Saturday, May 05, 2007

Investment linked plan under NTUC Income

Hi Mr Tan,

I read with interest your article about saving for children's education. However, you still strike me as a very big fan of insurance despite advocating investments (investment linked plans).

Since there's all the issues with high overheads and commissions, isn't it better for one to invest purely into investments, instead of through the insurance companies such as NTUC?



The investment linked plan from NTUC Income has low front end charge (less than half of the other insurance companies). The annual charge is lower than most unit trusts.

If you study the total cost over 18 years, you will probably find that NTUC Income still give better value (compared to a unit trust).

Are my policies worth to keep?

Mr Tan,

I have 5 life policies. (Details of the policies taken by the policyholder and her children are provided). Are these policies worth to keep?



I suggest that you ask the insurance company to give you the following information for each policy:

1. Total premiums paid to date
2. Cash value now
3. Current annual premium
4. Projected cash value in 10 years time
5. Current sum assured

In general, if you have already taken the policies and have incurred the high front end load, it is better to continue the policies.

The only reason to give up the policies is, if the return for the next 10 years is low, and you are able to buy term insurance (for the same cover) and invest the difference to get a better return.

No need for Medishield insurance

Dear Mr Tan,

I was a civil servant previously. I have retained my civil servant's medical benefits. It allow me unlimited amount for hospital treatment. I have only to 20% of the ward's accommodation charges.

I understand that I cannot made claim from my Medishield Insurance should I be warded, as I am now covered by my current employer as well. Should I discontinue my Medishield insurance plan with NTUC Income.



You are now covered by our current employer. When you retire, you will be covered by the government by life time medical benefits.

In my honest view, you do not really need to have Medishield insurance. I suggest that you cancel this plan and save the premium.

You will have to pay 20% of the ward charges. This is a relatively small amount. You can pay it out of your Medisave account.

Spend less on insurance; invest the rest

Dear Mr Tan,

Now it has always been preach "buy term and invest the difference". But I was thinking term do not cover after the age of 62, where we may need medical or protection more at that age. Hence was thinking we should have at least one living policy?



It is all right to have a living policy to pay for 30 critical illness. You can also buy a medical insurance plan to cover this risk.

Spend just a modest sum for these insurance plans. Invest the difference to earn sufficient money for your retirement needs.

Life Insurance for College Students

I found this story in a book entitled "Insurance Principles and Practices".

Riddle: What group of intelligent people often buy a product they don't need from salesmen using high pressure tactics to convince them that they should borrow money to pay for?

The answer: Collegue students. The product: life insurance.

The author made the following general statements, but also recognised that there were exceptions.

Billions of dollars worth of life insurance are purchased each year by students who would be better off buying other policies or none at all.

Three problems are involved:

* question of need
* sales method
* nature of the policy.

Most college students don't need life insurance. The death of a young person with no dependents create relatively little hardship for anyone.

Many agents who sell insurance on campus lack professionalism. The use of high pressure or fear tactics is the rule. It created a bad impression of students about life insurance.

They sell products that do not meet the student's real needs.

Conclusion: The book was written 20 years ago. I do not know if the problem still exist today?

Talk to LTA

The LTA feedback portal is now quite active. There are several suggestions on improving the tranport system in Singapore.

There were complaints on:

* bad taxi service
* poor public tranport
* congestion on Central Expressway
* ERP charges

There were suggestions on:

* improving the bus and train service
* remove the surcharges on taxis
* feeder buses
* road safety

Some people like the Downtown Lines. But other people think that it is better and cheaper to improve the bus services to support the current rail network.

Different methods of calculating interest

Financial institutions adopt different methods of calculating interest:

* daily balance
* lowest balance in the month
* flat rate on initial loan amount
and other ways.

They apply different methods for different products. Usually, the method is aimed at charging more interest on loans or giving less interest on savings.

This is confusing to consumers. It is also opaque (not transparent) and unfair.

I saw a computer program that offer more than 10 different methods of computing interest.

I hope that financial institutions will adopt a simple and fair method, i.e. interest on daily balance computed on 365 days.

Employment for seniors

I give this suggestion to seniors to get a new job:

* try a part time job, that is paid by the hour
* work near your home
* do not be fussy about the hourly rate
* give the employer more than what you are paid

This require a new mindset by seniors. By accept a part time job, we are not competing with younger people for a full time job. It is easier to get a part time job, as the employment process is shorter.

By working near our home, we reduce the cost and time of travelling.

If we can contribute more that what we are paid, we will be valuable to the employee. The employer will appreciate the value of a senior worker: more patient, able to handle customers, less job hopping.

After some time, the employer will have to raise the hourly rate or offer a full time job to the senior. If not, the next employer will recognise the value of a committed, senior worker.

I strongly agree

The opening sentence of a letter in the newspaper said, "I could not agree more ....".

I have the habit of reading quickly. I was somewhat confused with this statement. I thought that the writer was expressing disagreement.

Normally, I prefer to write in the positive, such as "I strongly agree".

Discrimination in the workplace

There were a few letters and articles written in the newspaper about discrimination in the workplace.

It appears that some employers discriminate against the following:

* female employees
* pregnant mothers
* older workers


These employers take a short term view. Some are small businesses struggling to survive. Others are profitable companies that aim to "increase their shareholder value".

The old practice of "employer welfare" appears to be incompatible with today's world.
We need a new approach.

Perhaps, the cost of maternity should be borne by society, and not the employer. The wages of older workers should commensurate with their productivity and contribution.

If we are paid for what we contribute, we do not near to fear discrimination.

Friday, May 04, 2007

Save for a child's education

1. How much should I save for my child's education?
2. Will the saving be adequate to pay for the total cost of the university education?
3. How should I invest the savings?
and many more.

Read this FAQ

Liability insurance

In many countries, liability insurance is compulsory for those at risk of being sued by third parties for negligence.

They usually cover the drivers of vehicles, those who offer professional services to the public, those who manufacture products that may be harmful, and those who offer employment.

Public liability: This cover individuals and businesses that carries out activities that have the potential to cause physically injury or property damage to third parties.

Product Liability: This cover claims by consumers for injury or damage caused by a faulty or defective product.

Employer Liability: This cover liability that might be imposed on an employer if an employee is injured in the course of his or her employment.

Moral Hazard and Adverse Selection

Insurance allows you to deal with risk through pooling. If one out of 1000 homes will burn each year, each person can contributes to a general fund 1/1000 of the value of his home. The fund will have enough (ignoring administrative expenses) to reimburse those whose homes burn down.

People are willing to pay a contribution to avoid risk. They get nothing if there is no loss. If misfortune strikes, the insurance pay back the value lost in the misfortune.

By changing the costs of misfortune, insurance can change people's behavior. They will make less effort to avoid misfortune. This change in behavior is called moral hazard.

Here are some possible impact of moral hazard: fire insurance encourages arson, automobile insurance encourages accidents, disability insurance encourages dismemberment.

Private insurance tries to keep the insured value of any misfortune less than the value to the insured person. It tries to keep buildings and automobiles insured for less than their true worth. In addition, it is usually against the law to create the misfortune that you are insured against.

If the problem of moral hazard is too great, there will be no insurance coverage for the misfortune.

The insurance industry can also face the problem of adverse selection. People who buy insurance often have a better idea of the risks they face than do the sellers of insurance.

Insurance companies try to minimize the problem of adverse selection. They measure the risk and adjust the prices to match this risk.

Life insurance companies require medical examinations. They will refuse policies to people who have terminal illnesses. Automobile insurance companies charge much more to people with a conviction for drunk driving.

Payment to accident victims

Source: Insurance Principles & Practices, Frederick G Crane

Payment to accident victims are classified as special damages or general damages.

Special damages repay the victim's actual expenses. They include the cost of medical treatment, car repairs and loss of earnings.

General damages compensate for losses that are not directly measurable in dollars, such as the injured person's pain and suffering. They may also include payments for such things as facial scars or the loss of ability to bear children.

Liability insurers pay more for general damages than they do for special damages.

Insure my co-payment

Dear Mr Tan,

I am a civil servant. On my retirement, I and my wife are eligible to receive medical benefits for a lifetime. However, I am required to make a co-payment of 20% for the ward charges. Can I buy insurance for this co-payment?



NTUC Income provides an insurance plan to cover half of the co-payment. In my frank view, you do not need to insure this risk. The co-payment is quite small. You can make the co-payment out of your Medisave savings.

Call me on my mobile

I have an effective way of communicating with people.

I send a pre-set SMS message as follows: "Call me on my mobile XXXX XXXX. Tan Kin Lian".

This allows the other party to know my name, and also to return my call at a convenient time.

If I do not get a return call, I will call that person after 10 minutes. The other party will probably expect my call, due to the earlier message.

Save $600 a month?

Dear Mr Tan

Thank you for posting the FAQ on Save for Your Child's Education.

The projected amount of $52,000 is not adequate. My insurance adviser told me that a good university education can cost more than $200,000 in today's money. With inflation, it will be higher in 18 year's time.

What do you think?



The insurance adviser wants you to buy a very big policy. To accumulate $200,000, you have to save $600 a month, or more. When you buy an endowment policy, maybe 12 to 18 months of your savings is taken to pay the sales charges, including commission to the agent. The total cost can be $7,000 to $10,000. That's a lot of money.

If you can afford to save more, that's fine. Choose a flexible plan that have low charges. This ensure that most of your savings goes to your child, and not taken away as sales charges.

Structured Investment Products

Should you invest in structured products, especially if they provide a capital guarantee?

Read my view in this FAQ

Thursday, May 03, 2007

Car Navigation System

I use the Packard Bell GPS navigation system for my car.

I enter the destination (using road name, building name or postal code). The navigation system guide me along the way and tell me ahead of time, which road to turn into. I can store certain destinations as my favourites, e.g. my home, office or club.

If I have to visit to a new location, I usually ask for the postal code. I also use the navigation system to return home. I find it to be useful at night.

The system has a monitor of about 8 X 6 cm. It is attached to a holder which is fixed to the windscreen. The power is taken from the battery in the car.

I have tried about half a dozen navigation system previously. I found this system to be the best. It is sold for slightly less than $800 in Funan Center.

Sad aspect of market liberalisation

There is a foreign bank who has been very active in creating structured products over the past years.

Some of these products are quite bizzare. They are almost like gambling products. They require the investor to bet on how many investment counters or indices will reach certain levels over a number of years. Even an actuary (like me) cannot calculate the probabilities.

These bizarre products are then marketed by respectable banks to ordinary people, including the financially naive and old folks. These are people who normally keep their money in fixed deposits in the banks.

The banks earn a margin of 5% on the sale of these products. The remaining funds are then passed to the issuing bank. I do not know if the issuing bank managed the funds according to the contract, and if their actions are audited by any independent party.

Nobody is responsible to ensure that terms of these structured products are fair to the consumers. Are they being taken for a ride?

The belief is "let the buyer beware". But the ordinary people did not choose to buy these products. They are being cajoled to invest in these products, often on misleading verbal statements.

Many people have collectively invested billions of dollars into these products, only to get a miserable return or even suffer a loss. During this time, other types of investments earned 50% or more.

This is called "market liberalisation". It is a very sad episode.

Small workshops like the tender system

A few months ago, I visited the small workshops in Ang Mo Kio autocenter. They participated actively in the tender system.

They welcomed me warmly. They were proud to be participating in the tender system. They should me their quality control and other business process.

I wondered? Why did they like the tender system? They had to submit a competitive bid to be awarded.

A market expert told me a few days ago. In the past, the small workshops had to pay a large finder's fee of a few hundred dollars to the tout (usually the tow truck operator) who bring the repair job to them. Sometimes, the tout approach several workshops to see who can give the best fee to them.

After paying the fee to the tout, the workshop has to jack up the repair bill to cover his cost.

By participating in the tender system, the small workshops do not have to go through this hassle. They work out their cost and a fair margin, and submit the tender. By being competitive, they can get a fair allocation of work and make a reasonable margin.

An alternative to Downtown Lines

The government plans to spend $12 billion to build 3 new MRT lines, called the Downtown line.

I wish to suggest another alternative to avoid this heavy investment:

* run more trains on the current lines, say twice the capacity
* have many feeder services to bring commuters to the current MRT lines

This allows the current train service to be improved earlier (rather than wait for 10 years). It will cost only a fraction of the proposed $12 billion.

Better to have a standard taxi fare

The taxi operators are free to levy their charges for the hiring of taxis. This is supposed to promote competition, with the aim of improving service and reduce cost to commuters.

In reality, we get the opposite outcome.

Many people are confused with the various charges and surcharges imposed by the taxi operators.

If you are in a taxi queue, you have to take the next taxi that appears in the queue and accept their price structure. During peak hours and rainy days, it is difficult to get a taxi unless you make a booking and pay a booking fee.

Life is confusing.

In Shanghai, there are many taxi operators, but all taxis have to follow a standard fare. The starting fare is RMB 11 (SGD 2.2) and increases in a standard manner based on distrance. You can telephone for a taxi, and do not have to pay any booking fee.

Whole life policies from NTUC Income gives better return

Dear Mr Tan,

I read some of your blog. You said that the whole life policies have up front charges of up to 18 months of the premium. Does this also apply to the whole life policies sold by NTUC Income? I have bought some of these policies from your agent.



The upfront charges of up to 18 months apply to the other insurance companies.

In the case of NTUC Income, the upfront charges are much lower. This is due to lower commission paid to the agent.

This is why NTUC Income was able to offer a much better return to the policyholders over the past years. For a 20 year policy, the return usually is 20% more, in the case of NTUC Income.

With greater awareness about the upfront charges, I hope that all insurance companies will reduce their upfront charges on their whole life and endowment policies, so that the customer can get a better return on their insurance premiums.

Two views of the stock market

My stock broker sent me two reports of the stock market:

1. sell in May and go away (ie the market will fall)
2. ST index will hit 3,700 in July (ie 10% higher than today)

One of them will be correct. Which one?

Poor return on whole life policies

Someone asked my advice about 3 whole life policies taken about 12 years ago. Two cover death only. One cover critical illness.

My analysis of these policies showed:

* the total annual premium is about $2,700 a year
* after 12 years, the cash value is about 70% of the total premiums paid, ie $23,000
* if he had bought a decreasing term, the premium would cost about 10% only
* if the remaining 90% were invested to earn 5% p.a., the accumulated amount will be about $40,000, ie a difference of $17,000.
* he has obtained a negative return on his policies after 12 years.

NOTE: These policies are NOT from NTUC Income.

Term to 99 years

Dear Mr Tan,

Do you think there is any value of a term life policy that is guaranteed to age 99? I know of a few IFAs who attack term policies which are not guaranteed to age 99; instead they push for whole life or term policies that runs to age 99.



A term to 99 years is like a whole life policy, but it does not have any cash value.

I do not like this plan. You are paying a fairly high premium, but you are not given the right to have a cash value when the plan is terminated. I suspect that this is a way for the insurance company to keep the cash value when the plan is terminated.

I prefer a term policy that expire at age 65. In fact, I think that a decreasing term policy is better.

If you compare the premium between term to 99 years and decreasing term (at 65), you will be able to make a better choice.

Read my faq on "Choice of Insurance Plan"

Wednesday, May 02, 2007

What has Science got to offer?

Dr. Lee Kum Tatt has been an enthusiastic scientist and held many positions in his life. He rose from the ranks from a backroom boy in the laboratories to become founder chairmen of Singapore Science Council and SISIR. He also served on several public and private bodies

Dr Lee share with us what a life in S & T is like in his blog.

Difference between wishful and positive thinking

Dr Lee Kum Tatt has shared his thinking about the difference between wishful and positive thinking. Read his blog.

Power of marketing

Here is an example of the power of marketing, that act against the interest of the customer.

If you are 30 years old, you can insure for $100,000 under a decreasing term plan and pay only $8 a month.

The insurance agent does not offer this product to you. He will tell you to buy a whole life plan and pay $160 a month (ie 20 times of the cost). His marketing pitch is, "if you buy a whole life policy, you can get a return".

The return on the whole life policy is probably 3% per annum.

If you pay for the term insurance separately and invest the difference to earn a modest 5% per annum, you can get 20% more at the end of 20 years. The difference could be higher.

Why does the whole life or endowment policy pay a poor return? This is due to the commission that is paid to the agent. It can take away up to 1.5 years of the premium.

Motor claim by third party

A motorist wrote to complain in the newspaper. His insurer was not willing to contest a claim submitted by a third party through a lawyer. As his insurer has paid the claim, he will lose his no-claim discount. He was not at fault in the accident.

Due to the lax attitude towards setting third party claims, he expects that the insurers will have to be making losses and will increase their premium rates soon.

To solve this problem, we have to tackle the root cause. Here are the key points:

* it is difficult for the insurer to contest a third party claim
* it is one motorist's word against another motorist
* it is costly to investigate the cause of the accident

The solution is to require all motorists to make an immediate report and have the vehicle inspected at an Idac center. If this is not made compulsory, there will always be disputes of this kind.

A few years ago, the insurance companies agreed to implement this requirement. Some insurers dropped out later, for competitive reasons. Others followed.

We need discipline from all parties, for the root cause of the problem to be corrected.

Water for Life

I believe in writing in simple language and straight to the point. I saw an editorial which was written in a more "heavy" language.

I have rewritten it to produce the simpler language below. I hope that the message comes across well.


In Singapore, water is a national security issue. The government has invested in water technologies and made clean drinking water readily accessible for everyone. Singapore is a sterling example of urban water management to the world.

Water is a precious resource that is essential for life and human well-being. Yet, in many parts of the world, clean tap water remains elusive. Globally, millions of people face severe water shortages and children are dying from water-borne diseases.

We must not let the water crisis fall off our attention radar. The problem of water scarcity is comparable, if not more dire, than the energy crisis.

The United Nations has named this decade, The International Decade for Action, "Water for Life 2005-2015". This presents a timely opportunity for the international community to embrace integrated approaches to manage the world's water for the sustainable use of our future generations.

Let us not lose sight of the global water crisis that still threatens to jeopardise the lives of many.

Surrender value of Living policy

Dear Mr Tan

I bought a couple of Living Policy in 1991. The insured sum is S$50k.

1) Do I surrender if the surrender value reaches S$50K?

Reply: If your surrender value reach $50k, your sum assured plus bonus will probably be worth $80k or more. If you continue, you can get the additional coverage as the total sum is payable in the event of contracting a critical illness.

It is better for you to keep the policy. However, if you are able to invest the surrender value to earn a higher return, and you do not need the coverage, you can terminate it.

2) If don't surrender, if contacted terminal disease, do we get surrender value plus Bonus?

Reply: You will receive the total of the sum assured plus bonus, in the event of a dread disease claim.

3) Bonus is useless if one still living and surrender the policy. Am I right?

Reply: If you surrender the Living policy, the cash value of the bonus is added to the cash value of the basic policy.

Financial Tips for the Young and for Seniors

I have written some FAQs containing financial tips for the young and for seniors.

My basic advice is to invest in a large, well diversified, low cost fund for a long period (ie 10 years or more) and earn an average return of 6% to 8% per annum.

Some people have a target to earn 10% to 15% per annum. I think that this is too high. It is also too risky.

I have read a book by John Bogle. He felt that the return on equities in recent years have been too high by historical standards and asked investors to prepare for a period of lower growth. My estimate of 6% p.a. fits into his analysis.

Avoid lock-in investment products

Some financial firms offer a financial product that locks the consumer in for 5, 10, 20 or 30 years. These products include life insurance and structured products.

Often, the terms of these products are not clear to the consumer. This allows the financial firm to make a large margin of profit on the products for many years. The consumer does not know if he is getting a fair deal.

The consumer does not have much choice. If he terminates the product, he will suffer a large loss.

My advice? Do not be locked into a long term investment product. If you need life insurance protection, buy a term insurance policy. Better still, buy a decreasing term insurance policy.

Invest your savings in a unit trust or investment fund that offer low charges. Do not pay a high front end sales charge. Do not pay more than 1.5% in annual charge. Better still, choose an index fund and pay only 0.5%. Maintain flexibility in moving your investments to another fund.

If you have to buy a lock-in product, such as whole life or endowment policy, choose a company that is operated in the interest of policyholders. Do not choose a company that aims to make profit for shareholders, as these profits ar taken from the policyholder's fund.

Read my FAQs

Restructuring of public transport

There is some discussion in the newspaper about the restructuring of the public transport system.

Here are my views:

* The rail system to be managed by one operator, say SMRT. They should be required to put more trains in service. As a monopoly, they have to be more closely regulated on their fares and quality of service (eg reduce waiting time and avoid overcrowding).

* The public bus services should be managed by several operators, in competition with each other, and with MRT.

* Express services should be operated between the major towns

* There should be feeder services for short travel within a town or to reach the MRT station or bus terminals. The licence should be given to many small operators, including individuals.

The aim should be an efficient public transport system, rather than to maximise profit for the operators. The operators can be allowed to make a reasonable margin of profit.

Senior Employment Guidance

The Center for Seniors started a 2 day course entitled "Senior Employment Guidance" today. There were 22 participants.

I presented a 2 hour talk, including question and answer, on "financial planning for seniors". The talk was well received. The participants found it to be very useful.

The paper for my talk is found in faq

My personal asset allocation

Indexfundfan wanted to know what is my personal asset allocation.

At the current time:

* property 30%
* equity 20%
* cash 50%

I have a high proportion of cash, due to my discomfort with the high level of the equity market and the low return on bonds.

My target asset allocation, when the equity and bond market corrects to a lower level, is:

* property 30%
* equity 40%
* bond 20%
* cash 10%

I may have to wait for 1 year to achieve this target allocation.

Refinance your housing loan

My friend had a housing loan where he has been paying interest of about 5% for the past few years.

He found that he could refinance his loan and enjoy a lower interest rate. This will save him a lot of money over the next few years.

Tuesday, May 01, 2007

Capital guaranteed products give a poor return

Many consumers were cajoled into buying capital guaranteed products. They were told verbally that these products have the potential to achieve a specified return.

After a few months, they found that the value of their investment has decreased. Why is this happening? They had approached the people who sold the product to them, but did not get any clear explanation.

Here is the simple truth.

A capital guaranteed product, locked in for 5 years, can earn a total return of about 16% over 5 years (my estimate). Structuring does not increase the yield. It only increases the expenses.

The total expenses, including sales charge, advertising cost, legal fees and annual fees, will take away 10% (my estimate). This leaves the investor with a total return of 6% over 5 years, or about 1% per year.

The value dropped during the initial years, due to the high sales charge (representing about 5% of your invested sum).

These investors have found, after waiting for 5 years, that they got back a miserable return. If they have taken some risk in the structured product, they might have got back a slightly better return (but nothing to cheer about).

If the money was invested in the stock market, the investor would have earned 50% over the past 5 years. If it was invested in capital guaranteed government bonds, the investor would have at least earned 16%.

I am very sad to see so many people receive a miserable return on their investment in structured products during the past years.

Some structured products are good?

Hi Mr Tan

I have been following your blog for a few weeks.

You wrote about the bad features of structured products. In my opinion, not all structured products are bad. There must be some structured products in the market, which are suitable for investors. Do you agree?



I agree with you. Maybe you are right.

So far, I have not come across any structured product that add value to the investor. Most of the products seem to take away value, due to the cost of developing, marketing and structuring the product.

During the past months, many investors have approached me for advice on the structured products that they have bought. They were confused. Why is their investment showing a loss? Will they make a gain?

I studied the structured product. It contains a lot of detailed information, but the key information is usually missing.

Although I am an actuary, I cannot understand the rationale of the product. How can an ordinary person figure it out?

Some of these cases are really sad. Here are people who worked so hard to save money for their future needs. They have been misled into investing in a product that will give a poor return for 3 to 5 years. Some even made a loss.

If I find any good structured product, I will put my money into it. And I will share my experience. (So far, I have not found any).

Discount on motor insurance

NTUC Income offers a discount of 15% to 20% on motor insurance to union members who sign up up under the NTUC. This is a good deal. It is for a limited period only. Do not miss it.

Singapore Dance Theatre - Impressions

The Singapore Dance Theatre presents Impressions. It features three items:

* a new piece called "Negro Y Blanco" - set to music by Bach, Mozart, Eric Satie and Giovanni Battista Pergolesi - and chereograhed by Singapore Dance Theatre's Jeffrey Tan

* a Singapore Premiere of Argentinean choreographer Mauricio Wainrot's passionate "Seasons of Buenos Aires", which is set to Astor Piazolla's mesmerizing tango music

* a re-staging of Jiri Kylian's seminal piece, "Stamping Ground", a study of Aboriginal Australian dance movements.

Each piece is a snapshot of a place in time, a thought in evolution, and a movement in transition. Each piece is an impression, waiting to be explored and enjoyed by the audience.

Performances on May 18 & 19, 8pm, at University Cultural Centre. Tickets at
$48, $38 and $28 from SISTIC 6348-5555 ( or Singapore Dance Theatre 6338-0611.

A salute to the earlier generations!

I received this e-mail from a friend. It is entitled "A SALUTE TO ALL THE KIDS WHO WERE BORN IN THE 1930's 40's, 50's, and 60's"

Here is a section from this e-mail:

We drank water from the tap and NOT from a bottle.

We would spend hours on the terrace under bright sunlight flying our kites, without worrying about the UV effect which never ever affected us.

We shared one soft drink with four friends, from one bottle and NO ONE actually died from this.


I came from this generation. But I want to be frank. I think some of my generation probably died from diarrhoea, BUT IT WAS PROBABLY NOT REPORTED.

Making the incredible credible

It is not easy for many to deal with abstracts. Many find it more interesting and rewarding to deal with tangible things like money and what money can buy.

However we also need people who can handle the abstracts. Read the story in Lee Kum Tatt's blog about how to make the incredible credible.

Tan Kin Lian

Renting your car

If you are travelling overseas for a few weeks, what do you do with your car?

Some owners rent out their car to a stranger.

This could be dangerous. The stranger could use the car for illegal purpose. The renting is not allowed under the insurance policy. If there is any accident, your insurance policy will not cover you.

It is all right for you to let your car be used by a family member or a friend, with your permission.

But you should not let it be used by a stranger under a renting arrangement (unless you get the agreement of the insurance company to cover it).

How to control spam mail

Sent to 2 newspapers.

30 April 2007


The government is introducing legislation to control unsolicited advertising mail, also called "spam" mail. It will require the advertisers to indicate "ADV" in the mail and to allow an option to "unsubscribe".

Some people are sceptical about this measure. They think that it will not work. It may encourage the advertisers to increase their mailing, as it is now specifically authorised.

I think that this new measure is a step in the right direction. It should help control the unsolicited mail to a certain extent.

I like to suggest an additional measure:

* require the advertiser to register with an approved website
* the opt-out list should be managed by the website
* the advertiser has to comply with the opt-out list managed by the website
* the website can require the advertiser to pay a fee for this service
* the government can approve a few of these websites.

I believe that this measure will help to further control the proliferation of unsolicited mail.

Tan Kin Lian

Feeder service in Hong Kong

I found this information from Wikipedia. I have simplified it for easy reading.

The Kowloon-Canton Railway Corporation operates 20 KCR feeder bus routes to complement its rail systems.

The routes provide access to and between many KCR stations for thousands of passengers everyday. The fleet comprises of 143 air conditioned buses and provide service for 19 hours every day.

The integrated fare system allows the rail passengers who use Octopus cards to enjoy the free feeder bus services that link many housing estates to the stations.

Role of an agent

An agent play a useful role under the following circumstances:

* where you are the principal
* where you pay the agent an agreed commission to carry out a specified duty for you
* where you pay the agent out of your profit.

When you buy an insurance product from an agent who is paid by the insurance company, you are placed at a disadvantage as a customer:

* you are not familiar with the product
* you have to depend on the advise of the agent (who is pay by the insurance company)
* the agent may offer you a product with a high commission, which is added to your premium.

It is better for you to choose a product, such as term or accident insurance, where you can make a comparison between the prices charged by different insurance companies.

In this case, you want a broker who is able to shop on your behalf to get the best rate. It is better for you to pay an agreed fee to the broker, so that he can get the best "net rate" for you.

This advice applies to other products, where the price and structure is not transparent to the customer.

You should be especially careful when the agent is highly trained to sell you a hyped up product, such as those sold through multi-level marketing.

Many people use to access a street map of Singapore.

There is another similar service provided free by the Singapore Land Authority. It allows search by address, building and postal code. It is much easier to use and is not cluttered with advertisements.

Pyramid scheme

Source: Wikipedia

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered.

Pyramid schemes have existed for at least a century. Matrix schemes use the same system as a pyramid; here, the victims pay to join a waiting list for a desirable product which only a fraction of them can ever receive.

There are other commercial models using cross-selling such as multi-level marketing or party planning which are legal and sustainable, although there is a significant grey area in many cases.

Most pyramid schemes take advantage of confusion between genuine businesses and complicated but convincing moneymaking scams. The essential idea behind each scam is that the individual makes only one payment, but is promised to somehow receive exponential benefits from other people as a reward.

A common example might be an offer that, for a fee, allows the victim to sell the same offer to other people. Each sale includes a fee to the original seller.

Clearly, the flaw is that there is no end benefit; the money simply travels up the chain, and only the originator (or at best a very few) wins in swindling his followers.

Of course, the people in the worst situation are the ones at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves.

To embellish the act, most such scams will have fake referrals, testimonials, and information.

Asset allocation in a nutshell

Source: Wikipedia

The best-performing asset varies from year to year and is not easily predictable. A mixture of asset classes is more likely to meet your goals.

Different asset classes offer non-correlated returns. Diversification reduces the overall risk in terms of the variability of returns for a given level of expected return. Diversification is "the only free lunch you will find in the investment game."

Academic research has shown the importance of asset allocation, and the problems of active management. This explains the steadily rising popularity of passive investment styles using index funds.

Here are the asset classes:

* cash (i.e., money market accounts)
* Bonds: investment grade or junk (high yield); government or corporate; short-term, intermediate, long-term; domestic, foreign, emerging markets
* stocks: value or growth; large-cap versus small-cap; domestic, foreign, emerging markets
* real estate
* foreign currency
* natural resources
* precious metals
* luxury collectables such as art, fine wine and automobiles
* other

Ranking of Products


As consumers, we are constantly being pressured or lured to buy products which are of marginal value, hyped up products.

Some of these products for example financial, communication services are being pushed very aggresively. Its hard to find an honest broker nowaday and someone of good status who can give independent advice on what product to buy. Your various articles on this issue must certainly strike a cord with the public. I hope you will be able to inspire further action to help the consumers.

Someone should start a rating on product of solid value and give them a ranking as a guide for the consumers at large. I think Dr Money has something like this already. Perhaps this can be expanded further and more publicity given to his website.


Here is the link for Dr Money's rating

Investment Tips, April 2007

1. How should I invest a capital sum to earn a fairly attractive return with low risk (for a person who is above 50 years old)?

You have the following options:

* invest in fixed deposit to earn about 1.8% p.a.
* invest in a money market fund to earn about 3% p.a.
* invest in equities in a large, well diversified, low cost fund to earn about 6% p.a. over 10 to 20 years
* invest in a single premium endowment policy (to earn about 4% p.a. over 10 years)
* invest in a life annuity (if you are above 60 years)

Under normal circumstances, it is better to invest in equities in a large, well diversified, low cost fund. However, the global stockmarket is at a high level at the present time. It may be better to wait for the global stockmarket to correct to a lower level before you invest a large sume.

In the meantime, you can invest your savings in the money market and earn a modest rate of return. You have the flexibility to withdraw from the money market fund at any time, without any penalty, and change to another investment.

If you are above 60 years, you can invest in a life annuity to give you a monthly income (say $500 to $2,000) to meet your living expenses over your lifetime. The return from the life annuity is quite satisfactory (say 5% p.a. or more) and can grow with bonus. The remaining savings can be invested in the money market fund to
wait for the right time to move into equities.

Check this website for the latest yield:

2. How should I invest my regular savings (for a person below 45 years old)?

You should save about 10% to 20% of your monthly earnings. You can invest it in a large, well diversified, low cost fund that is invested mainly in global equities.

Although the global stockmarket is at a high level, it is all right to start now, as you are investing a monthly sum for the next 10 to 30 years. You will be able to ride out the good and bad years, and get a fairly attractive rate of return. The average return for global equities is more than 7% p.a. over the past 10 to 30 years.

3. How should I select my investment fund?

You can invest in a unit trust or an insurance fund. Make sure that the initial charge is less than 3% and the annual charge is less than 1.5%. You should choose a large fund, with total assets of more than $500 million, so that is is well diversified. It is better to invest in a fund that is benchmarked to a global market
index, rather than a fund that is invested in a specific sector (eg technology, energy) or a specific country (eg China, India).

4. How do I get my insurance protection?

You should buy a decreasing term assurance that will expire when you are 60 years old or your youngest child reaches 25 years. For example, if you are 30 years now and you wish to be insured for $300,000 decreasing over 30 years, your insurance will start at $300,000 and will reduce by $10,000 a year. The cost of this insurance is very affordable.

It is all right for the sum insured to reduce each year, as this is offset by the increase in your savings. At any time, the total amount of your savings and the insurance should be more than your target sum of $300,000. Beyond age 60, you probably do not need any life insurance, as your children have grown up and are

You will need medical insurance to take care of your medical expenses. This can be secured through a Shield plan (available through the Ministry of Health or a private insurer). The plan should be sufficient to cover you against catastropic illness, including the cost of treating a critical illness.

5. Should I buy an endowment or whole life policy now?

If you are considering to buy a new policy, a better choice is:

* buy a decreasing term insurance plan for the protection
* invest your savings in a large, well diversified, low cost fund

This combination give you flexibility and a better return over the long term. The upfront cost is usually lower than buying an endowment or whole life policy.

6. Should I continue with the endowment or whole life policy taken previously?

You should check the current cash value and the projected cash value at the maturity date or when you reach age 60. You can work out the future yield on the policy, and compare it with alternative investments.

You should also find out how much of the projected cash value is guaranteed. For the non-guaranteed portion, you may have to apply an adjustment, in case the insurance company is not able to meet the projection.

Generally, it is better to continue the existing insurance policies that you have taken previously, as you have already incurred the high, upfront cost.

When you have retired from work, you may wish to convert your whole life policy into a paid up policy for a reduced sum insured. This will free you from continuing to pay the insurance premium. If you do not need the insurance cover, you can also terminate the whole life policy and receive its cash value.

Tan Kin Lian

Term insurance up to age 65

Hi Mr Tan,
I will introduce your blog to my friends as they are frank and good advice for the public.

Although the term insurance for public officers are attractive ,you will not be insured when you leave your company. Is there any other term policy that will cover till your retirement age continuously?


You can buy i-Term (level or decreasing) from NTUC Income to cover up to age 65. You will find the premium rate to be quite attractive. It is guaranteed and level for the entire term.

The head of group insurance in NTUC Income told me that from 1 January 2007, a public officer who leaves public service can opt to continue the coverage under the public officer group insurance scheme. This is good news.

More moderate return in the future

Hi Mr Tan

An agent from NTUC showed the advertisement on "Best Kept Secret" to me. The return of 6% on endowment plan is attractive. If I buy this plan, will I get 6% return for the next 20 years? This is better than other types of investments and give life insurance cover to me as well.



The return of 6% was achieved during the past 25 years. Interest rate was high (say 6%-8% p.a.) during most of the past years, and the economy achieved high growth rates. The return on the life insurance fund averaged about 8% during these years.

Looking forward, I expect the investment yield to be more modest, maybe 6% p.a. After deducting for the cost of insurance and charges, I expect the return on whole life and endowment plans to be more modest, maybe 3% to 4% per annum. (But, I could be wrong!)

Still, the return from NTUC Income should be better than similar plans from other insurance companies, due to their lower expenses and higher bonus distributed to policyholders (remember: Income is a cooperative).

However, I usually advise people to invest in a flexible plan, such as the Ideal plan. You can read more about it in my FAQ: Financial Planning for the Young.

Monday, April 30, 2007

Shall I continue Eldershield?

Dear Mr Tan

I need your frank advice. Should I continue with Eldershield? I read a letter in the Straits Times that the claim rate is very low, and that the insurance company is making a lot of profit.

Your advice, please.



The claim rate is low now, because most of the insured people are still young. The experience in other countries show that the claim rate under this type of insurance will increase sharply after age 70 or 80 years.

You are only required to pay premium up to age 65, and you will be insured for a lifetime (without paying any more premium).

If the insurance company (ie NTUC Income or Great Eastern Life) make a profit of this scheme, they are required to give a refund of 50% of the profit every 5 years.

I suggest that you should continue to participate in the scheme.

Capital guaranteed product

It is a bad idea to invest in a capital guaranteed "structured" product.


Read FAQ:Structured Investment Product.

See the right panel below the Chinese graphic. Select "Financial Planning Tips".

Increase the investment in a life annuity

Dear Mr Tan

Since 2002, I have bought four separate annuity policies (total of $150,000 in single premium) with NTUC Income. The annuity payout will commence from age 62.

I am now 59 yrs old and a retiree. I am thinking of buying another annuity policy of a single premium of $50,000 with annual payout to commence from age 67. I can realise this sum from the sale of my stock investments.

What is your advice?



You have invested a total of about $150,000 in life annuity. The additional life annuity will increase the total to $200,000. I think that this is a good idea.




Thank you for putting your trust with NTUC Income.

Most people take Annuity Policy from NTUC Income. Over the years, under the leadership of Mr Tan Kin Lian, many started to enjoy the wonderful benefits from our plan.

In fact, the annuity gives you more money from year to year. We have annual bonuses added to your monthly annuity. This bonus is compounded, hence the annuity grows.

The stock market is at all time high now, it is a good move to take profit and invest the money in the Annuity plan.

If you have a dependent, our life annuity can serves as a love gift to him/her for life.

Simplify the feedback form

A feedback form in the website asked for 12 pieces of information, before I can enter the feedback in the content box. Three pieces (ie name, e-mail and telephone) is sufficient for their purpose. The designer should be more considerate and simplify this matter for the general user.

Encashing my life insurance policies

I asked for the current cash value of my life insurance policy, and the projected cash value in 10 years time. Based on the figures, I was able to compute the yield for the next 10 years. (NOTE: this is not the same as the actual yield for the entire duration of the policy).

Life insurance policies in my name
1. Endowment SP 5.4%
2. Living 1.7%
3. Living 2.9%
4. Umbrella 4.4%
5. Protection 4.0%

Life insurance policies in my wife's name
6. Endowment SP 8.4%
7. Living 4.1%

SP: single premium paid, ie no further premium payable

I have decided to give up policy #2, as it gives a poor return for the next 10 years. I will keep the other policies in force.

Some policies (eg #1 and #6) show a high yield for the next 10 years. This is due to the low surrender values now. It is better for me to keep these policies in force to earn a better yield.

All these policies are with NTUC Income.

If you wish to review your life insurance policies, ask your insurance company or adviser to provide the above figures to you. You can make a better decision.

Yield of 3.41%

Dear Mr Tan

Please calculate the yield for me on this policy:

* Surrender value now: S$11239.
* Annual premium: S$519.
* Surrender value in 2018: $23,165.
* Sum assured $25,000 (whole life policy)



My calculation shows a yield of 3.41% p.a. for the next 11 years. As this is a whole life policy, the yield is probably satisfactory. I suggest that you can keep this policy.

Term Insurance

I found this information from the life insurance manager of NTUC Income:

* they offer term insurance (level and decreasing)
* they offer living benefit (level only) to cover death and 30 dread disease

Most people prefer to take up the level cover for term and living benefit. The decreasing term is less popular.

In my view, term insurance is suitable (whether level or decreasing cover).

Senior Housing


As more people get older in Singapore (and I fall into this category), it is important to understand how other countries are providing more housing options for seniors.

I searched the website and found this interesting explanation.


Adult daycare offers a safe environment for adults during daytime hours to participate in a variety of planned programs including social activities, nutritional, nursing and rehabilitation services.

Ideal for individuals who do not require personal or medical care, but choose not to live alone or at home. Most facilities are equipped with standard safety features to make it easier for residents to get around. It is a wonderful place for seniors to be with others that share similar interests.

Many recreational activities are planned by the community, including day field trips, shopping excursions and on-premise projects. Most facilities offer optional meal plans for residents and the majority of apartments are equipped with a kitchen so the resident can prepare their own meals.

An excellent choice for people who choose not to live on their own, but do not necessarily require 24-hour care. Assisted living facilities offer a homelike atmosphere with trained professionals who are available to help residents with their daily routines. An activity coordinator arranges both on and off premise activities for residents.

Offer 24-hour a day care for those who can no longer live independently. Nursing homes are equipped with medical professionals and supplies to offer specialized care for those with severe illnesses or injuries.

Trained staff members assist residents with personal and daily activities such as getting out of bed, bathing, eating, using the bathroom and regulating medications. Nursing home facilities offer daily meal plans, laundry, housekeeping, medical services and a wide array of planned recreational activities.

Retirement communities comprise an entire campus of living choices from private homes and independent living to assisted living and even skilled nursing facilities. The residents can age in a place without having to relocate.

Natural disasters

Source: Wikipedia

Singapore is quite safe and free of natural disasters. We may not be aware about the perils that affect other countries, except when it hits the global news. Anyway, many insurance policies exclude natural disasters.

Here is an explanation about the types of natural disasters.


A natural disaster is the consequence of the combination of a natural hazard (a physical event e.g. volcanic eruption, earthquake, landslide) and human activities.

Human vulnerability, caused by the lack of appropriate emergency management, leads to financial, structural, and human losses.

The resulting loss depends on the capacity of the population to support or resist the disaster, their resilience.

Types of natural disasters:

* Avalanche
* Earthquake
* Lahar
* Landslides and Mudflows
* Sinkholes
* Supervolcano
* Flood
* Limnic eruption
* Maelstrom
* Seiche
* Tsunami
* Blizzard
* Drought
* Hailstorm
* Heat wave
* Hurricanes, Tropical cyclones, and Typhoons
* Ice age
* Ice storm
* Tornado
* Wildfire
* Epidemic
* Famine
* Solar flare

To learn more, read the full posting in Wikipedia.

Sunday, April 29, 2007

Pay a fixed fee to a broker

It is better to pay a fixed fee to an insurance broker, so that they can find the best deal for you. The fixed fee is agreed between you and the broker.

Under this arrangement, the broker is obliged to return back any commission that they get from the principal. Quite often, the saving in getting the best deal is more than the fee that you have to pay.

What is a broker?

Source: Wikipedia

In commerce, a broker is a party that mediates between a buyer and a seller. A broker who also acts as a seller or as a buyer becomes a principal party to the deal.

Distinguish agent: one who acts on behalf of a principal.

A brokerage is a firm that acts as a broker.

Types of financial brokers

* Business broker
* Commodity broker
* Forex Broker
* Insurance broker
* Investment broker
* Mortgage broker
* Real estate broker
* Stock broker

Insurance course at a local university

Mr Tan

I saw some of your postings that are quite general in nature, and are obtained from sources in the internet. Why are you positing them? What is Wikipedia?



I am preparing the materials for an insurance course to be taught in a local university. They cover insurance, risk management, marketing and related matters.

Although I obtained them from the stated sources, I often have to edit and simplify them for easy reading. I think that they are useful for the general public as well.
I hope that my regular visitors find them to be useful.

I like Wikipedia. It is like an encyclopedia. It is written by volunteer experts all over the world. They contribute their knowledge to Wikipedia in a collaborate effort.

You can search Google for Wikipedia.

Invest in large, well diversified fund

Dear Mr Tan

I like the commentary in the "investment tips, April". I have investments in an emerging market fund and global internet fund. Is it a good time to sell them?



I am not familiar with the two funds that you have invested. I am not able to comment on them.

My general comments are:

* emerging stock market are now at a high level
* small markets (including Singapore) are subject to high volatility and outflow of foreign funds
* generally, I prefer to invest in large, well diversified, low cost funds (e.g. global equity) and to keep invested for the long term.

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