NKF and that that has made us Singaporean proud of ST.

http://mywealthplanner.wordpress.com/2006/10/28/profitable-plots-investing-in-land-banks-1/

While I have tried to put reply to this article in the forum, I feels that this is insufficient for those readers that do not make use of the internet as much.

I would appreciate if yourself or your editor could look into this and do a proper follow up articles. And in view of the large amount of money changing hand just because of a simple article like this . I've also got calls from various companies trying to sell the land banks ideas and doing some "talks" over this weekend and having read your articles, I'm wondering if the timing of these calls is co-incident or deliberately timed to be after your article.

Exessive exposure?

In portfolio management, it is important to spread the investments and avoid having large stakes in certain investment. This is called concentration risk.

A stake of more than 5% is considered high. A better level should be not more than 3%.

I am somewhat surprised to read a report in Bloomberg about the following investments:

> GIC invested $18 billion in UBS and Citibank, representing 6% of its portfolio of $300 billion
> Temasek invested $5 billion in Merill Lynch, represented 5% of its portfolio of $100 billion.

Perhaps the total portfolio managed by GIC and Temasek is more than the amounts indicated. If not, the above investments would be considered as excessive.

Joke: Temperamental

Tom: Ther's one word that describes my wife: temperamental.

John: In what way?

Tom: She's fifty percent temper, and fifty percent mental.

Buy ID7 from Business Center

Dear Mr Tan,
I am a recent graduate and have been in the job market for about a year now. I would like to thank you for your advise with regards to insurance and fianncial planning which have been very insightful. I have had many friends over the past year who have tried to sell me ILPs from the various insurance agencies. Your blog has truly been a good guide in making the right decisions.

I am interested in the flexilink plan and ID7 plan from NTUC. Could you please refer me to NTUC Income agents who are still willing to offer these plans? I had written directly to the NTUC business centre with regards to my interest in ID7, but I had not received any reply from them.

Your advise is much appreciated.

REPLY
I suggest that you visit the business center and talk to a salaried consultant. You should insist on ID7. Do not allow them to sell you another product.

Investing in the stock market

Hi Mr. Tan,
I have limited savings every month ($100 to $200) but I want to invest in the stock market. Is it advisable to invest thru poems share builders plan ? Details at http://www.poems.com.sg/FinancialServices/sbpintrod.asp?value=sbp

REPLY
You can invest through POEMS.
It is better to invest in a well diversified fund, i.e. the STI ETF.
Read these FAQs:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/investown.html

Arguments against a Minimum Wage Policy

The following arguments have been advanced against a "minimum wage policy" in Singapore:

1. Our business will be uncompetitive and will move to other countries
2. This policy is difficult to enforce, specially for small businesses
3. Our locals will be costly and lose jobs to foreign workers in Singapore
4. This policy is against free market principles.
5. The low wage workers are entitled to Workfare supplements
6. It will increase unemployment

Do you agree with these arguments? Are there reasons to support a minimum wage policy?

Joke: A present from the wife

A: Where did you get this nice suit?

B: It was a present from my wife. I came home unexpectedly early from the office the other evening, and there it was - hanging over the back of a chair in the bedroom.

Dual Currency Investment

A consumer was persuaded by the bank to invest in a linked-currency product, or also called a dual currency investment. It is explained in this FAQ:
http://www.tankinlian.com/faq/duali.html

He asked me to explain why this product is to the disdvantage of the consumer.

The actual product is quite complex, so it is not easy to understand, and not easy to explain. It involves the use of spot rate and target rate, and the practice or terminology may differ from one bank to another.

I will give a simplified example. Suppose you have SGD 100,000. If you keep it on 1 month deposit, you can earn interest rate of 1.2% p.a. If you buy a AUD-linked product, you may earn say interest at 6% p.a. The difference of 4.8% in interest rate will give you 0.4% for one month.

Suppose that there is a 50% chance that AUD will appreciate by 1% in a month, and 50% chance that it will depreciate by 1%.

If AUD appreciates by 1%, you will not get this gain as you have already been paid the additional 0.4% interest. If AUD depreciates by 1%, you have suffered a loss of 0.6% (after deducting the additional interest of 0.4%).

Why face the risk of losing 0.6%, when your gain is only 0.4% with similar probability?

In real life, there is a risk of making a larger loss of more than 1%. The currency could depreciate by 5% in a month. You will suffer the risk of this large loss, without the benefit of a similar gain, as your actual gain is capped at 0.4%.

The bank officer tells you, "If AUD drops, you can keep AUD and wait for it to recover." This is a misleading advice. You have actually suffered a loss and if you keep it longer, you suffer the risk of a bigger loss.

Look at it from another angle. Due to the arrangement, you had to buy AUD at the earlier price when you could buy it 1 month later at 1% less. So, you have suffered a loss of 1% on AUD and after deducting the 0.4% additional interest, the net loss is 0.6%.

Conclusion: The terms of the dual currency investment are set by the bank in their favor. These terms are usually unfavorable to the consumer. It is best to avoid this type of structured product, as they are structured to your disadvantage.

Avoid Dual Currency Investments

Hi Mr. Tan,
I refer to your FAQ on dual currency investment. I'm also being asked by my bank to invest in such type of investment - SGD/AUD.

I'm really waiting for the AUD to drop (or SGD to improve), to transfer my funds from SGD to AUD and send it to Australia. The bank said, since you're waiting, why not invest in this product.

My question after reading your example is, when would I stand to lose (you mentioned if the currency is converted to the linked currency). I don't quite understand when I would make a loss (my risk).

I understand that I can earn the interest if the SGD rate drops; I understand that I can earn if the AUD rate improves and my currency is converted at the agreed target rate. Either way, it's just whether I earn more or earn less, but I'm still earning, right?

Please give an example if it helps better explain how I will lose on my initial investment?

REPLY
I advise people to avoid the linked currency products. My reasons are set out here: http://www.tankinlian.com/faq/duali.html

Joke: 15 wives

Claude: How many wives have you had?
Fred: About fifteen - only one was my own

What the Financial Adviser is expected to do

Q7: What can I expect a FA representative to do when he recommends an investment product to me?

A: A FA representative must take all reasonable steps to:
1. Determine your investment objectives, risk tolerance, financial situation and investment experience;
2. Ensure that the product he recommends is suitable for you, taking into account the information you gave; and
3. Explain to you why the product he is recommending is suitable for you.

You should provide complete and accurate information to ensure that the FA representative is able to recommend a suitable product for you.

This advice, and other useful tips, can be found in this webpage:http://www.moneysense.gov.sg/publications/guides_publications/Consumer_Portal_FAAGuide.html

Unit trusts and ILP

Dear Mr. Tan,
I am trying to find a suitable investment product. I go to a bank, it sells me unit trusts. I go to an insurance company, it sells me ILPs. Can't insurance companies sell units and bank sell ILPs as well?

REPLY
Banks already sell ILP for insurance companies. These products have the same high charges and give poor value to customers.

Insurance companies do not sell unit trusts. They prefer to sell ILPs which allow them to pay high commissIon to their agent and earn a high profit margin.

Joke: A keen fisherman

I was watching a funeral the other day and upon the coffin lay a fishing rod, a reel and a fishing basket. I said to the fellow next to me: "He must have been a very keen fisherman?"

The man turned to me and said: "He still is. He's going straight to a fishing match after they've burried his wife."

Avoid participating policies

Dear Mr. Tan,
I have several policies with X. I received a letter showing a cut in the bonus rates, to be compensated by higher rates of special bonus. But the rates of the special bonus for my different policies are quite different. How do I know if I am getting a fair rate of bonus?

REPLY
I am also quite confused with the different rates of bonus on my policies. More importantly, I find that my participating polices have still not reached the breakeven point after being in force for more than 10 years. I suspect that they have not distributed a fair rate of bonus, in spite of the attractive yield earned on the fund over the past ten years. I have raised this matter with X, but they keep giving me unsatisfactory replies.

My advice to the public is: Never invest in any participating life policy, including whole life policies where the premiums is paid for10 or 20 years. Here are the reasons:

1. The distribution cost is high and can take away up to 2 years of your savings. That is a lot of money to be given away.

2. You will not get a fair rate of return, as the insurance company will pay bonus that are far less than what the investments actually earned

Another actuary, who knows what is going on, told me that he avoids participating policies for the same reason. He will only buy Term insurance. He prefers to invest his savings in unit trusts, as the charges are lower and are transparent.

Personal Automated Transport

Do you like a new type of transport that operates like a taxi, at low cost and does not need a driver? Read about it in:
www.singaporepublictransport.blogspot.com

Difference between two statements

What is the difference between these two statements:

statement 1
sum of liability in respect of each policy of the participating fund - $X

statement 2
total liability in respect of all the policies in the participating fund - $X

Definition of integrity

Source: Wikipedia

In discussions on behavior and morality, one view of the property of integrity sees it as the virtue of basing actions on an internally-consistent framework of principles. This scenario may emphasize depth of principles and adherence of each level to the next. One can describe a person as having integrity to the extent that everything that that person does derives from the same core set of values. While those values may change, their consistency with each other and with the person's actions determine the person's degree of integrity.

Some commentators stress the idea of integrity as personal honesty: acting according to one's beliefs and values at all times. Speaking about integrity can emphasize the "wholeness" or "intactness" of a moral stance or attitude (harking back wittingly or unwittingly to the etymological parallels of the word in the Latin intactus, meaning "untouched"). Relevant views of wholeness may also emphasize commitment and authenticity. Structural integrity in engineering derives from this concept.

Some regard integrity as a virtue in that they see accountability and moral responsibility as necessary tools for maintaining consistency between one's actions and one's principles, methods and measures, especially when an expected result appears incongruent with observed outcome.

Investment charges

An anonymous reader wrote:

"I received this letter my company's 401K provider, It was supposed to convince me to sign up with AdviceTrack, and give them another half-percent of my retirement funds so that they could manage my investments for me.

The chart, however, isn't very convincing. If I continue to manage my funds myself, I end up with $76,564 a year. If I let their experts manage my funds for me, I get a whopping $67,619 - or, $9,000 less. Glad I'm not an expert."

http://thedailywtf.com/Articles/The-Investment-Experts.aspx

Lesson: This anonymous reader did read and understand the brochure, which gave honest information. He decided to invest on his own. Many people may not be aware about the charges and sign up to use the advertised service.

The same situation applies to many people who buy high cost life insurance and structured financial products.

Liability and cash value

The MAS website contains the annual return submitted by insurance companies. Row 5 of Annex 1 K – Policy Liability of Participating Fund reported a figure as “sum of liability in respect of each policy of the participating fund”.

From the description, I presume that this total figure is obtained by adding up the individual figures applicable to each participating policy. I hope that this statement means what it says.

You can write to your insurance company to ask for:

1. the individual liability for each of your participating policies
2. the cash value for the same policy
3. the difference between these two figures

For example, if the liability for the policy is $30,000 and the cash value is $25,000, is it fair for the insurance company to keep $5,000 as additional profit, when they have already deducted their expenses, mortality charges and profit over the years, in arriving at the liability of $30,000. Are policyholders being cheated?

If a customer has $30,000 in the bank and the bank report it as the liabilty to the company, the bank is required to pay out the full amount to the customer on withdrawal. I believe that the same principle should apply to an insurance company.

Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board(IASB). The following is a quotation from IFRS Framework:

> A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits/

Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the IASB. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.

Joke: a committee

The last time I sat on a committee, we were presented with a plan which had two alternatives. We therefore narrowed it down to eighteen possibilities for further discusison.

Land banking

A friend told this story to me.

Singaporeans love land. They have seen the price of land increase from $3 psf to $300 psf over the past 50 years. As they missed this wonderful investment, they are ready to jump at similar opportunities beyond Singapore.

Some entrepreneurs found a way to meet this demand. They choose a familiar city in Canada or USA. They are able to buy a big plot of land far away from the city, at a very low price. They divide the land into plots of marketable size and mark up the price by 10 times or more.

They employ a marketing company to sell these plots to Singaporeans. The marketing company can a large commission, maybe 30% or more, from the sale price. Many consultants love to sell this product and earn big commissions.

There is no way that the investor will know that the land is in the wilderness, with no road access, or facilities like power or water. They do not know the real value of the land, except the promise of the marketer that no investor had sold the land at a loss. (Actually, there is no transaction at all, as there is no investor willing to buy the plot from the original investor).

What is this investment called? It is called "land banking".

National Day 2008

National Day is approaching. We celebrate National Day on 9 August. I will be joining my friend for a visit to an orphanage.

What does the 5 stars of our national flag mean to Singaporeans? You can read their views in:
www.theonlinecitizen.com. You can also give your views.

Dealing with a Financial Adviser - what to look out for

(5) Be careful of verbal promises and guarantees of high returns. Never rely on verbal promises from your FA or its representative. Anything that sounds too good to be true probably is. Make sure that you understand what is guaranteed and what is not, and insist on written confirmation from your FA on any guaranteed returns or benefits.

This advice, and other useful tips, can be found in this webpage:
http://www.moneysense.gov.sg/publications/guides_publications/Consumer_Portal_FAAGuide.html

Financial advisers

COMMENT POSTED IN MY BLOG

Seriously in Singapore, we do not need so many Financial Agents, we only need 1 Independent Financial Agent (IFA) per 1,000 population. If Singapore have a population of 4.6 million, then we only need 4,600 qualified IFAs. However, if I am not wrong, the number we have is a five-figure. Anyone can tell us how many Financial Agents in Singapore?

In Singapore, we have 1.6 doctors, 0.3 dentists and 4.8 nurses/midwives per 1,000 population, but the number of Financial Agents in Singapore is more than these numbers combined.

Not everyone need them, those first timers in Financial Planning, and those with a high net worth asset may need them.After going through Financial Planning with a IFA and also going through a good Financial education, many of us should be able to handle our own Financial status ourselves.

The government should make "Personal and Family Financial Planning" as a module compulsory for all Final year ITE, Polytechnic and University students, and also those going to ORD from their National Service. They have to pass a written and practical test. These are the people who need such education the most. Another module that I suggest that must be made compulsory and they have to pass a written and practical test is "Relationship, Marriage and Family Planning" :-)

Yong Kiat

Joke: I remain

A landlord wrote to one of his tenants, asking him if he wished to renew the lease of the premises he was occupying. He received this brief answer: "Dear Sir, I remain, Yours faithfully."

Accounting liability

A life insurance company has to file an annual report that shows the total of the "liability" on each individual policy. I believe that they pay a cash value that is much lower than the reported "liability". Is this fair? What does "liability" really mean?

-----------------------------------------------------

In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

> They embody a duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services or other yielding of economic benefits, at a specified or determinable date, on occurrence of a specified event, or on demand;

> The duty or responsibility obligates the entity leaving it little or no discretion to avoid it; and,

> The transaction or event obligating the entity has already occurred.

Liabilities in financial accounting need not be legally enforceable; but can be based on equitable obligations or constructive obligations. An equitable obligation is a duty based on ethical or moral considerations. A constructive obligation is an obligation that can be inferred from a set of facts in a particular situation as opposed to a contractually based obligation.

Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board(IASB). The following is a quotation from IFRS Framework:

> A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits

Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the IASB. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.

High cost of advertising

I met a friend at a function. He told me that he had all his policies with Income previously. Recently, he decided to buy a life annuity from Great Eastern. He did not like what was happening in Income recently, with the high cost of advertising and the change in bonus structure.

I told him that Great Eastern may not offer a better deal, compared to Income. But, he was quite sure about his decision.

Financial adviser wants to help people

Hi Mr Tan,

I just come accross your website, when I m doing my study for my Module 5 of CMFAS exam and try to look for more information regarding Insurance.

I wanted to become a Financial Advisor, because I thought it is a good prospect job as it can earn income and can help people or their family when they are sick or after they passed away.

I never come accross to become insurance agent, until I made a claim for for my surgery from private Medishield and found that insurance is quite good.

Furthermore, I have read thru Module 5 and Module 9, from what the text book write and information giving, it seem insurance company really help people to save and be prepared when they need protection.

From Module 5, found that MAS did stated in rules and regulations as well as guidelines for FA to follow. Well this is good, we really collect client's info, analysed, and recommend based on the clint's needs.

After reading your blog, and after knowing what is cost of distribution and effect of deduction, I started to doubt my decision.

I would like to ask some questions:

1) It is all high cost finance products is not good?
2) Do you think it is a good idea to do saving/invest thru Insurance?

Mr Tan, I will be very appreciate if you can give comments to my decision to become insurance agents or share your experieces with us or my fellows friends. I want to earn money but knowing that(君子爱财,取之有道) a person earn the money in proper manner. I want to help people and educate people how to save and get protection when they need (this is what I want too)

Lastly, the company which sending me to training is Y. I think there are many people like me who is thinking that agent can help people and earn money. But I hope you can explain to us the actual and the reality of this world and market and what are the ways is the correct, if we want to become insurance agent.

REPLY

If you sell insurance for Y, you can earn high commission, but your customers will get a poor yield.

I advise consumers to buy term insurance and invest in a low cost fund. They should avoid high cost insurance products, such as whole life, endowment and ILP.

Read the FAQs in my website,
www.tankinlian.com/faq

Joke: Count the legs

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

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

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

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

How to improve the traffic flow at CTE

My friend has a suggestion. Read:

www.singaporepublictransport.blogspot.com

High charges for ILP products

Which insurance companies have the highest charges for ILP products?

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

http://www.askdrmoney.com/Ins_ILP_RP.htm

Life annuity with capital protection

Dear Mr. Tan,

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

REPLY

You can read this FAQ to understand the annuity, so that you can make the right decision:
http://www.tankinlian.com/faq/life.html

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

http://www.tankinlian.com/faq/termd.html

Difficult to time the market

Hi Mr. Tan,

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

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

Read my FAQ at www.tankinlian.com/faq "Investing your savings".

Improve public transport in Singapore

Read the suggestions here and give your views:

http://theonlinecitizen.com/2008/07/an-express-alternative/

http://singaporepublictransport.blogspot.com/

Did you buy a high cost ILP?

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

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

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

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

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

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

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

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

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

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

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

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

Joke: A lawyer sleep in the barn

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

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

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

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

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

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

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

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

Raymond T

Low return for 10 years

Dear Mr. Tan

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

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

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

4 months to settle a claim

Dear Income

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

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

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

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

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

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

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

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

With sincere thanks for resolving dispute.

P

Become sales oriented and may tell lies

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

Reply: I do not know the answer.

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

Reply: It should be quite safe.

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

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

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

How to get a good deal on life insurance

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

http://newpaper.asia1.com.sg/columnists/story/0,4136,167015,00.html

http://www.tankinlian.com/drmoney/

Minimum wage in USA

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

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

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

Financial Planning Tips

Read the relevant FAQ in:
http://tankinlian.com/faq/

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

Get ready for the hard times

Dr. Money advised readers to get ready for the hard times. High inflation may be here to stay.

http://newpaper.asia1.com.sg/columnists/story/0,4136,165866,00.html

http://www.tankinlian.com/drmoney/