Saturday, February 17, 2007

I like your blog, because it is plain

Dear Mr. Tan Kin Lian,

I am 56 years old and I thought I already knew a lot about insurance and investments until I started reading your very very useful postings on the same subject. Many thanks for educating & humbling me all over again. The contents and tips are very useful.

I also hope that you will continue to keep your Blog very plain and simple like the existing ones we are reading here...just like Google's. I express this hope because I wish to continue visiting your web site.

I notice that many other web sites become too fanciful and distracting with lots of irrelevant stuff or attempts to impress the visitors as the individual or company grows bigger and more successful - so much so that it becomes a pain to go straight to the relevant contents. I usually give up visiting when web sites become overcrowded.

I hope yours will continue to be plain, simple but very very readable and useful, so that we can continue to enjoy your growth and success, which is without doubt given your wonderful background and experience.

Wishing you good health and everything beautiful!


I have completed my last day in NTUC Income

Yesterday was my last working day in NTUC Income. I have said good-bye to my colleagues.

After the Lunar New Year, I will be embarking on a new lifestyle. I shall work from my home initially.

I may set up a company at a later date.

And I shall continue to update my blog ......

I need to be protected for dread disease

Dear Mr Tan,

Recently, I have been thinking of buying a life policy, my reasons as below:

I have a wife and 2 very young children and thus I need coverage for them. Sum assured should be $200,000. I would like to have returns for money invested.

Reading your BLOG, you would say to buy a decreasing i-term insurance for myself so as to protect them.

But if I'm hit by 30 major illness, the i-term would not help as I would need lots of money to see doctor whch is very expensive. I would have to buy a living rider and that cost a lot of money. Using the above policy, there is no return and my money will go down the drain.



Dear KS

I suggest that you ask the insurance adviser to give you the quote for the following:

Living policy to cover $200,000
Decreasing term (extended to cover dread disease) for $200,000 for 30 years

If you take the difference in premium and invest it to earn 6% per annum (not guaranteed) in a large, well diversified low cost fund), you will find that the total invested sum with gains will exceed $200,000 at the end of 30 years.

If you can get the figures for me, I can calculate the projected maturity value for you.

Wish you all the best for the Lunar New Year.

Tan Kin Lian

How to save for the future

Mr Tan

I have just started work and earn a salary of $2,000. I find it difficult to save, as there are so many expenses to take care of. How much should I save, and how?

My reply:

You should aim to save 10% to 20% of your salary. You can save by cutting down on your luxury expenses, such as mobilephone bills, fashion and entertainment.

You have to meet your mandatory expenses, such as:

* pay off your education loan
* travelling, food and other expenses needed in your daily work
* monthly contribution to the household expenses

This allows you a balance to set aside for your savings.

You can use the remainder for your luxury expenses.

For your savings, you should invest in a large, well diversified fund with low charges. NTUC Income offers this option. You can also look at some mutual funds or unit trust that offer this facility.

Friday, February 16, 2007

Low Fertility Rate of 1.2

Singapore has a low fertility rate of 1.2, one of the lowest in the world. At this rate, we will not be able to maintain our current population. There are insufficient Singaporean babies to replace those that will pass away.

How can we encourage a higher birth rate? We have tried various measures, including incentives and penalties, over the past twenty years. They failed.

We need to think of a new way. If we look at some of the countries that are successful, such as the Sandinavian countries, we may find some clues. We have to be prepared to try a new approach, instead of keeping to our old mindset.

I shall give my views in a few days time.

Thursday, February 15, 2007

Growth Policy and Growth Fund

A customer told me that he is confused between the Growth policy and the Growth fund.

I agree. It is unfortunate that we use the same name for two different products.

Here is the difference:

* the Growth policy is a single premium endowment policy
* the Growth Fund is an investment fund which has 70% in equity and 30% in bonds.

Sorry about this confusion. Do take note of the difference.

Early withdrawal of Single Premium Endowment (Growth policy)

A policyholder asked if it is possible to make an early withdrawal under the single premium endowment (Growth policy) and get back the invested sum, with interest.

The Growth policy allows early withdrawal (ie surrender) but it will be based on the cash value.

During the early years, the cash value may be less than the invested sum, as the commision, charges and other expeses are deducted.

After 3 to 5 years, the cash value may be more than the invested sum, giving a modest return.

It is best to keep the Growth policy to its maturity date, to earn a fairly attractive return.

Usually, the charges for a single premium policy is much lower than a regular premium policy. This allows the Growth policy to reach a break even point at an earlier date, ie 3 to 5 years.

The Growth policy also provide some life insurance cover. In the event of death during the term, the total sum assured and accumulated bonus is paid immediately (without any discount). This will be much higher than the invested sum.

Policyholder make monthly withdrawal from the Growth fund

Dear Mr TKL

I'm happy with the arrangements I made recently to buy into more Growth Funds, and sell off some units each month for some steady income, in addition to my two annuities. I'm surprised more people don't do this.

The Growth Fund has been appreciating very steadily so far, and does not have the volatility of the stock market.

Thank you! My agent tells me you provided for this arrangement. Incidentally, how long has the fund been in existence?

Happy New Year!



Dear VS

The Combined Fund (Growth) was launched at the beginning of 2003. Some of our other funds were in existence for over 10 years.

We allow our investor to make monthly withdrawal from the fund. This works almost like a life annuity.

Wish you all the best in the future.

Tan Kin Lian

Single premium endowment

Someone asked for my views on investing a lump sum in a single premium endowment policy. Is this a good plan?

This is how the policy works.

* The insurance company collect a single premium from you, say $10,000
* The money is invested in the life insurance fund
* A small portion of your premium is taken to buy the life insurance cover and meet the expenses (but these are relatively small)
* You will get a guaranteed return on your total savings at the end of the term, say 10, 15 or 20 years
* If the insurance fund earns more than the rate of interest used to calculate the guaranteed return, you can get an annual bonus
* the annual bonus may increase the payout on the maturity rate

The policy is usually able to give you a return of around 3% to 4% on your total investment, if you keep it to the maturity date. This comprise of the guaranteed portion and the non-guaranteed bonus. If you exclude the bonus entirely, the guaranteed return is around 2% per annum. (These figures apply to NTUC Income, and may be lower for other insurance companies).

The name of this product offered by NTUC Income is the Growth plan. It is popular. Over 100,000 people have invested in this policy in past years. You can read more about it in

Other insurance companies offer similar products (under different names) but they usually provide a lower return to the policyholder.

Wednesday, February 14, 2007

Suitable jobs for seniors

I met the CEO of two large organisations in my capacity as chairman of the Center for Seniors, to discuss the feasibility of creating jobs for seniors along the following lines:

* they are paid an hourly rate of $6 or higher, depending on skill
* the job involved providing information and assistance to customers
* the seniors will be trained on soft skills and product knowledge prior to their appointment
* the seniors will work during the busy periods, e.g 4 hours a day
* they will handle first level customer servicing, and refer the difficult tasks to specialists
* the earnings of the seniors will be supplemented by workfare bonus paid by the government
* priority will be given to seniors living near the place of work, to reduce the time and cost of travelling

Both organisations are positive. They are willing to try this concept. It has the potential to create over 100 jobs. If this concept proves to be successfully, there will be many other businesses in the community that can provide similar opportunities.

Moral responsibility of a insurance company

Dear Mr Tan,

I read with interest the recent press stories regarding AVIVA's refusal to pay a woman's medical insurance claim on grounds of a "pre-existing condition" despite her being unaware of it.

Sure, one must always carefully read the terms of contract and contract language that is unambigious would leave little room for doubt.

But I cannot agree with AVIVA's clause because THE key motivation for people taking up insurance is to provide financially for the unexpected! AVIVA's clause though precise, leaves little doubt as to its intention.

At least one doctor has written publicly to suggest what constitutes a "pre-existing condition" is a matter of professional opinion, and there may be serious conditions that are latent.

There is a moral responsibility on the part of insurance companies to its policyholders. Insurance companies should not hide behind the veil of a carefully worded contract to avoid paying a claim.

There have been many cases of fraudulent claims but I am certain health insurance is one area few would like to invoke if one had a choice.

Though I have chosen to write to you in your personal capacity, I always regarded NTUC Income (thanks to your stewardship) as being more "responsible" and it is my hope that your successor will continue your good work.

Kind regard.

Tuesday, February 13, 2007

Provide adequate financial security for your family

You can provide adequate financial security for your family at a very affordable cost.

If you buy a 20 year decreasing term assurance, you can cover $100,000 by paying an ANNUAL premium of only $51 (entry age 25, male) or $103 (entry age 35, male).

If you wish to insure $300,000, you pay only $154 or $309 per year.

At age 25, you pay $0.50 for every %1,000 of coverage. At age 35, you pay $1 for every $1,000 of coverage.

For a female, the premium is about 30% to 50% lower than for a male.

Your premium rate remain the same for 20 years, based on your entry age. If you buy at a younger age, you pay a lower premium for 20 years.

The decreasing term assurance is also available for other terms, for example, 30 years.

Best wishes for the Lunar New Year

I wish all visitors to my blog, good fortune, good health and happiness in the Lunar New Year.

I shall be leaving NTUC Income on New Year's Day. But, I will continue to maintain this blog and educate the public about insurance and financial matters.

Join a Car Pool

My collegue joins a car pool to work every day. The driver lives near her home and drop her at her office on his way to his office. She pays $2 for each trip.

This arrangement has worked for the past five years. They got together through a car pool website managed by NTUC Income at that time.

The Big Trumpet website is now reviving the car pool scheme. You can go to the website to look for a car pool. You can be a driver or a passenger.

Get a contractor to repair the leak

My tenant in my townhouse complained about the leak in the house during the rainy period. My wife arranged for a contractor to view the problem. He sent a quotation for $900.

Initially, I was not sure about the reliabilty of the contractor. Then, I saw in his letterhead, the tagline, "member of NTUC Income Home Service". This gave me the reassurance, as he is required to observe the code of conduct and service standard agreed with NTUC Income.

He got the job.

Do not understand life insurance?

I met a heart specialist last night. When he graduated 20 years ago, he bought a life insurance policy from an agent and paid a large monthly premium. He only knew that the policy was to take care of the security of the family. He did not understand how the insurance policy works and what the benefits were.

This is the typical reaction of many people.

You should approach life insurance in the same manner as you buy other products. Find out:

* what are the benefits
* what is the cost (ie premium)
* what are the offers from similar products in the market
* what other options do you have (ie other products that may suit you better)

You can also learn about insurance from this website,

What to do when your term insurance expires?

I met a retired insurance manager. He told me that he did not like term insurance because, at the end of the term, the policy lapses and he does not receive any more coverage.

I told him the following points:

* you can take a term insurance for 20 years
* at the end of 20 years, your total savings (from other sources) can be more than the insured sum
* there is no need for life insurance when you have accumulated sufficient savings.

He was surprised. He did not know that you can buy a term insurance for 20 years. He thought that it was only available for 3 or 5 years.

The cost of term insurance is very low, about one-tenth of the cost of a whole life policy. If you buy a decreasing term insurance, you get a further 30% to 50% discount.

Find out more about this low cost plan from (look for i-term).

Monday, February 12, 2007

Encourage more people to save for their retirement

Someone told me that the supplementary retirement scheme (SRS) is attractive only to tax payers.

We need a scheme to encourage the low income earners to make additional savings for their retirement.

The only way is to give them a top-up. For every dollar that they put aside in a retirement saving plan, the government tops up with a dollar, up to a certain limit.

I hope that some attractive scheme can be devised to make it attractive for the low income earners and self-employed to save for their retirement. A dollar for dollar matching scheme can go a long way to make it attractive.

Before you go for expensive medical treatment ...

Before you see a specialist for an expensive medical treatment or get treated in a hospital, you should:

* get an estimate from your specialist on the cost of treatment
* call your insurance company's hotline
* check on the amount of your coverage
* get a second opinion (through your insurer) on other suitable specialists

This can save you a lot of money, and avoid paying for expenses that are not covered by your insurance plan.

Tips on Medical Insurance

I wish to give the following tips on how you can save on your medical insurance:

* if your employer now provides medical insurance for you, you do not need any shield plan.

* however, if you wish to have continuation of cover after leaving your employer, you can take a low cost plan now, such as Medishield or a B2 private shield plan.

* you should not waste money on an expensive plan, as you are not likely to claim on it while you are working.

* you need a shield plan only when you are not covered by your employer; you can choose a plan the meets your budget.

* the premium increases when you get older; at that time, you should downgrade to a cheaper plan, eg to cover B2 or B1 ward

Do not over-spend on a shield plan that you do not really need.

You can comment in my blog

Previously, I allowed only registered bloggers to give comments in my blog. I have now opened it to allow any of my visitors to make their comments. I hope to see more views being submitted in my blog.

Sunday, February 11, 2007

My experience on public transport

I visited a friend in town and took a MRT ride bome to Yio Chu Kang station. From there, I took a bus to my home.

This is the first time that I took the bus for this stretch. (Previously, when I travel by MRT, I asked a family member to pick me from the station).

As I am not familiar with the bus route, I asked for directions. A Malay couple, with two young children, were friendly and helpful. They took the same bus, checked on my destination and made sure that I get down at the right stop.

I am quite impressed with the quality of the bus and its facilities. I intend to use public transport regularly, after I leave NTUC Income.

Do not be locked into a poor return

I gave a talk on financial planning on Saturday.

During the question time, a customer asked for my advice. She has been paying premium for many years to an insurance company (not NTUC Income) that provide a poor return. What can she do now?

My reply is that there is nothing much that can be done now. The poor return is due to:

* high commission paid to the agent
* profit to the shareholders

It is quite sad that she has been locked into a long term insurance contract with a poor return.

My advice for the future:

* buy a decreasing term insurance to provide the coverage
* invest in a large, well diversified, low-cost fund

Compare Ideal plan with unit trust

Dear Mr Tan,

What is the meaning of effect of deduction? Does it apply for both unit trust and ILP?

Based on $2,400/yr, if I invest in unit trust, assume 9% annualised gain for 25 yr period, I’ll get back $203,282.

If I invest in Ideal plan, assume 9% annualised gain for 25yr period, I’ll get back only $168,100.

The income bid-offer spread is lower at 3.5% and yet the effect of deduction is about $44,990 compared to unit trust effect of deduction of $11,200.

I’m just a layman doing the calculations. I may be wrong in my comparison.



Dear J,

For the Ideal plan, the effect of deduction include the following:

* advisory fee of 15% for 3 years
* spread of 3.5% on each payment
* annual management fee of about 1%

In the case of the unit trust, you have to calculate the annual charge, trailer fee and other charges (which is more than 1% per annum) to get the comparable figure.

For example, if the unit trust has a spread of 5% and deduct 2% p.a (in annual and trailer fee), you will only get $149,250 by investing $2,400 a year for 25 years (assuming the gross yield is 9% p.a.). This is much lower than $203,282.

Tan Kin Lian

Big Trumpet Folder

Earlier today, I have to search for the name of the mail server used by Starhub. I checked my Big Trumpet folder. It was recorded there under the title, Starhub.

I am now keeping information in the Big Trumpet folder. It comes in handy. It is more convenient, always accessible.

You can create an account and store your personal information in the folders in:

High cost of life insurance products

It can cost you almost 18 months your savings, if you buy a life insurance or investment-linked policy.

If you save $300 a month, the cost (to pay commission to the insurance adviser and the insurance company) can take away $5,400 from your savings. This is far too high.

Many graduates buy an insurance policy to help their friend (who is an insurance agent), without realising the high cost.

NTUC Income has reduced this cost to about 8 months, under our Ideal plan. This means that you can get an additional $3,000 of savings that can earn a return for you for the next 20 or 30 years - amounting to $10,000 or more.

Look into the front end cost. Choose a plan that gives you a higher upfront investment.

Why are financial planners more successful in other countries?

A financial planner asked me, "Why are financial planners more successful in other countries, and more difficult to make a living in Singapore?"

I wish to give a frank answer.

In many countries, the financial adviser can add value by giving advice on how to save tax and benefit from some tax-sheltered schemes. This applies to USA and Australia.

The tax regime in Singapore is straight forward. There are no much tax saving or tax-sheltered schemes. The only scheme is the SRS (supplementary retirement scheme), but it is quite modest.

The best way for a person to save for the future is through a large, well diversified, low-cost fund. Most people will probably benefit by taking this approach, but there is little margin to pay the financial adviser.

The best model for the financial adviser is to give the "no frill" advice and take a small fee. The adviser can earn a larger earning, by serving many customers efficiently.

We should not follow the high cost model in other countries, as they are supported by tax savings (which does not apply in Singapore).

A flexible financial plan

I wish to recommend a flexible financial plan that can be adopted by most people, regardless of their age group.

* regardless of age, a working person needs a flexible saving plan combined with adequate insurance coverage.

* the insurance coverage is needed to replace the income, in the event of death or permanent disability; this can be best bought through a decreasing term assurance; the coverage can be increased, when needed, to keep in line with higher earnings or family commitments.

* each person should save 10% to 20% of the regular earnings in a flexible saving plan, and invested for the long term in a large, well diversified low-cost fund (comprising mainly of equity).

This plan is suitable for a working person, from age 20 to 65. As the investment is to get a long term return, there is no need to worry about "risk profile" - just take a long term view.

The only change is when the person retires. At that time, I suggest that they convert a significant portion of their total savings (say 50%) into a life annuity. The remainder can continue to be invested in the fund.

A good financial adviser will probably give the same advice to you.

Philp Yeo - Lee Wei Ling Debate

My friend asked for my view on the debate between Philip Yeo and Lee Wei Ling. Whose side am I on?

I said, Philip Yeo is right. Lee Wei Ling is also right.

He was surprised. How can I said that both people are right? I told him, "you are also right!".

Philip Yeo advocated a broad based approach - to focus on many areas and find out which present the opportunity. Lee Wei Ling preferred a targeted approach, to focus on niches where we have a competitive advantage.

In tacking my own business issues, I adopt both approaches. I call it, "working at two levels". At the first level, I adopt a broad approach to have a better understanding of the issues, and the areas to work on. At the second level, I focused on the targeted areas.

I am usually able to find the right approach - one that produces the best result.

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