Saturday, April 12, 2008

Avoid buying a private car

Dear Mr. Tan,
May I ask you whether it is a good time to buy a car now? As I had just came back from overseas lately. I found out that the COE had increased a lot. For the category below 1600cc, the COE price is $16930. Some people say it may hit $20000 for COE.

Do you think will the COE come down $12000 to $14000 in few months times As every things is increasing who will want to buy the car if COE keep increase. Please help me to answer my query.

In my personal view, it is a bad time to buy a car any time. Although I I have a car, I prefer to keep it at home, and travel by MRT and bus.. Sometimes I take the taxi.

If you have to buy a car, you better get someone else to advise you on timing. I am not familiar with this matter.

High price of rice

There are two letters in Today paper commenting on the high price of rice, its impact on the ordinary workers and the insensitive remarks by two politicians on this matter.

Here are my observations:

a) The increase in the price of rice, on its own, may appear to be bearable
b) But the prices of many other essentials have increased as well
c) Taxes and ERPs have also increased
d) The total impact of all the increases is large

It is not only the people on public assistance who cannot cope. Many workers or modest salary do not earn enough to meet their expenses. The recent increases is a big blow to their budget.

What is the solution? There are two possible approaches:

a) Price controls on essential products
b) Allowance for low income families

I agree with the approach adopted by the Government to provide assistance to low income families (rather than price controls). I believe that the assistance net should be widened to include more low income families who are affected by the hike in the cost of living.

Friday, April 11, 2008

Are Bernanke's Hands Tied?

"Are Bernanke's Hands Tied? 8 Reasons the US May Be in Worse Trouble Than You Think "

STI Exchange Traded Fund- Liquidity

Dear Mr. Tan,
I would like to seek your advice about the Street-Tracks STI ETF

It seems that small investors can only sell through the SGX Exchange. As the volume of trade is low, there is liquidity risk. What do you think?

I read your blog frequently; maybe it will be good to discuss with blog readers.

Minimum Subscription: Creation Requests for Units may only be made in a minimum of Creation Unit size of 500,000 Units. Investors who wish to subscribe for Units has to go through Participating Dealers.

Liquidity: Investors should note the listing of the Fund on SGX-ST does not guarantee a liquid market for the Units.

I believe that State Street will try to create the liquidity for this ETF. The current liquidity should be sufficient for the retail investors. It is suitable for long term investors (who are willing to buy on the market price).

It is not suitable for short term trading, where liquidity is important.

Government bonds

Dear Mr. Tan,
I would like to find out what a bond is. Is there a risk factor involved? How do I go about finding about government bonds?

Government bonds have very little, almost negligble risk. You can buy through a bank or stockbroker. They can tell you about the yield and risk.

Honest advice on existing policies

Mr. Tan
Thanks for the honest and objective comments on the types of insurance products. I guess the gist of your message is to get low cost insurance product and fund.

Like many of your readers, I have already bought quite a numbers of life insurance products for myself and children. Like many, I must confess that I was a bit dazed when my agent-cum-my-friend explaining to me all the details. Anyway, I bought them.

Over the years, from time to time, I would take out my insurance policies and trying to understand again what I'd bought. Well, you can call me naive.Now that, as one of your readers, I have a better understanding especially on certain products, mentioned in your posts, that I should not have invested. Thanks !

I think the next logical question is that should we terminate these policies. Yes, you had pointed your readers asking similar question to FAQ. But, I thoght, it would do us a lot better if you or anyone reading this post could come up an excel file avail for public use to help to assess if one should drop any particular policy bought, based on certain inputs mentioned in the insurance product. Just a suggestion!

When the new life insurance company is able to provide low cost investment fund, it will offer a service to help existing policyholders to decide if they should keep or terminate their policies. It will be honest advice, given in the best interest of the consumer.

Bonuses under Life Insurance Policies

Policyholders who try to analyse the bonuses paid under different life insurance policies found them to be complex and inconsistent. There is no reason why the bonuses should change significantly at certain durations and differ between different plans from the same company.

Here is the explanation. Life insurance companies have been "manipulating" their bonuses to allow their agents to sell the policies on the hope of a good yield, if they keep the policies for a long, long time. The yield on the earlier durations is extremely poor. The "manipulated" bonuses do not reflect the actual investment yield earned during the year.

Here are two big shortcomings:
a) Many people will not be keep the policies for the long duration, due to change in circumstance.
b) The jacked-up bonus at the "magic" duration is not guaranteed.

Due to the low investment yield (obtained from investing in low risk bonds) and the high marketing expenses (i.e advertisments and agent's commission), the life insurance policies give a poor yield. The company has to "manipulate" their bonuses to make them appear to give a good yield at the "magic" durations.

My advice:
a) Do not waste your time to understand the rationale of the bonuses. There is none.
b) Do not trust any life insurance company that has to resort to manipulating their bonuses.

Buy low cost insurance (i.e. term insurance) to protect your future earnings and invest in a low cost investment fund. Read these FAQs:

Solve Parking Woes

I read an interesting story in MyPaper entitled "Can't solve parking woes? Stack your car".

There is a mechanised parking system that can stack 8 to 16 cars on its platforms. It occupies the the parking space for 2 cars. 400 of these systems are used in Korea. It is being exported to other countries.

The Singapore distributor thinks that it is suitable for popular spots like Geylang, Holland Village and Demsey.

The Land Transport Authority has built a car park that can accomodate 142 cars at Club Street. Motorists drive their car to a platform and leave it there. A computer system directs the platform to stack the car in the right place.

We need to use mechanised systems for car parking, as space will become more expensive in the future.

Contact a high level person

Hi Mr. Tan,
Thank you for being ever so obliging and patient in answering your readers' queries.

I like to share with you an incident with NTUC. I called the call centre to request for a quote on term insurance and I was referred to an adviser. He called me back and I explained to him what I needed. I waited for 2 days and called him up to check if he had sent already. It was quite obvious that he had totally forgotten about me. I had to explain to him again and then gave him my email address.

Later in the day, I received the email from him. But to my shock, the attachment was a questionaire from another client about his medical condition. This is considered a really serious breach of the client's confidentiality and such carelessness cannot be tolerated.

I wish to bring this matter up to higher management. I hope you can provide me with a contact in NTUC who would be the most appropriate to handle this incident.

I suggest that you write a registered letter addressed to the chief executive officer. I think that it should receive high level attention. If you want to send by e-mail, you can try

Exchange Traded Fund

Mr. Tan,
I just started investing in share and heard about ETF . Hope you can explain to me what is ETF?

You can search "exchange traded fund" in Google.It gives you many references. Here is one of them:

An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks or bonds. An ETF represents a collection or "basket" of assets such as stocks, bonds, or futures. Institutional investors can redeem large blocks of shares of the ETF (known as "creation units") for the underlying assets or, alternately, exchange the underlying assets for creation units. This creation and redemption of shares enables institutions to engage in arbitrage and causes the value of the ETF to track the net asset value of the underlying assets. Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500.

An ETF takes the form of a collective investment scheme and combines the valuation feature of a mutual fund or unit investment trust, which can be purchased or redeemed at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be substantially more or less than its net asset value. Closed-end funds are not considered to be exchange-traded funds, even though they are funds and are traded on an exchange.

ETFs have been available in the US since 1993 and in Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively-managed ETFs

Thursday, April 10, 2008

Bonus projections of life insurance policies

The bonus projections of life insurance policies are not guaranteed. They depend on the future investment yield earned by the insurance company.

Long, long ago, the bonuses were distributed yearly to the policyholders based on sound actuarial principles. During the old days, you can trust the bonuses are computed fairly, and reflect the underlying economic conditions.

In the early 1990s, life insurance companies in Singapore started to "manipulate" the bonuses. They pay lower bonuses during the earlier years and jacked-up bonuses from age 60 or 65. The policy appears to give a good yield for the long term. As these bonuses are not guaranteed, the policyholder has to wait for a long time to find out if the higher bonuses will be paid. (In many cases, the actual bonuses paid were lower).

Many policies were sold on the basis of these projections. Insurance agents used the bonus projections to sell the concept that the policyholder can stop paying premiums after a certain number of years, called the "critical year". In many cases, the policyholders had to pay the premium for many years more than the projected "critical year". This affected many tens of thousands of policyholders.

I used the term "manipulated" because the bonuses do not reflect the real yield on the investments during the years. There is lack of clarity of the principles on which the bonuses were calculated.

These bonus projections are used to hide the high cost of marketing the life insurance products, which reduces the yield of the policy considerably. The effective yield is less than 2% in most cases, lower than the future rate of inflation. The policyholder is guaranteed to lose out on buying a life insurance policy.

Lesson: Do not trust this type of haphazard bonus projection. Do not trust insurance companies that offer these type of "manipulated" products.

Read this FAQ on how to invest your savings for the future:

Armed robbery in Singapore

There are more armed robbery and serious crimes in Singapore. They are a sign of hard times. People are becoming desperate, and have to resort to crime.

Sometimes, I wonder if the large number of foreign workers earning low wages in Singapore increase the exposure to criminal activities.

What can we do? We have to find more effective ways to help people to cope with inflation and high cost of living, for our locals and foreign workers.

Wider choice of cards for public transport

The Land Transport Authority plan to introduce a wider choice of cards to be used in public transport in 2009. This requires a big investments to change the readers in buses and MRT stations.

I think that this is a bad idea. It is wasteful. We are spending too much money in hardware. This should be avoided.

There is a perception competition will bring down cost. I doubt it, in this instance. After all, ez-Link is owned by the Government. It is easy to establish performance benchmarks for ez-Link. It is not necessary to have the market to establish it, especially as the market mechanism is likely to impose heavy cost.

I hope that the Government will drop this idea and avoid spending too much money, adding to inflation for the future years.

Haphazard projections

Dear Mr. Tan

I have two whole life policy proposals (from NTUC Income and Great Eastern Life).Both have sum assured of $100K and premium is payable for only 20 years to enjoy whole life coverage. I am thinking of buying the policy for my baby.

I am attracted to Great Eastern's higher annual reversionary bonus rate of $10 per $1,000 sum assured + 2% attaching bonus (compared to Income's $7 per $1,000 sum assured, compounded at 0.7% p.a.). This could explain why Great Eastern's total projected protection value of $416,000 at age 65 is much higher than Income's $263,000.

Great Eastern also has higher terminal bonus and surrender bonus rates than Income. However, Income has a higher guaranteed surrender value of $65,000 at age 65 (compared to Great Eastern's $54,000).

My guess is that this shows that Income is more confident of earning a higher yield compared to Great Eastern? However, Income's total projected surrender value of $171,000 at age 65 is much lower than Great Eastern's $226,000. Under "Reduction in Yield", Great Eastern's projected reduced yield of 4.43% at age 65 is higher than Income's 3.61%.

This is very confusing. On one hand, Income is confident of guaranteeing a higher surrender value at age 65 than Great Eastern, but Income's projections for total surrender value and total protection value are much lower than Great Eastern's.

Would greatly appreciate your advice on whether I should go for Income's Vivolife or Great Eastern's FlexiLife20. Also, can you help recommend a reliable and experienced insurance agent from Income?


I am not able to advice on the merits of these two proposals. I do not advice buying a life insurance policy for a child.

Some life insurance companies adjust their bonuses to show attractive values at certain durations. They are not guaranteed and do not give consistent values. I do not trust these types of haphazard projections.

My advice is to buy a Term insurance policy on your own life and to invest the difference. See this FAQ:

Wednesday, April 09, 2008

Large American Airlines

Thirty years ago, there were two large American airlines, called Pan American (PanAm) and Trans World Airlines (TWA). They have disappeared. What happened to them?

Transfer of shares on death of shareholder

Hi Mr. Tan,
I need your advice. My father has passed away more than 10 years ago. He holds the shares of a specific company on SGX. May I have your advice in how to go about having the shares transfered to my mother or myself? I understand in the past, usually a share certificate is required but then after so long, we did not know where is the share certificate. SGX now practices scripless policy.

The shares were registered in the name of your father. If your family has applied for letters of adminstration or probate of a will, the administrator or executor can take over the shares of your deceased father and distirbute it as part of the estate.

If this process was not done, you can apply for the letter or probate now. It should cost a few thousand dollars. I hope that the value of the shares are worth much more. Ask a lawyer.

Life and term insurance

For term insurance cover, do you mean life insurance?

Term insurance covers a limited term, such as 15 or 30 years. Whole life assurance covers for whole of life and is 5 to 10 times more expensive than term insurance.

High yield in the past years will not be repeated

Dear Mr. Tan,
NTUC has advertised its yield on endowment policies at about 6% per annum. This is attractive, compared to the low interest rate on fixed deposits. Will I be able to get this type of return in the future?

The yield of 6% was obtained on the endowment policies bought 20 to 30 years ago, and matured this year. This high yield was possible due to:

a) High interest rate prior during 1970s and 1980s.
b) High return from the stock and property market
c) Low expenses in the past years

Going into the future, the yield should be much lower. I understand that the new products being sold today project a return of less than 2% per annum.

In the future, life insurance products will usually give a poor return due to:
a) A high proportion invested in low yielding bond
b) High expenses to pay agents commission and marketing

If you wish to have a higher return, you should invest in a low cost, diversified investment fund, as shown in this FAQ:

Inadequate parking spaces

There are too many cars in Singapore. There is inadequate parking spaces for the cars.

It is frustrating, after paying the expensive ERP charges and spending a long time on congested roads, to arrive at a destination and find it difficult to find a vacant space to park the car.

This situation will be worsen when the new buildings are ready in Marina South. The new buildings will have fewer parking spaces, compared to the old buildings.

Why drive? It is better to learn how to use the MRT, buses and public transport.

Shortages and bubbles

The world is short of oil. Oil price went through the roof. This is followed by gold, commodities and food (i.e. wheat, rice, etc).

Is the world suddenly so short of these commodities, when it was in adequate supply two years ago? Why is there a sudden increase in consumption or a big drop in supply?

The main cause is speculation. When there is a small shortage, the speculators came into the picture and push up the prices. The ordinary people also start to stock up on food supply, aggravating the situation.

The world had gone through bubbles. It was the tulip bubble, South sea bubble. In more recent years, we have the dotcom bubble, the US housing bubble. Now we have the commodity bubble.

All bubbles will burst. Some burst earlier. Others burst later. Be careful. Do not be caught in the oil, gold or commodity bubble.

Timing the market

Mr. Tan
Is this a good time to invest in bonds, instead of fixed deposit?

Please read this FAQ for long term investments:

If you want specific advice on timing, please see a financial adviser or stockbroker.

Advice from a financial planner


I currently have the following insurance coverage: whole life, investment linked, decreasing term, mortgage insurance, company coverage disability income, private Shield. (Details provided)

However, my critical illness coverage is very low. I am considering either a limited premium life insurance or a term insurance covering specifically critical illness.

My questions are:
a) Do i need to cover for critical illness?
b) If yes, should i cover for 75 years or 99 years ?
c) If no, should I focus on something else?


Please see if these FAQs are able to answer your questions:

If you want specific advice on your situation, I suggest that you see a financial planner.

Tuesday, April 08, 2008

Single premium endowment

Hi Mr Tan ,
I have a fixed deposit of 10k which is due soon. Currently, the interest rate is less than 1%. I like to invest this amount in a furnd or unit trust. My risk appetitue is toward low to balanced. I wish to hold it for 5 years or more . I am quite happy to invest in a single premium endowment. I wish to hae this saving for a rainy day and will not need this money at the moment.
Kindly advise.

You can read this FAQ

If you are happy with the return on a single premium endowment (about 3% to 4%), you can go ahead and invest in it. You only need to be clear about what you can get over the period of the policy.

Poll: local bus serivce

There were 19 repliest to the poll:
Do you like light buses to operate a local service within each town?

52% - strongly support
36% - neutral
10% - not feasible

Poll: Makeover at Orchard Road

30 people replied to the poll:
What do we need along Orchard Road?

26% - covered walkway at second level
10% - light rail transport or monorail
46% - both
16% - none of the above.

Read the small print

A bank advertised two loans as follows:

a) Fixed repayment. Low interest rate of 7.5% p.a.
b) Flexible repayment. Low fund transfer rate of 0.3% per month for 6 months.

30% cash back on the interest charges for one year.

The small print at the bottom of the advertisement says:

a) The effective interest rate are 13.8% p.a. for 2 years, 13.69% p.a. for 3 years, etc
b) The effective interest rate is 10.05% for the first year. The prevailing interest rate of 16.5% p.a. applies thereafter.

Do not be misled by the lower interest rate that was advertised. Look for the effective interest rate. Are you prepared to pay an annual interest rate of about 13% on the loan?

Lesson: You should save now and spend later. If you lend to yourself (i.e. from your past savings), you can earn a yield of 13% p.a. (i.e. the interest rate that you have to pay on a loan).

Term Insurance with Cashback

Hi Mr Tan,
You are an expert in this subject. In the newspaper article it was mentioned by the reporter that with the term insurance covered for $400,000 annual premium of less than a thousand and yet there are cash back guarantee features.

Do you know of any such insurance company. I will be interested to purchase such policy.

You can call the insurance companies listed in this FAQ:

This FAQ shows the benchmark premium rates.

If you are quoted a premium closed to the benchmark rate, you can accept it.

In most cases it is better to buy a Term insurance without any cash back feature. You pay a lower premium. If you invest the difference separately, you can get a better return compared to the cash back.

Monday, April 07, 2008

American Depository Receipt (ADR)

An American Depositary Receipt (or ADR) represents ownership in the shares of a foreign company trading on US financial markets. The stock of many non-US companies trades on US exchanges through the use of ADRs. ADRs enable US investors to buy shares in foreign companies without undertaking cross-border transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies.

Each ADR is issued by a US depositary bank and can represent a fraction of a share, a single share, or multiple shares of foreign stock. An owner of an ADR has the right to obtain the foreign stock it represents, but US investors usually find it more convenient simply to own the ADR. The price of an ADR is often close to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares.

Depository banks have numerous responsibilities to an ADR holder and to the non-US company the ADR represents. The first ADR was introduced by JPMorgan in 1927, for the British retailer Selfridges&Co. The largest depositary bank is the Bank of New York Mellon.

Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADS).

CPF pays higher interest than treasury bills

Hi Mr Tan,
I have read your newspapers articles and about your website, find that you are a very knowledgable person in the finance field.

As a student, I have always wanted to know more about investments. My question is, can I get higher interest by investing in 3 months treasury bills or just leave my money in CPF for 3 months? )


It is better to leave your money in CPF as you earn 2.5% interest plus a bonus of 1%. Short term treasury bills pay less than 1% interest.

Income Tax Relief

Dear Mr. Tan,
The price of every thing has gone up. I believe that every one feels the pinch. This year, made people have to think about their household budget or personal budget. The relief that the Government gives to tax-payer has remained the same over the years. Do you think that the Government should raise the amount by 5% or more?

The Government has been quite firm about not changing the income tax relief. They prefer to reduce the tax rates.

My personal view is that the income tax relief should be increased over the year, in line with inflation.

Products that are good for customers

Products that are good for customers have the following features:
* meet the needs of customers
* transparent, easy to understand
* educate the customers
* low marketing expense
* fair profit margin
* easy to compare the price of similar products

Many products in the market have these features. The prices are kept competitive and at a fair level. They represent good value to the customers.

At the expense of customers

How can you identify a business that is being operated "at the expense of the customer"?

These businesses make big profits as follows:
* overcharge the customers
* mislead the customer into buying a bad product
* pays high commission to sales people to sell the products

The features of these products are:
* complicated
* lack of transparency
* speculative

Examples of these types of bad products are:
* time sharing
* land banking
* high cost insurance and structured products

These businesses are able to design products that are not suitable for customers, make them complicated, train marketeers to push the products and pocket big profits.

Lesson: Avoid these products that are developed to "rip off" the customers.

Sunday, April 06, 2008

More Trust & Faith in Our Younger Generation

Dr. Lee Kum Tatt’s (LKT ) blog is now one year old. He has many visitors from all over the world to his blog. They range from students, parents, professionals, professors and friends besides the men in the street. He has to cover a wide spread of people.

He has asked three of his grandchildren who are a University graduate, and two undergraduates for their views on his articles and the issues that affect them.

Read about their views in his blog

Customer Service in Singapore

Customer service level in Singapore is getting worse than expected. When you stand in front of the shopping centers customer service staff, they can just ignore you and act busy or chatting among themselves.

Hopefuly, every shopping centers management can really put in some effort to promote "Service with a good manners".

It is extremely impolite for customer service staff to chat among themselves, instead of serving a customer. This bad habit seems to be a Singapore culture. I hope that this weakness can be removed.

Terminate an existing policy?

Dear Mr. Tan,
Please advice if it's good for me to terminate this policy (benefit illustion attached) which I hold since 1993. I intend to buy term and invest the cash in ETF STI. Appreciate what you are doing…

Please follow this guide and let me have your preliminary conclusion:

Being accessible to customers

Dear Mr. Tan,
I was reading your blog entry titled: Excellent Customer Service. I also understand that you used to communicate with customers directly when you were a CEO, is that what you mean by being "accessible"?

I can't figure out the rationale behind needing to have top people who are accessible to customers. Personally, as a buyer of a service or product, I do not really care about who solved my problems when they arise, I do not go directly to the highest level but work my way up until my problems are fixed. So if an organisation is able to hire and train good customer service officers, I do not see the need to have access to the top people.

I must say though, to have a very good customer service team is not easy. As a customer or shareholder of a company, I don't think it's a good idea to have the top people handling customers, as I think the cost will have to be passed on somehow, either to the customer or the organisation's bottom line will suffer. I hope and would appreciate if you could enlighten me.

Most customers have their issues solved at the lower levels. Only a small number of cases go to the top. Some customers write an email to me (3 to 5 per day). It was quite easy for me to handle them.

I give them an immediate reply (usually a partial reply) and forward the issue to the right people to handle it. It worked quite well.

Immediate or deferred annuity

An immediate annuity pays the annuity payment immediately. A deferred annuity pays the annuity payment at a specified date in the future. During the deferred period, the invested sum is invested to earn interest.

If you do not need the annuity payment immediately, you have the following options:
a) buy a deferred annuity
b) invest your money separately and buy an immediate annuity at the future date

Your choice depends on the terms that you are offered. For example, if the insurance company pays 2.5% per annum for the deferred period, it will be attractive compared to leaving the money in the bank to earn 1%.

If you buy the deferred annuity, you are locked into the contract now. If you wish to withdraw from it later, you may be subject to penalty. You should choose the deferred annuity only if you are sure that it is what you really want.

My preference is to invest separately and buy an immediate annuity at the time that you need the annuity payment. For example, it is better to keep your minimum sum in the Central Provident Fund until 62 or 65 years, and earn interest at 4% plus bonus of 1%. You can decide at 62, if you wish to switch to an immediate annuity at that time.

Lesson: Keep the flexibility. Do not be locked into a contract that you cannot change. If you buy an annuity contact, stick to it for the entire period.

Lyxor Exchange Traded Funds (ETFs)

Hi Mr. Tan,
I read your blog. You said that it might be better to buy into ETF such as STI ETF to reduce expenses and upfront loading. Recently, there has been a number of Lyxor ETFs listed on SGX and they are denominated in USD. What is your opinion of such ETFs, in particular that the exchange rate risk of such ETFs seemed particularly high in current market?

The Lyxor ETFs are denominated in USD for the purpose of trading only. The underlying risk depends on the asset class that the fund is invested in, and is not affected by the traded currency. For example, if the USD weakens and the underlying fund is performing well, the unit price denominated in USD will increase to compensate for it.

I am not familiar with the Lyxor ETFs, but if they are widely diversified, invested in good quality stocks (i.e. non speculative) and have low expense ratios, then these ETFs are suitable for long term investors.

Future role of the intermediary

Hi Mr. Tan
If more insurance companies offer their products through the internet, is there a need for insurance agents?

Insurance agents will continue to play a useful role. They have to advice the customer on making the final decision, after the customer has obtained most of the information from the internet. As the insurance agent takes less time to make the sale, the commission rate can be reduced.

This is similar to the situation with buying shares from a stockbroker. The brokerage is now 0.3% (as compared to 1% previously). The stockbroker continue to do well through a larger volume of business.

I use a stockbroker to obtain relevant information and handle the transactions. This is more convenient than searching for the information by myself. I do not mind paying a slightly higher brokerage (compared to transacting through the internet), as the service is valuable.

There is a role for insurance agents in the new environment. The new system will be more efficient and will reduce cost for the benefit of everybody. The agent can earn a fair rate of remuneration, but should not be placed in a conflict of interest.

The challenge is making the change to move forward.

Excellent Customer Service

Excellent customer service is built from the following components:

a) A genuine belief in doing the best for customers
b) Simple and efficent processes
c) People who enjoy serving customers
d) Teamwork among the service providers
e) Competent leadership, who knows the business

It is not possible to have excellent customer service under the following environment:

a) When an organisation wants to increase profit at the expense of customers
b) When there is high turnover of managers and staff
c) When people look after their individual performance, rather than work as a team
d) When the top people are not accessible to customers

There are so many organisations that fall into this trap. The leaders think that excellent customer service can be achieved by engaging consultants to improve the processes. It hardly works.

It takes man years to build an organisation that has excellent customer service. It can take a short time to destroy it.

5 year Single Premium Endowment

Hi Mr. Tan,
I wish to seek your advice on the best return single premium endownment for 5 years. This sum of money is mean for housing which i intend to use it after 5 years.

My objective is to treat the single premium endowment as a form long term fixed deposit for high return as compare to the current fixed deposit rate. Thank you for your advice.

You have to do some work. Call the telphone numbers of the life insurance company directly. Tell them that you have $x and wish to have a 5 year single premium endowment. Let me quote the best terms to you.

You can show me the figures (of guaranteed and non-guaranteed benefit). I will help you to make a decision. The telephone numbers of the insurance companies are found in this FAQ:

Alternatively, you can ask a bank or stockbroker to find a government bond that will mature in 5 years time. You will probably get a yield of about 3%. Over 5 years, the gain should be about 16%.

Should MAS ban high cost products?

Someone posted a comment about an ILP product that gives poor cash value after two years. He asked, "Why doesn't MAS (i.e. Monetary Authority of Singapore) ban this type of product, or set some limit on the commission that can be paid to the agent?"

It seems that many consumers are not aware about the high charges of an ILP product, and now learn to their regret that so much of their savings is taken away from them.

If you are in this category, and you felt that the insurance agent has not been fair in disclosing this important point to you, should write to MAS. If enough people write to MAS, maybe, they will take actions to protect the interest of consumers.

Alternatively, you should write a letter of complaint to the newspapers and wait for MAS to reply to your letter.

High charges of ILP policy

There are many stories about consumers who bought the ILP policy from several insurance conmpanies and agents, only to find the cash value to be so low after paying permiums for two years. Read this website to learn about the high cost:

According to this survey by Dr. Money, the insurance proeuct can take away 19 months of your savings. If you save $300 a month, you will lose more than $5,000. It is a lot of hard work for you to earn this money. It is taken away to pay the insurance agent and the marketing cost of the insurance company.

You should avoid these high cost insurance products. Please help to tell your friends and relatives. They should avoid ILP policies sold by insurance agents.

It is better for you to invest in a low cost fund, such as the STI exchange traded fund (i.e. managed by StateStreets).

You can also wait for a few months, and invest in the Wealth Accumulator which will be introduced later this year. Read this FAQ:

Keen interest in Wealth Accumulator

Hi Mr. Tan,
I follow your blog, and there's more and more story about ILP charges. Sadly, I also have ILP policy with this "P" insurance company. When I signed the policy, I thought that's the only insurance model I can have with some value return. As for term insurance, initially, I thought it's not good since the policy doesn't return any value at the end.

But, as I read your blog, I understand that "Buy Term and Invest the Rest" might be a better model. However. it's too late for me, as the ILP has been signed about 1.5 years ago, and as you already know, the cash value is so little at this time. As I will still be charged by premium cost for another 1-2 years (which might be around 50%), do you think I should surrender this policy now?

Since current ILP model mostly doesn't give proper benefit to customer, and only gives heavy benefit to insurance agent, why don't the government ban this insurance model? Or at least make some regulation for the size of the initial premium charge? Government has done similar to the Sales Charge of Unit Trust, which only allows 3% sales charge to the Unit Trust (if it's invested using CPF), which as expected, followed by the reduction of sales charge by almost all institution or bank.

I look forward to your "Wealth Accumulator" product. Hope it will be an "innovation" that will be followed by other insurance company to provide better benefit for customer. May I know how you will realize/market this product?

If you are willing to cut loss, you can terminate the ILP policy now and save on the high charges for the next few years. I hope to get a new insurance company to offer the Wealth Accumulator product later in 2008.

Read this FAQ to learn about the Wealth Accumulator:

Disappointing service at Business Center

Dear Mr. Tan,
Firstly, I will like thank you for your blog, which Ibelieve is beneficial to consumers.

I have visited a business centre of an insurance company on two occasions. Both times, the business consultants wanted to sell the idea of Life insurance to me. They looked disappointed when I insisted on a low cost term policy instead.

The moral of the story is;
1) Even though the consultants are earning mostly afixed salary (a small component in commission), it is difficult to be objective when commissions no matter how small or targets are involved.

2) Consumers have to take some responsibility in educating themselves and study the product before purchasing any products. It is difficult to obtain objective advice.

Thank you for your feedback. I hope to get a new life insurance company to offer low cost insurance and low cost investment funds. They can be bought over the telephone or its office. This will happen later in 2008.

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