Tan Kin Lian's Blog: Financial advice for a young person

Monday, May 19, 2008

Financial advice for a young person

Hi Mr Tan,
Your website has certainly been extremely important in my understanding of today's financial products and situation.

I have just graduated and will be starting work soon. I carried out some research on how I should diversify my savings into investment and insurance. Through your guidance, I decided to do them separately.

A financial adviser tried to promote the following product:

Riders attached with this plan:
1) Disability Linked
2) Waiver of Contribution (TPD or Critical Illness)
3) Critical Illness link benefit

For all 3 riders: Sum assured is $150,000. Regular Contribution: $250 and about $22 being contributed to payment of insurance

Bid offer spread: 5%
Top up Minimum S$500, at no additional charge
Partial withdrawal allowed (minimum of S$250 per withdrawal)

Unit allocation (as percentage of premiums paid)
Year 1: 13%
Year 2: 40%
Year 3: 45%
Year 4 to 6: 100%
Year 7 to 9: 103%
Year 10 onwards: 105%

Is this investment-linked plan advantageous to me? I have my doubts over the low percentage of premium going into the investments.

Secondly, at my age, what kind of insurance should I actually consider? Is it all right to purchase term insurance.

Thirdly, I have considered embarking on a monthly investment plan on unit trusts with the intention of starting my investments early, not trying to time the market and at the same time accumulating my savings for future investments. I would like to seek your advice on whether this is feasible.

REPLY

Do not invest in this high cost product. 200% of your annual premium is taken away during the first three years.

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

This product appears to give you allocation of 105% from year 10. After discounting the spread of 5%, you are actually investing at the net asset value. A honest adviser will tell you the truth. A dishonest adviser will mislead you into thinking that you are getting 5% more.

Here is my suggestion for investing your monthly savings:
http://www.tankinlian.com/faq/savings.html
http://www.tankinlian.com/faq/savings.html

3 comments:

JoieDeVivre84 said...: Hi, I was in the same situation about 1 month ago- fresh out of university, just started work. Most exciting period of my life!
I'd say given the fact that we are not earning a lot at the moment, go for the insurance with high coverage, but low premium. That'll be the trusty term insurance. If you want to be covered for $150k a basic term insurance will cost a lot less than he ILP.
A lot of our so-called needs are not long term. I'd say the needs that are long-term are few and the only one I can think of is hospitalization. I'd advise you to get a private shield scheme (you can refer to the MOH site for info on this).
I currently am spending abt 3ish % of my monthly salary on insurance-my pay is about the figure that you see from the employment surveys published from the local unis. I got a 30 yr term insurance with CI coverage (opted for the highest non-medical limit), a private H&S scheme, and a rider for that. I chose the rider because if you buy the "normal" shield insurance, if the deductible is $3000 (i.e. you'd have to pay at least $3000), but if your bill is $2900, you won't be able to make a claim, so that's where the rider comes in as mine allows me to make claim $3000+10% of the amt in excess of $3000.; May 19, 2008 11:29 AM
Wayne said...: Agree with JoieDeVivre84, it is better to separate investment and insurance. Get an As-charged shield plan as well.

Article on ILP vs Buy term invest the rest:
http://www.waynekoh.com/2008/07/btitr.html; July 05, 2008 2:55 PM
jhon said...: expected to announce losses that run into billions in the next few weeks, and that is reported to have set aside a £1bn fund to make bonus payments to staff. Financial Advisor Sydney; February 23, 2019 11:02 PM