Editor
Today Paper
I refer to the letter from Dr Vincent Chia Wei Meng entitled "The numbers tell the story" (Today, 4 Oct 2007).
Dr Chia argued that life annuity is a disadvantage for the poor. He quoted studies that showed poor people have a shorter life expectancy, compared to people who are better off.
This is probably correct, but in a general sense. There are poor people who are healthy and can live longer. It depends on each individual.
If a person knows that his or her health is poor, and is like to have a shorter life expectancy, then this person should avoid buying a life annuity, or should buy a life annuity that provides a partial refund on early death.
The majority, who are in normal good health for their age, should buy a life annuity.
Poor people need the pooling of longevity risk in a life annuity more than the wealthy. The wealthy people have sufficient money to last for more than a lifetime and do not need to pool this risk.
The advantages of a life annuity outweigh the perceived disadvantage, even for poor people. Here are the benefits:
* They do not have to manage their money. The annuity provider takes care of this matter.
* By investing in an annuity fund, the annuitant can get a better return on their money, compared to investing on their own
* They participate in the pooling of longevity risk.
Those who are very poor probably do not have sufficient money to buy a life annuity that can give an adequate income for a life time. With a small capital sum, they can only buy a small payout. They will still need some financial assistance to top up this small payout.
Tan Kin Lian
Thursday, October 04, 2007
Presenting views in "words"
Someone posted in comment in my blog: "How can your views benefit other people, if you just write in words"?
Apparently, this person thinks that I should be using more tables, graphs and pictures.
Here is my reply:
1. Do do present tables, in a simple format.
2. I am not familiar in creating graphics using other software. But I will try to learn how. It may take some time.
3. I hope that there are sufficient people who find my views in "words" to be useful.
Apparently, this person thinks that I should be using more tables, graphs and pictures.
Here is my reply:
1. Do do present tables, in a simple format.
2. I am not familiar in creating graphics using other software. But I will try to learn how. It may take some time.
3. I hope that there are sufficient people who find my views in "words" to be useful.
Investing in Foreign Currency Deposit
Hi Mr Tan,
I like to ask about Foreign Currency Time Deposits.
What are the risks involved if I put my money in Foreign Currency Time Deposits?
MY REPLY:
The risk is in the currency exchange rate.
For example, if you put $10,000 in New Zealand dollars for 1 year to earn 7% interest (compared to 2% in fixed deposit in S$), you will earn 5% more in the interest for 1 year.
At the end of 1 year, if the NZ$ depreciated by 5% against the S$ during the 1 year period, you are in a neutral position (compared to keeping in S$ deposit).
If NZ$ depreciates by more than 5%, then you will lose on the NZ$ deposit.
If NZ$ depreciates by less than 5%, you will still be better off, by investing in NZ$ deposit.
If NZ$ appreciates against the S$, you will get double benefit, first from the higher interest rate (i.e. difference of 5%) and second from the higher exchange rate.
The challenge is to know what is the likely trend of the NZ$. No one can help you to make this decision. The currency experts do not know, especially in 1 year's time. I do not know.
If you study the trend of NZ$ over the past few years, you will find that it has the potential to move up or down 10% within a short period.
The same remark applies to investing in any other foreign currency deposit.
I like to ask about Foreign Currency Time Deposits.
What are the risks involved if I put my money in Foreign Currency Time Deposits?
MY REPLY:
The risk is in the currency exchange rate.
For example, if you put $10,000 in New Zealand dollars for 1 year to earn 7% interest (compared to 2% in fixed deposit in S$), you will earn 5% more in the interest for 1 year.
At the end of 1 year, if the NZ$ depreciated by 5% against the S$ during the 1 year period, you are in a neutral position (compared to keeping in S$ deposit).
If NZ$ depreciates by more than 5%, then you will lose on the NZ$ deposit.
If NZ$ depreciates by less than 5%, you will still be better off, by investing in NZ$ deposit.
If NZ$ appreciates against the S$, you will get double benefit, first from the higher interest rate (i.e. difference of 5%) and second from the higher exchange rate.
The challenge is to know what is the likely trend of the NZ$. No one can help you to make this decision. The currency experts do not know, especially in 1 year's time. I do not know.
If you study the trend of NZ$ over the past few years, you will find that it has the potential to move up or down 10% within a short period.
The same remark applies to investing in any other foreign currency deposit.
Wednesday, October 03, 2007
Insurance agents
There is a regular visitor who post repeated comments in my blog to attack insurance agents.
I allowed some comments to be posted - to reflect his point of view. But I had to block some comments that are unfairly critical.
I allowed some comments to be posted - to reflect his point of view. But I had to block some comments that are unfairly critical.
Real estate agents
There is a news report about moves to upgrade the professionalism of real estate agents. This follows complaints from the public about the unethical practices of some agents.
Will it work?
It is difficult. But it is a step in the right direction.
Is there another alternative?
Yes. We can educate the consumers and empower the consumers (owners or buyers of the property) on the steps to take to handle the transcations on their own.
When there is a real alternative, i.e. do it yourself, then the real estate agents will become be more efficient and bring down the cost to the consumers.
Will it work?
It is difficult. But it is a step in the right direction.
Is there another alternative?
Yes. We can educate the consumers and empower the consumers (owners or buyers of the property) on the steps to take to handle the transcations on their own.
When there is a real alternative, i.e. do it yourself, then the real estate agents will become be more efficient and bring down the cost to the consumers.
Compensation for injury
There is a report in the newspaper today about the foreman who died during the collapse of Nicoll Highway. The widow had to sue the employer, who agreed to pay $410,000. The incident occurred 3 years ago.
Victims of traffic accidents face a similar problem in Singapore. They have to engage a lawyer to claim compensation for the injury. This can take a few years, and result in high legal cost, which can take away about one third of the award.
In some countries, there is a faster way to assess compensation for injuries and death.
It is based on a no-fault system and awards compensation based on the actual expenses and loss of earnings. It applies to accidents at the workplace and on the road.
The award is given quite quickly and the amount is generally fair.
It is useful to have a similar system in Singapore. Actually, the workman compensation system in Singapore is based on this approach. We can extend its operations to cover a larger scope and also to pay higher compensation.
Victims of traffic accidents face a similar problem in Singapore. They have to engage a lawyer to claim compensation for the injury. This can take a few years, and result in high legal cost, which can take away about one third of the award.
In some countries, there is a faster way to assess compensation for injuries and death.
It is based on a no-fault system and awards compensation based on the actual expenses and loss of earnings. It applies to accidents at the workplace and on the road.
The award is given quite quickly and the amount is generally fair.
It is useful to have a similar system in Singapore. Actually, the workman compensation system in Singapore is based on this approach. We can extend its operations to cover a larger scope and also to pay higher compensation.
Monthly income benefit
Dear Mr Tan,
You mentioned in your blog that a decreasing term is suitable as an insurance protection.
While I agree with you, I think it may not be the best solution if the beneficiaries are not financially savvy to handle such a big amount of money. It may be better if they to receive a fixed monthly stipend.
NTUC Income has an Income Benefit rider under the Family Insurance Plan, which pays out a monthly benefit when the life assured dies. Do you think this is an equivalently good financial protection as well?
MY REPLY:
I agree with you that a monthly income benefit is more suitable for dependants who are not able to handle a large lump sum.
You mentioned in your blog that a decreasing term is suitable as an insurance protection.
While I agree with you, I think it may not be the best solution if the beneficiaries are not financially savvy to handle such a big amount of money. It may be better if they to receive a fixed monthly stipend.
NTUC Income has an Income Benefit rider under the Family Insurance Plan, which pays out a monthly benefit when the life assured dies. Do you think this is an equivalently good financial protection as well?
MY REPLY:
I agree with you that a monthly income benefit is more suitable for dependants who are not able to handle a large lump sum.
Tuesday, October 02, 2007
Single premium endowment invested in CDOs
Dear Mr Tan,
I like to get your advice on this investment product: a single premium investment linked plan with annual payout of up to 4% over a 5 year term and return of 100% of the principal invested at maturity. Also get additional life insurance coverage of up to 110% of the amount of investment.
It invests into a Collateralised Debt Obligation (CDO) tranche of corporate credits with credit rating of AA by S&P's. Min. single premium of $5K.
MY REPLY:
Are you sure that the return on maturity is guaranteed? Who provides the guarantee?
Usually, when the issuer states that the money is invested in a certain class of assets, there is a statement that, in the event of default of the assets, the investor has to suffer a loss. You should check this point carefully.
Collateralised debt obligation are a risky class of asset now, even if they are rated as AA. Some of these assets have depreciated in value.
I like to get your advice on this investment product: a single premium investment linked plan with annual payout of up to 4% over a 5 year term and return of 100% of the principal invested at maturity. Also get additional life insurance coverage of up to 110% of the amount of investment.
It invests into a Collateralised Debt Obligation (CDO) tranche of corporate credits with credit rating of AA by S&P's. Min. single premium of $5K.
MY REPLY:
Are you sure that the return on maturity is guaranteed? Who provides the guarantee?
Usually, when the issuer states that the money is invested in a certain class of assets, there is a statement that, in the event of default of the assets, the investor has to suffer a loss. You should check this point carefully.
Collateralised debt obligation are a risky class of asset now, even if they are rated as AA. Some of these assets have depreciated in value.
Private settlement for motor accident
A taxi driver met with a minor accident. He was at fault.
His taxi company advised to make a private settlement with the other party (also another taxi), as the claim is minor. He has taken photographs of the damages.
The other party delayed in giving a reply. Later, he sent a bill of $3,500 to the taxi driver. This was excessive.
The taxi driver was in a dilemma. He did not make a claim under his insurance, as he intended to make a private settelemnt. The claim of $3,500 was excessive.
I advised him to lodge a claim under the insurance, although he reported a few days late. He only need to explain the circumstances of the delay.
Lesson: If you wish to make a private settlement, you have to get an agreement on the spot. Both parties have to sign the private settlement form. If there is delay, you should abandon the private settlement and let the insurance company to handle it. They are more experienced in this matter.
His taxi company advised to make a private settlement with the other party (also another taxi), as the claim is minor. He has taken photographs of the damages.
The other party delayed in giving a reply. Later, he sent a bill of $3,500 to the taxi driver. This was excessive.
The taxi driver was in a dilemma. He did not make a claim under his insurance, as he intended to make a private settelemnt. The claim of $3,500 was excessive.
I advised him to lodge a claim under the insurance, although he reported a few days late. He only need to explain the circumstances of the delay.
Lesson: If you wish to make a private settlement, you have to get an agreement on the spot. Both parties have to sign the private settlement form. If there is delay, you should abandon the private settlement and let the insurance company to handle it. They are more experienced in this matter.
Advice on buying insurance
Some people asked for my advice on the need to buy certain types of insurance. I told them to ask the following questions:
1. What is the risk that is being insured?
2. What is the amount that can be payable under the insurance?
3. What is the chance of a claim arising?
4. What is the premium payable for the risk?
Look at the ratio of claim to premium for the class of insurance. If the ratio is 70%, then the insurance is giving good value to the customers. If the ratio is less than 50%, then the insurance company is making excessive profits, i.e. they are over-charging the premium.
You should also consider the following:
1. Do you really need the insurance?
2. Can you carry your own risk, e.g. for the deductible under medical insurance?
1. What is the risk that is being insured?
2. What is the amount that can be payable under the insurance?
3. What is the chance of a claim arising?
4. What is the premium payable for the risk?
Look at the ratio of claim to premium for the class of insurance. If the ratio is 70%, then the insurance is giving good value to the customers. If the ratio is less than 50%, then the insurance company is making excessive profits, i.e. they are over-charging the premium.
You should also consider the following:
1. Do you really need the insurance?
2. Can you carry your own risk, e.g. for the deductible under medical insurance?
Life annuity with no refund
Many people think that it is better to buy a life annuity that provides a refund. They were not aware that there is a cost to the refund. An annuity with a refund can pay out 10% to 20% less in payout, for a given invested sum.
An annuitant who bought a "with refund" annuity previously asked me if it is possible to convert to a "no refund" annuity. She has no dependents and wish to have a higher payout.
I expect, in the future, more people to opt for the "no refund" annuity.
An annuitant who bought a "with refund" annuity previously asked me if it is possible to convert to a "no refund" annuity. She has no dependents and wish to have a higher payout.
I expect, in the future, more people to opt for the "no refund" annuity.
Monday, October 01, 2007
Tips on investing $60,000
Hi Tan,
I have about 60k in my ordinary account and no dependents. Taking into
consideration of the new interest rate government had annouced, kindly advise what alternate investment I should buy in order to increase wealth.
MY REPLY:
Please read the FAQS in
http://www.tankinlian.com/faq/
I have about 60k in my ordinary account and no dependents. Taking into
consideration of the new interest rate government had annouced, kindly advise what alternate investment I should buy in order to increase wealth.
MY REPLY:
Please read the FAQS in
http://www.tankinlian.com/faq/
Tips on investing SGD 1 million
Questions:
If you have more than SGD 1 million to invest, is it good to have a renown private institution to help you? Can I get a safe 8% return? What do you recommend I do?
MY REPLY:
Read this FAQ before you talk to a private banker.
http://www.tankinlian.com/faq/august.html
If you have more than SGD 1 million to invest, is it good to have a renown private institution to help you? Can I get a safe 8% return? What do you recommend I do?
MY REPLY:
Read this FAQ before you talk to a private banker.
http://www.tankinlian.com/faq/august.html
Actuarial Education
Dear Mr Tan,
I am 23 years old. I wish to seek your advice on overseas actuarial education. Which countries in the world provides high quality actuarial education relevant to Singapore context?
As I plan to work in Singapore after my studies, which are the specialized areas of actuarial science I need to be familiarized with? Examples like General Insurance,
Life Insurance, Health Insurance, Pension or Investment and Finance.
MY REPLY:
I suggest that you contact the Singapore Actuarial Society. You can get their contact from their website:
http://www.actuaries.org.sg/resources.htm
They should be able to answer your questions better than me. They are more up-to-date on these matters.
Wish you all the best in your future career.
I am 23 years old. I wish to seek your advice on overseas actuarial education. Which countries in the world provides high quality actuarial education relevant to Singapore context?
As I plan to work in Singapore after my studies, which are the specialized areas of actuarial science I need to be familiarized with? Examples like General Insurance,
Life Insurance, Health Insurance, Pension or Investment and Finance.
MY REPLY:
I suggest that you contact the Singapore Actuarial Society. You can get their contact from their website:
http://www.actuaries.org.sg/resources.htm
They should be able to answer your questions better than me. They are more up-to-date on these matters.
Wish you all the best in your future career.
Sunday, September 30, 2007
Avoid "quick return" investments
Dear Mr Tan,
I am enjoying reading your Blog almost everyday. Great sharing and learn alot for you.
Someone actually approached me regarding to one of the MLM opporitunity. (Details deleted) Not sure whether have you hear of the company. But many people are investing their Broadband Wireless and Properties Projects.
The reward is excellant. For 1-GP investment (SGD 11800), the return is SGD 1200 per month.
Expecting to break-even within 8 month and get the extra Customer Rebate for the following months up to SGD 19200, Beside that within the 4 to 5 month, they will also give out USD 60000 bonus within 5 years.
Is this a good Investment opporitunity ?
MY REPLY:
I always avoid this type of "high return" investment. I also advise people to avoid investing in anything that looks too attractive, and where they do not really understand the business model. Some of these types of investments are scams.
I am enjoying reading your Blog almost everyday. Great sharing and learn alot for you.
Someone actually approached me regarding to one of the MLM opporitunity. (Details deleted) Not sure whether have you hear of the company. But many people are investing their Broadband Wireless and Properties Projects.
The reward is excellant. For 1-GP investment (SGD 11800), the return is SGD 1200 per month.
Expecting to break-even within 8 month and get the extra Customer Rebate for the following months up to SGD 19200, Beside that within the 4 to 5 month, they will also give out USD 60000 bonus within 5 years.
Is this a good Investment opporitunity ?
MY REPLY:
I always avoid this type of "high return" investment. I also advise people to avoid investing in anything that looks too attractive, and where they do not really understand the business model. Some of these types of investments are scams.
Courteous drivers in Brussels
The car drivers in Brussels are courteous. They give way to pedestrians on the road. They are patient. They drive slowly.
Why are drivers in Singapore impatent? Perhaps it is the heat or the stress of life!
Why are drivers in Singapore impatent? Perhaps it is the heat or the stress of life!
Saturday, September 29, 2007
Picturesque Brugge, Belgium
I visited the old city of Brugge in Belgium. It has been described as "picturesque". It has many buildings built in the olden style but with bright colours. They are best appreciated on a boat trip along its canals.
Brugge has been described as the Venice of the West. It is a favourite among tourists to Belgium.
Brugge has been described as the Venice of the West. It is a favourite among tourists to Belgium.
Tips for young parents
If you wish to have some ideas about what to buy for your baby, you can visit this blog.
My daughter Su Ling shares her experience about raising her daughter Vera. She scouts the internet for products that are suitable for Vera.
Here are some ideas about furnishing your home.
Here are my tips on financial planning for parents to save for their child's education.
My daughter Su Ling shares her experience about raising her daughter Vera. She scouts the internet for products that are suitable for Vera.
Here are some ideas about furnishing your home.
Here are my tips on financial planning for parents to save for their child's education.
Avoid over-insurance for medical bills
Dear Mr Tan,
I am insured under a Shield plan. But my agent said that the coverage is not sufficient. Should I buy another medical insurance plan to cover the gaps?
REPLY:
It is better to select one medical policy to provide the coverage that you need. If there are gaps, you can pay for the balance out of pocket. You need insurance only to cover the big bills. There is no need to cover every dollar of the bill.
If you buy two insurance policies to cover your medical bill, you are paying twice the premium. But you do not enjoy the full coverage from the two policies.
You can only claim under the second policy for what is not paid under the first policy, even though you have paid the full premium for the second policy.
For every $100 of premium, the average claim payout is about $70. If your policy pays for only part of what is covered (due to over-insurance), you may be getting (say) only $30 worth of claim. This is not worth buying.
This restriction against over-insurance applies for medical insurance where you can only claim for what you have spent. It does not apply in the case of life insurance, where you can claim in full under several insurance policies.
I am insured under a Shield plan. But my agent said that the coverage is not sufficient. Should I buy another medical insurance plan to cover the gaps?
REPLY:
It is better to select one medical policy to provide the coverage that you need. If there are gaps, you can pay for the balance out of pocket. You need insurance only to cover the big bills. There is no need to cover every dollar of the bill.
If you buy two insurance policies to cover your medical bill, you are paying twice the premium. But you do not enjoy the full coverage from the two policies.
You can only claim under the second policy for what is not paid under the first policy, even though you have paid the full premium for the second policy.
For every $100 of premium, the average claim payout is about $70. If your policy pays for only part of what is covered (due to over-insurance), you may be getting (say) only $30 worth of claim. This is not worth buying.
This restriction against over-insurance applies for medical insurance where you can only claim for what you have spent. It does not apply in the case of life insurance, where you can claim in full under several insurance policies.
Look after your Medisave account
Many people think that Medisave is somebody's else money. They are delighted when they have the chance to take out from Medisave.
Actually, Medisave is your own money. If you keep in Medisave, you earn an interest rate of 4% plus 1% on the first $20,000. This is an attractive rate of return.
Here is my tip:
1. If you have money, pay by cash. Keep your Medisave intact, until it reaches the cap.
2. Your savings in Medisave earn an attractive interest rate. It is better than the interest paid by your bank.
3. You will need your Medisave when you grow old. When you are young, do not use it carelessly.
4. Do not spend too much money to buy expensive Shield plans using your Medisave. Choose a more economical plan.
Actually, Medisave is your own money. If you keep in Medisave, you earn an interest rate of 4% plus 1% on the first $20,000. This is an attractive rate of return.
Here is my tip:
1. If you have money, pay by cash. Keep your Medisave intact, until it reaches the cap.
2. Your savings in Medisave earn an attractive interest rate. It is better than the interest paid by your bank.
3. You will need your Medisave when you grow old. When you are young, do not use it carelessly.
4. Do not spend too much money to buy expensive Shield plans using your Medisave. Choose a more economical plan.
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