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.

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.

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?


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.

Friday, September 28, 2007

Antwerp, Belgium

I visited Antwerp in Belgium.

The roads in the old city were not suitable for motor traffic. Most people walked, take the subway or the city tram. There were few private cars.

An idea struck me. It is a better arrangement for the city or town center to be free of private cars. It should be served by public transport or town bicycles. Life will be more pleasant, with less traffic congesation. It will also be safer for the people to walk along the roads.

The private cars can be parked outside the city center, for travel to other towns.

How to use an agent

I use an agent (i.e. a stockbroker or relationship manager) actively on my personal investments. Here are some tips on how to use them:

1. Ask them to get relevant information for you. They have access to a large institution and colleagues who can identify and extract the information.

2. You can ask for their views and advice. But, you should be ready to take the decision yourself. It is your money that is being invested.

3. Get them to transact for you. They know the process and forms that have to be filled. They can fill the form for you and follow up on the next steps.

4. Pay them the standard fee for this service. They need to make a living, and can save you a lot of your time (which is costly) and unnecessary expenses.

Buying a financial product

One commentor in my blog frequently recommended to see a financial adviser who can give a financial health assessment. He is strongly against insurance agents who sell products.

Here are my views on this matter:

1. Most people can sort out their financial priorities on thier own, by reading the relevant FAQ.

2. They can buy invest in the cost products, such as term insurance or low cost funds.

3. They can see an agent to help them to source for the best product.

4. They need to see a financial adviser only if they are wealthy or have tax and other legal issues to sort out.

5. They need to learn how to identify bad and costly products, and avoid them. If they use an adviser or agent, make sure you get an honest one, who looks after your interest.

Thursday, September 27, 2007

Save in a bank account first

Hi Mr Tan,

I'm really glad that I happen to read your blog! I have been searching online and looking for the right saving plan for myself but I just couldn't find one that I understand. I've tried looking at some websites of banks and insurance companies, it got me more confused. I need some advice from you.

I am a fresh graduate, earning $1.6k per month. I would like to do some saving plans for my future to invest in a fund that will grow after like 5 – 10 years.

I'm kind of in dilemma because I'm thinking of furthering my studies next year if I manage to get into a local university. Should I start my saving plans now or wait till I'm working full time permanently?


You can read this FAQ

I suggest that you save in a saving account with a bank first. The interest rate may be low, but you do not incur any upfront investment cost. When you are clear that the savings can be locked up for the long term, you can invest in a low cost fund, which is described in my FAQ.

I hope that this suggestion fits into your needs.

Wednesday, September 26, 2007

Expensive Broadband Connection

Broadband connection is expensive in Brussels. My hotel charges Euro 15 for 1 hour and Euro 25 for 1 day. Wow!

Financial Planning Tips

Mr Tan!

Recently, I've been reading your blogs. It has really helped me alot in understanding the wise and prudent way to manage my finances. I'm quite sure many others would have similarly benefited much from it too.


You can read the FAQs posted in my website. There is a link from my right panel called "Financial Planning Tips". You can also access the page here.

Participating Annuity

Dear Mr Tan

Your blogspot is really helpful to the public. I have also been reading your recent articles on annuities in the Straits Times with great interest.

I have two annuities, both participating but with a refund feature, if I die within 15 years or less.

Upon reading your recommendation I asked my NTUC income agent if I could switch to a non refund policy and thus obtain increased monthly payouts. He said there is no such policy, ie without refund, right now.

When I bought my annuity, it projects a bonus of 2 to 2.75 % yearly. Can it exceed 2.75% in good years?


The two annuity policies that you bought gave good value. Although the guaranteed interest rate is around 2.5%, you will enjoy a variable bonus that is likely to increase the net return to around 5% per annum. The actual bonus depends on the investment yield in each year. It can exceed 2.75% in good years.

If you look at the illustration given to you at the time that you bought the annuity, you will see that the payout is projected to increase over the years due to the addition of the bonus.

Most people bought the annuity with the refund feature. Although it pays a slightly lower return, it is still quite attractive. It will take a few more years before people are familiar with the concept of the "no refund" annuity.

I advise you to keep these two annuity policies. They give good value. The Straits Times will soon be publishing another article about why the participating annuity is suitable for today's environment.

Rewards of investing in a Life Annuity

A few people told me that they liked the article published in the Straits Times about the rewards of investing in a life annuity.

The original text of my article is posted here.

Charming Brussells

I am now in Brussels, Belgium to attend an international insurance conference.

The weather is wonderful. It is Autumn and very pleasant. The city is charming.

FAQs on Life Insurance

Question: I bought a 20-year Endowment Policy which just matured. The maturity value is much lower than what was projected when the agent pitched the sale 20 years ago - very disappointed! Projection should be more realistic, otherwise people lose trust in buying insurance.

Reply: The projection was based on the conditions at that time. Subsequently, interest rate fell. It impacted on the bonuses paid on the policy. We are still in a low interest rate environment.

Question: I have two single premium insurance , one maturiing next year and another the following year.

Reply: They should give you a return of 3% to 4% yearly. It should be quite satisfactory.

Question: I bought a whole Life Policy ten years ago. Another agent told me that I should not have bought this policy as payout upon death is very high but surrender value is low. I have no dependents, so payout upon death is not important to me. What should I do - continue holding this policy, or surrender it now at a loss, or hold it until breakeven then surrender the policy?

Reply: If you do not need the insurance, you can terminate it and receive a cash value. Read this FAQ before you decide.

Question: ElderShield - I was advised by an NTUC Income agent to give up this policy as the claim is low and under very strict requirements. Now with the improved version, is it good to take up this insurance again?

Reply: If you have sufficient savings, you do not need this insurance. You can draw on your savings to cover your needs, instead of depending on Eldershield.

Question: Dependent Protection Insurance Scheme (formerly under CPF) - is it really necessary for people like me who have no dependents? Should I give this up?

Reply: You can give up this insurance, if you do not have any dependents. I terminate this insurance as I have sufficient savings at this time to meet the needs of my family.

Question: I bought a Shield Plan to cover hospitalisation and surgical expenses, as IncomeShield did not provide the "as charged" option. Later, NTUC Income offered the "as charged" option. Should I switch to NTUC Income now since the premium is lower?

Reply: You can switch over to NTUC Income. It should offer similar coverage at a lower cost.

Question: Please advise if I have missed out on any other type of insurance which I should have.

Reply: You can read the FAQs in this website.

Invest in a life annuity - Options

Dear Mr Tan,

Your article on Reward of Buying a Life Annuity at 65 published in the Straits Times on 24 September was very well and clearly written. It is very easy for a layman to understand. Thanks a lot for taking the effort to write the article.

I had been approached by at least two NTUC Income agents on this type of annuity but I didn't see any benefit in it as the monthly payout is very low.

Is it possible to put in a higher amount and get a higher monthly payout? I understand that there is a maximum amount that we can put in, is this true?

Can I convert my Living policy into an annuity at age 65 and also invest my minimum sum in an annuity. Can I receive two payouts from two annuity policies?


You can invest a larger sum. There is no limit to the amount of investment. The payout will be proportionate to the amount invested.

The commercial terms may be different from the example that I used for educational purpose. Do study them before you decide to buy the annuity.

It is better to keep the CPF Minimum Sum in the retirement account in the CPF until you are age 65, to enjoy the higher interest rate payable by the CPF. You can decide to buy the life annuity at that time, depending on the commercial terms available then.

If you buy two annuities, you can get two payouts. There is no restriction.

Earn $2,000 monthly after retirement

Dear Mr Tan

I will be retiring soon. My insurance policies will mature in Sep 2008. It's about $300,000. Where do I put my money so that I can get a regular income of around $2,000.


See if this FAQ gives you the answers?


Ask the simple questions

I give talks on financial matters. I always advice my attendees on the following approach towards financial products:

1. Ask a few simple questions
2. What is the cost?
3. What are the benefits?
4. What are the charges?
5. What is the yield?
6. Why is the yield so high, or so low?

Ask the adviser to explain in simple language, so that you can understand it. If it is too complicated, you should distrust and reject the product.

Lesson: Do not be shy to ask the simple, relevant questions, and to reject any product that is not clear to you.

Life Manager Plus

Dear Mr Tan,

Recently I bought a insurance plan called Life Manager Plus. It is my first time to buy the insurance.

I need to pay S$300 a month premium for sum insured of S$100K for Death, Critical Illness and Total and Permanent Disability.

I am thinking of reducing the premium to $150 and invest $150 on my own. What is your advice?


Ask the agent to give you the following:

1. What is the upfront charge for investing in this product?
2. What percentage of your premium is invested?
3. What is the expense ratio of the fund?
4. What are the charges for the death cover?

I suggest that you read this FAQ:

Tuesday, September 25, 2007

Life Annuity at 65

Dear Mr Tan

Where do I buy the annuity@65 mentioned on 23/9/07?


The life annuity is presented for educational purpose, to compare with fixed payment over 20 or 30 years. It is not available commercially now.

The life annuity that is commercially available now are based on different features.

Monday, September 24, 2007

Fixed monthly sum under an annuity

Question: If I buy an annuity that pays out a fixed monthly sum over a lifetime (say 30 years or longer), will I lose out if interest rate and inflation increases in the future?

If you buy an annuity that pays a fixed monthly sum, the interest rate and payout is locked in for all the future years.

If interest rate falls, you continue to get the fixed monthly sum and is not affected by the lower interest rate. If interest rate incrases, you will not enjoy the higher interest rate.

Question: Should I take the risk of locking in the payout for all the future years?

In my personal view, it is better to buy a participating. It guarantees a lower payout and distributes a bonus that depends on the yield earned in the future. The bonus is not guaranteed and can be nil in some years. It is likely to vary between 0 to 4% yearly.

The payout under this annuity is low in the initial years, but will increase in subsequent years with the bonus.

If you buy this type of participating annuity, it is important that you choose an insurance company that distributes a large part of the investment gain to the annuitants, and not one that tries to maximise profits for their shareholders.

Annuity with refund

Question: Is it better to buy a life annuity with refund or without refund?

If you buy a life annuity without refund, you get a higher monthly payout. If you choose an annuity with refund, you get a lower payout. The reduction depends on the type of refund.

For example, you can buy a life annuity that guarantees payment for 20 years. In the event of death within 20 years, the refund is 20 years of payment less the payment that has already been received.

For this type of annuity, the reduction is estimated to be about 20%.

Do you prefer to get 20% more, under a "no refund" annuity, or 20% less under a "with refund" annuity?

If you are in fairly satisfactory health and is not aware of any serious medical condition, it is better to buy a "no refund" annuity and get a higher payment.

If you are in poor health, it is better to buy a "with refund" annuity and get a lower payment, or to buy a annuity that pays for a fixed number of years.

Premium for Life Annuity at 65

Dear Mr Tan

Will the insurance premium for life annuity at 65 be very high and most old folks will not find it attractive?


The correct way is to look at the yield under a life annuity for a given amount of investment. Here is the yield for a male at age 65 investing $100,000:

Monthly Yield *
Payable for 20 years $601 7.2%
Payable for 30 years $473 5.7%
Payable for life - no refund $619 7.4%
Payable for life - with refund $498 6.0%

* The yield includes a consumption of the initial capital.

The above figures assume a yield of 4% and does not impose any loading for expenses or profit. They are provided for educcational puropse and do not reflect the commercial terms available in the market.

Sunday, September 23, 2007

Life Annuity at 65

The Government plans to introduce a Longevity insurance that pays $300 a month to a person from age 85 to a life time. Between 65 to 85, they will draw a monthly sum from their retirement account.

Many people do not like the idea of the Longevity insurance, as it pays out only from 85 and the payment is too small (and will be further depleted by inflation).

In my view, it is better for the Government to encourage people to buy a life annuity at 65, using the CPF minimum sum. Here are the advantages:

* The life annuity will give them a steady income payable for a lifetime.

* They do not have to worry about managing their retirement account for 20 years and be subject to a fluctuating interest rate that is pegged to the yield on Government bonds. They will also not suffer a drop in their income when they reach age 85.

If the life annuity is administered by the Central Provident Fund and the annuity payout is calculated using an interest rate of 4%, the payout can be quite attractive. These life annuitants should be exempted from the longevity annuity.

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