Saturday, May 03, 2008

Reasonable expectation of policyholders

NTUC Income has given me the two scales of terminal bonuses (for surrender and maturity/death claims) payable on each of my policy for each year in the future. In total, I have four complicated scales for two policies.

The scales appear to be calculated to give terminal bonus that is slightly more than the cut in the annual bonus. They may suit these policies at the present time, but it is unclear how the scales will be changed in the future to reflect changing cirumstances.

I have asked NTUC Income to clarify the following questions:

1) Will the same scales of terminal bonus apply to all policies in the same series, or will they differ according to year of entry as well?

2) How will the scales of special bonuses be changed in the future, to reflect changes in the investment yield?

3) What are the principles that will be followed to maintain fairness between the policyholders with different entry years and different policy types?

4) To what extent is the higher rate of special bonus guaranteed, as it is intended to compensate for the cut in the annual bonus?

5) Will NTUC Income be prepared to lay out these principles in a transparent manner to be disclosed to all affected policyholders?

6) For policyholders who have suffered a reduction in annual bonuses for a few years since 2003, does NTUC Income intend to use some of the exceptional
surplus in 2007 to pay additional bonuses to policyholders to make good their shortfall (as compared to the projected bonuses at the time that they bought the policies)?

7) Will NTUC Income give an option for policyholders to remain on the old bonus structure, if they do not accept the change to the new bonus structure?

My personal preference is to stay with the "old" bonus structure, as it is more transparent and a higher proportion of the bonus is vested each year.

I do not like the "new" bonus structure as it can be subject to arbitrary adjustments and the terminal bonus can be withdrawn in the future. I am also less confident of getting a higher payout, if the investment yield improves.

Regular savings plan at 1.75% sales charge

I received an advertising mailer from Fundsupermarket. They offer a range of investments funds with an sales charge of 1.75%, and are available for regular savings plans. Details are shown here.

The sales charge of 1.75% is even lower than the spread of 3% chargeable for single premium investments by insurance companies. The expense ratio of some of the funds are quite accepable, between 1% and 1.5%.

If you have invested in some of these funds, please share your experience. I shall be contacting Fundsupermarket to learn more about these funds.

Save for a child's education

Dear Mr. Tan,

1. In your FAQ: Save For Your Child's Education (, it mentioned that an investment-linked plan gives a better return as compared to an education endowment plan. If I intend to save $150 a month over 21years, what type of plan should I buy to go with a 21 years decreasing term insurance plan? Is it advisable to buy the plans from different insurance company?

2. I read about DIY insurance from the website ( May I know what is a "recurring single-premium ILP"?

3. If I intend to DIY for my child's education fund, what plans should I consider?

I am disappointed that most insurance companies take away too much of the policyholder's premiums. Read this FAQ:

At one time, I was prepared to recommend the Flexilink or the Ideal (ID7) from NTUC Income. I am not sure if they are still keen to offer these low cost plans. You can ask their business center.

You will have to wait for someone to introduced indexed funds in Singapore. I hope to get a new life insurance company to offer it within the next 6 to 12 months. Read this FAQ:

In the meantime, it is best to invest in the StateStreet Trakker Fund (i.e. the STI ETF). You have to pay about $3,300 to buy 1,000 shares. Perhaps you can save in a bank account each month and buy this fund when you reach the minimum amount.

A recurring single premium plan is a ILP where you make a large one time investment to start the policy. They allow you to make recurring payments into the plan and be freed of the heavy upfront charge applicable to regular premuim savings.

Shocked with bonus cut

I received a copy of this letter written by a policyholder to the appointed actuary of NTUC Income.

I'm glad to receive the INCOME 2008 annual Bonus Statement yesterday but was shocked with the contents.

My family of 5 have a total of 25 insurance policies with NTUC INCOME, nothing else but our trust on the house brand that give us protection and more reasonable returns.

I'm deeply disappointed with the new formulas used in calculating the annual bonus.

My family 5 Living Policies got the greatest hits. Based on the presentation by your agent, I accepted these Whole Life Policies and hope that in case needs arise, I can anticipate the Cash Value at that point of times in need. Now that INCOME told us
that we can expect the good returns after we leave this world and amount is up to INCOME mercy at that time. We have lost on planning of our insurance asset and unable to anticipate the amount we can get.

Your cut of about 50% in annual bonus for Whole Life Policy give a BIG BLOW to INCOME Policy Holders.

Visitors hit a new record 1,318

The visitors to my blog hit a new record, 1,318 visitors, on Friday 2 May 2008. It surpassed the previous record on Tuesday.

The average daily visitors has now passed 1,000. It hit 1,021 visitors for the past week. It seems that the bonus cut of NTUC Income is attracting many more visitors to my blog.

Friday, May 02, 2008

Uncompetitive motor premium rates

Dear Mr. Tan,
Recently my Motor Insurance was due for renewal with NTUC Income. I rang the customer service with the intention of renewing my insurance. I was shocked to learn that it has increased from $690 to $815 after 50% NCB and 5% direct discount and 5% loyalty discount.

When I asked if the premium can be lowered since I have been insuring with NTUC Income for 8 years, I was told it was company's policy and the premium is fixed. I then called AA and was offered a premium of $766 with another insurance company.

My question is why can't NTUC look at the insurance coverage of each individual and fix the premium. All my family insurance are covered by NTUC Income, yet I find NTUC Income to be rigid and does not consider the loyalty placed by an individual
Can I have your comments?

I suggest that you pass the feedback direct to the new management of NTUC Income. You can send to

I also experienced a large increase in premium on my wife's motor car recently. I was able to get a much lower premium rate from another insurance company. I decided to move my motor insurance to the new company, in spite of having insured with NTUC Income for many years, without any claim.

Home insurance claim

Dear Mr. Tan,
My maid was replacing the bulb on my expensive lamp fixture. The ladder slipped. She fell and pulled the fixture down with her. Is the loss of this fixture covered under a home insurance policy? I am insured for the building and the content as well.


I checked with an insurance claim expert. Here is his reply:

The lamp fixture falls under the scope of "contents". Inorder for the policy to respond, the damage or loss must be within the insured perils. Home insurance is a fire policy that have been extended to cover floods, water damage (e.g. overflowing sewerage pipes), damage by lighning. It does not cover accidental damage to the lamp fixture under the circumstances described by you.

Transfer of shares to family members

After my retirement from NTUC Income, I decided to invest most of my savings in shares on the Singapore Exchange. The shares are kept in CDP.

I had considered the option of investing the additional savings in the Combined Fund in NTUC Income, but I find the upfront spread of 3.5% to be too high.

I have now decided to transfer some of my shares to my wife and children. I asked them to open a stockbroking and CDP account. My stockbroker said that I could approach CDP to make the transfer to family members at quite modest cost.

It is better to make the transfer now, so that my family members are able to learn about investing in shares. They can collect the annual dividend directly. Later, they can also learn about investing in low cost unit trusts. They should not have to pay high charges for investment-linked funds marketed by life insurance companies.

This is also a good way of distributing some of my assets now (instead of waiting until I leave this world! )

Cooperative principles and values

Dear Mr. Tan Kin Lian,
I have been a strong supporter of Income for many years. My family has several policies with Income. I am also a member of NTUC union.

You said that the bonus cut by Income is unilateral and arbitrary. Is this the proper behaviour for a cooperative soceity. I thought that the coop acts in an open, transparent manner and look after the interest of the policyholders. This behaviour is as bad as the commercial companies, maybe even worse. Is there any body in the board and management of Income that understand coop values? What about the NTUC?

As you are a union member, you can bring this matter up with the leaders of NTUC. They have been promoting cooperative principles and values and wish to see the NTUC cooperatives behave differently from commercial companies. Maybe, the NTUC leaders can intervene to rectify this matter.

In my frank opinion, the cut in bonus is to the detriment of the policyholders. It will destroy the trust of policyholders in NTUC Income and in the NTUC as a whole (as many union members are affected).

Thai workers protest for higher minimum wage

Thousands of workers waving flags and banners gathered in the Thai capital on Labour Day to call on the government to raise the minimum wage and improve their welfare.

Thursday, May 01, 2008

Do not cancel your policies

Hi Mr. Tan,

I have been a loyal policyholder of NTUC for many years. I am really disappointed with the bonus cut, affecting several of my policies, including the policies taken for my children. I am considering to cancel all of these policies and to invest in unit trusts. Do you advice this move?

Do not cancel your existing policies, as you will suffer a financial loss. You can lodge a strong protest against the bonus cut to the board of directors and to the MAS. It is a serious breach of contract.

When you bought these policies, you were given a scale of bonuses to expect in the future. NTUC Income does not have the moral right to change this structure, in an arbitrary manner. You can bring up this matter with MAS as they have to safeguard the "reasonable expectation" of the participating policyholders.

In the future, you should avoid saving in life insurance policies, including policies with bonuses and investment linked policies. After deducting the agent's commission and marketing expenses, they give poor value to the policyholder. The modest yield is now being reduced further through the manipulation of the bonuses.

You should also tell your friends to avoid buying saving-type life insurance policies with high upfront charge, sold by insurance agents.

Buy low cost Term or accident insurance to provide the protection for your family. Read this FAQ:

Pay of leaders

A few days ago, someone passed this question to me, “Do You think our leaders' performance commensurate with their pay?”

It is my policy to avoid commenting on any specific person’s performance and pay, even if this person reports directly to me.

I wish to share my personal views on how corporate and government leaders around the world are rewarded.

The prevailing thinking is that corporate leaders should be rewarded based on the shareholder value that they have created. This approach appears to be wonderful in theory. But it has great difficulty in practice.

The current method of measuring shareholder value based on the share price is flawed. The share price can fluctuate wildly based on many factors that are not related to performance of the corporate leaders.

Corporate leaders like this method because they can get fat bonuses in good years, and are not required to pay back these bonuses during the bad years.

It has contributed to big moral risks. Some corporate leaders manipulate the accounts to show big profits in the early years. Remember Enron and Worldcom? Some others take big risks to boost short term profits. Remember subprime mortgages, hedge funds and special investment vehicles?

These corporate leaders earn unimaginable amounts during the good years. When their companies have to write off billions of dollars of shareholder money in the subsequent years, these leaders depart with golden parachutes.

How should government leaders be paid?

It is important that the rewards should attract the right type of people to take the risk and nature of political life.

Monetary reward is an important factor. But it should not be the sole or dominant factor. A passion for this type of work and life is equally important.

We should attract leaders who have the passion to help improve the living standards of the ordinary people. These leaders are willing to put their interest of the public above their personal interest and give up the bigger rewards of corporate life.

They need to receive an adequate remuneration, so that they do not need to supplement their incomes through corrupt means. A remuneration of 10 to 20 of the average earnings of the population, accompanied by a good pension, should be adequate to give a comfortable life. But it will not put them anywhere near the earnings of top corporate leaders and professionals.

I believe that there are many capable people who are willing to come forward for the satisfaction of serving the people and an adequate remuneration. This will be the best type of people to be in government.

If a country cannot find this type of people, then there must be something seriously wrong with the values of that country!

Wednesday, April 30, 2008

Street maps and better signages

I parked my car at Suntec City to attend a dinner. I had to walk to Millenia Walk to collect a bag. I had some difficulty in finding the way to my destination. Someone approached me on the street and asked for directions to the National Library. He was also lost. I was not able to help.

In many cities, there are street maps displayed at prominent places to help visitors to find the way to prominent landmarks. This is sadly lacking in Singapore. Signages in Singapore are also poor.

I hope that some responsible agency can take the initiative to provide street maps and improve the signages to help people to move around more easily.

Management direction has changed

Dear Mr. Tan,

Thanks for giving me a job when I am in need while you're still our CEO at NTUC INCOME.
I have decided to leave INCOME as the direction of the management changed.

The commercial mindset INCOME adopted is no doubt one of the good options but it will be likely at the expense of the policyholders as the cost of operation increased (renovation, staff salary adjustment and advertisement).

I really admired the days when INCOME was steered by your leadership. This is also one of the reasons that motivated me to join NTUC INCOME during your era. Your management has definitely secured a job for the staff under your care and benefited the policyholders at large as they enjoy good bonus from year to year from the policies.

Mr. Tan you're always a model for me to learn and I am looking forward to your return to this industry to benefit us.

How to invest in low cost investment funds

Hi Mr. Tan,
I read your article about not to invest in structured deposit. How do I go about getting the ideal plan ID7 or ETF as recommended by you? How much do invest and for about how long? Thank you.

You can ask the business center of NTUC Income, if they can sell the ID7 plan to you. You can buy the ETF through a stockbroker.

You can invest any amount, subject to a minimum of 1,000 shares in the case of ETF. You can invest as long as you wish. Usually, you will get a better return when you invest for the long term, i.e. for 10 year, 20 years or longer.

Read this FAQ:

Terminate an existing life insurance policy

Hi Mr. Tan,
I have purchased an Umbrella Policy from NTUC since 1990. The cash value as of end Mar '08 is $X. I am thinking to terminate this policy and to invest the money instead. Do you think I should do this? Thanks a lot for taking time to help!

It depends on the following:
a) do you still need the life insurance cover?
b) do you need the cash now, to spend on your daily expenses?
c) do you wish to reinvest it to earn a higher return?

Read this FAQ:

I hope that it gives useful informatin for you to make a decision.

Difficult to assess the risk

Mr. Tan,
I would like to seek your opinion on the MQ yield 2.08% product, as advertised in Strait Times . Do you think this is safe ?

As you know, the interest rates for FD is so low. I am thinking of treating this as a FD for 2 years. Coupon 2.08% annually, payable every 6 months.

This is a capital guaranteed. Provided Macqueries Bank does not go burst. This seem unlikely to happen. Can you please highlight other possible risks ?

This is a structured financial product. I avoid all structured products, for the reasons given in this FAQ:

In the document for this product, the issuer said that the "principal protection" does not apply under certain circumstances. Honestly, I do not know how to assess this risk (but it is not something you can just dismiss away) I am also not able to spend time to study this risk. Often, it cannot be calculated anyway. So, I always avoid these types of products.

Invest separately for higher return

Dear Mr Tan,
Thanks for your great advice in your blog, I always thinking that NTUC is the best insurance company in term of its low premium compared to other companies. However, after go through your article, I start to wonder.

Recently I have just bought a living policy (VIVO life) for my wife, my son and me, I attached the policies for your reference.

Would you mind to advice me whether I should continue or cancel this policy and change to Term policy instead?


In the table below, I tabulate the cash value for each policy at the end of 20 years (based on 3.75% and 5/25%) and the amount that you can get by investing the same premium to earn a net yield of 4.5%

policy Annual Cash value 20 years Amount
premium @3.75% @5.25% @4.5%
Self $1,454 $31,294 $34,907 $47,666
Wife $1,217 $26,428 $29,478 $39,890
Son $1,171 $27,105 $30,234 $38,389

You can get about $10,000 (or 30% more) more for each policy by investing separately. If you buy decreasing Term insurance to provide the protection, the cost is very low. The Vivolife policy gives a poor return due to its high expenses, which are taken away from your savings.

It is better for you to buy Term insurance and invest the difference, as explained in this FAQ:

You should have adequate life insurance cover on your life (say about 5 years of your income). You can buy a 20 year Decreasing Term or level TErm insurance.

REad this FAQ:

I hope that this information is helpful for you to make an informed decision.

Poor yield from financial products

Do you fit into any of these categories? What about your family members?

1. Many people earn a low rate of interest on bank deposits. The bank interest rate, which has been less than 2% for several years and now less than 1%, is insufficient to cover the rate of inflation, which has now increased to more than 5%. If they invest in other financial products, they have to pay high charges and get a poor yield.

2. Many people invested several billions of dollars in structured financial products in the hope of getting a better yield than bank deposits. They were taken to the cleaners. Many housewives and retirees told me about their investment in the capital guaranteed products that were heavily advertised and sold by our trusted banks. After locking up their principal for five years, they get a total return of less than 1% per year, worse than bank deposit. They missed the chance of earning more than 10% per annum on the booming stockmarket.

3. For most people who invested in unit trusts and investment funds offered by life insurance companies, the outcome was not better. They have to suffer an upfront charge of 3% to 7% on their investment and an annual charge of 1% to 3%. After deducting these high charges, the net yield on their investment is mediocre and does not commensurate with the risk. The fund managers and other financial intermediaries have taken away most of the gains.

4. The worst cases are the hundred thousands of people who invested their regular savings in an investment linked product sold by the life insurance companies. In addition to the high charges mentioned above, they have to suffer “allocation rates” that takes away two years of their savings to pay commissions to the insurance agents. Many were not aware about the financial impact of these predatory “allocation rates”.

This is an extract of an artilce printed in:

Reply: Puncturing inflated claims

This letter is printed by Straits Times on 30 April with some editing.

25 April 2008

Forum page
Straits Times

I refer to Christopher Tan's article entitled "Puncturing Inflated Motor Claims" in the Straits Times 21 April 2008.

I wish to share my perspective on this matter, having been personally involved in helping my team to build the largest market share in motor insurance during my period as the chief executive officer of NTUC Income. We were able to offer lower premium rates to more than 300,000 policyholders and still produce a profitable business.

For many decades, insurance managers in Singapore are aware that dishonest workshops inflate the repair bills on third party claims. These workshops aggravate the damages to inflate the repair bills, claim for parts that are not replaced and exaggerate the repair time to claim a higher compensation for loss of use.

They use lawyers to lodge the third party claim against the insurance companies. The legal fees are added to the total claim. If insurance companies do not settle the inflated claims, the lawyers are quick to file a legal suit, which takes the cases into the domain of the courts. This further increases the legal fees and now adds the court costs.

To avoid the high legal fees, many insurance company assessors find it better to settle the third party claim, even though they are ware that the claim amount has been exaggerated. The higher claim payments are ultimately reflected in higher insurance premiums paid by motorists.

What can be done to reduce these inflated claims?

Six years ago, the insurance companies introduced the Idac scheme (i.e. independent damage assessment centers). They require the motorists to report the accident at an Idac center for the damages to be assessed on the spot, before the vehicles are sent to the workshop. This reduces the opportunity for the workshop to aggravate the damages. The Idac scheme was intended to apply to all claims, including third party claims.

The Idac centers are actually more convenient for motorists. The centers are open during most hours of the day and night and are a one-stop center for reporting of accidents and assessment of damages. Many motorists who experienced the service of the Idac centres give positive feedback on their convenience and reliability.

Unfortunately, some insurance companies decided to withdraw from the Idac scheme. Without the full participation of the insurance companies, it is not possible for the Idac centers to play its role in controlling the inflated third party claims. This led to the escalation of motor claims during the following years.

In my view, the Idac scheme still represents the best way to control the inflated claims. I hope that the insurance companies will review their position on this matter.

Another possible solution is for the Government to pass a law to make it mandatory for a motorist to lodge a third party claim directly with the insurance company immediately after the accident. This will allow the insurance company to assess the damages and settle the claim, without involving a lawyer. If the claim is in dispute, the owner can then engage a lawyer to handle the case. This is a common practice in many other countries.

Without legislative support, it is a constant cat and mouse game with the dishonest workshops. Insurance managers have to devise many checks and controls to manage the dishonest claims. It is expensive and tiresome.

Singapore has an expensive and wasteful method of handling third party claims, resulting in inflated claims and high legal expenses. It is a blemish on our record as an efficient, transparent society.

Tan Kin Lian

Tuesday, April 29, 2008

1309 visitors on April 29

1,309 people visited this blog on April 29. This is an increase of 30% over the last peak - which was below 1,000 visitors. My guess is that the bonus cut by NTUC Income contributed to this big jump.

Pay of our leaders

Kin Lian
I like to pose a question and You have the prerogative not to answer though I eagerly look for one. Do You think our leaders' performances commensurate with their pays? Thank You!
From: patriot.

I suppose that you are referring to our government leaders. In my reply, I shall also focus on the pay of our corporate leaders. I shall have to be careful about how I address this matter. Wait for a few days.

How to invest

Dear Mr. Tan,

I am interested in Investments that will give me monthly returns and low risks. I am also interested in the Singapore shares i.e SIA, Sembcorp, SingTel etc. My questions is how do I go about investing?

Read this FAQ:

Online Citizen

I will be making a regular contribution to the Online Citizen. My first article will appear tomorrow, 30 April. It is entitled "High Cost of Living".

Short bus trips

My friend stayed in Punggol and work in Raffles Hospital (next to Bugis Junction). If he takes the MRT, he has to make two transfers at Dhoby Ghaut and at Raffles City.

He thought that it wuld be more convenient to take the MRT to Dhoby Ghaut and to change to a bus to Bugis Junction, which is just a few stops away.

The trouble is: what bus to take?

I searched the Public Transport Guide (available from Popular Bookstore for $6.50). There are 18 bus services passing the nearest bus stop to Dhoby Ghaut. There are 17 bus services passing the two bus stops next to Raffles Hospital. By checking through these two long lists, I was able to find two bus services that connect these two bus stops.

Most people buy the bus guide published by Transit Link. It is dificult to use and will take a long time to search for the connecting service. No wonder many people are reluctant to take public transport.

I hope that, in the revamped public transport system, there will be 2 to 4 local services to connect each town to the nearest MRT stations and bus interchanges. This will encourage short trips on the buses. With fewer services, the waiting time will also be shorter.

Lawyer for Injury Claim

Dear Mr. Tan
Would you be able to recommend a lawyer, specializing in motor accidents claim.
in this unfortunate incident, a family member was hit by a motorcycle. Appreciate your kind recommendation

I am not able to recommend any lawyer to you on this matter.
If you check Google and type "lawyer motor claim Singapore", you can find a few firms listed.
All the best.

Zero Certs

Dear Mr. Tan,
What is your opinion about Zero Certs? The advertisement claimed that it is like an indexed fund and is transparent. The investor can also select the Singapore stockmarket, like the ETF. Is it a good investment?

The price of the Zero Cert is based on the index. However, all the dividends paid on the underlying stocks of the index are kept by the fund manager, as their expense charge.

The average dividend yield of the component stocks of the ST index is about 2.5%. As the Zero Cert take away the dividend entirely, the expense charge of the Zero Cert is about 2.5% per year. This is a high charge for an indexed fund.

It is better to invest in the StateStreet STI Trakker Fund (i.e. the STI ETF). The expense ratio is only 0.3%. If you earn an average dividend yield of 2.5%, you will get a net yield of 2.2% plus the gain in the price of the index.

Lesson: avoid complicated products. Invest in simple, transparent products.

Reduction in yield

Hello Mr. Tan,
I bought an Investment Linked Policy (ILP) in mid 2007. After reading this case study ( , I feel I might've made a poor investment choice but I'm not sure how to get the figures. I just can't seem to find the net yield or the reduction in yield anywhere in my policy document.

The benefit illustration for my policy is listed below. I'll be very grateful if you can guide me and tell me if my ILP is too expensive:

End of Year: 20
Annual premium: $2160
Total premium: $43,200
Distribution cost: $1296
Protection value (guaranteed): $10,800
Total (include nonguaranteed CV): 5% > $60,200, 9% > $92,800
Cash Value (nonguaranteed): 5% > $60,200, 9% > $92,800
Effect of deduction: $23,010

I am really very lost. Thank you Mr Tan!


I suggest that you ask your insurance company to calculate for you the reduction in yield, based on an investment period of 10 and 20 years.

You can check it with my calculation below.
You invest $2160 a year. Assuming a gross yield of 5%, you get $60,200 at the end of 20 years (assuming a gross yield of 5%). The net yield (calculated from a financial calculator) is 3.3%. Reduction in yield is 1.7%.

Assuming a gross yield of 9%, you get $92,800 at the end of 20 years. The net yield (calculated from a financial calculator) is 7.4%. Reduction in yield is 1.6%.

If you invest in the STI ETF, the reduction in yield (i.e. expense ratio) is only 0.3%.

Monday, April 28, 2008

Crowded trains during off-peak hours

I took the MRT at 9 pm from City Hall to Yio Chu Kang station. The train was crowded throughout the entire journey. The air conditioning was not working. It was uncomfortable.

SMRT is efficient in packing the trains during the peak and off-peak hours. This makes good profit for their shareholders. But it is at the expense of the commutters.

In other cities, the commuters expect crowded trains during the peak hours, but the train rides are quite comfortable during the off-peak hours. This is not the case in Singapore.

I hope that the key officials in the Ministry of Transport, Land Transport Authority and the Public Transport Council will take the train and experience it for themselves.

Reduction in Annual Bonus

1. NTUC Income has reduced the annual bonus on its life insurance policies and compensated it by increasing the special bonus. Is this change good for policyholders?

It is better for a policyholder to have a higher rate of annual bonus, as it is vested immediately each year. The special bonus is not guaranteed and may be withdrawn at a future date, before it is paid.

In the past, there were many cases of insurance companies that used high projections to sell their policies and have reduced the special bonuses before they are due to be paid. This has caused great losses to the hapless policyholders who are denied the projected payouts, after waiting for so long.

2. Does NTUC Income have the right to change the bonus structure in this manner?

At the time of issue of the policy, NTUC Income gave a projection showing how the bonuses will be distributed in the future years. Although these bonuses are not guaranteed, there is an expectation that the future bonuses will be distributed fairly. If the investment yield is high, the bonus rates should be increased. If the yield is low, the bonus rates may be reduced.

This has become a "reasonable expectation" of the policyholders. The Monetary Authority of Singapore required life insurance companies to ensure that the "reasonable expectation" of the policyholders is respected.

NTUC Income will be acting against the "reasonable expectation" by reducing the annual bonus in a year when the investment yield is exceptionally high (i.e. above 10%). The increase in special bonus payable in the future does not give adequate compensation to the policyholders, as it is not guaranteed and is payable only after a long time in the future.

Some policyholders have to terminate the policies earlier, for various reasons. They will get a lower cash value due to the lower annual bonuses. This penalty is unfair to these policyholders.

3. Should I cancel my policies with NTUC Income, as their annual bonuses and cash values will be poor in the future?

Do not cancel your policies, as you will suffer a financial loss. As NTUC Income has unilateraly changed the bonus distribution unfairly, you can take a strong stand against this change. See below.

4. What can a policyholder do?

If you feel that you have been severely disadvantage by the reduction in annual bonus, you can send a strong letter of protest to the following:

a) chairman of the board of directors of NTUC Income
b) the Monetary Authority of Singapore
c) your Member of Parliament

If sufficient policyholders voice their unhappiness, these parties will have to take action to correct the injustice.

There is also the possibility for policyholders to get together to take collective legal action. This should be reserved as the last step.

5. How many policyholders are affected by this change?

NTUC Income has said that 310,000 policyholders are affected.

6. Does this change affect all policyholders of NTUC Income?

It affects the policyholders who took the policies in recent years, and not the policyholders who took the policies earlier. This is another source of inequity, as different groups of policyholders are treated differently on this matter.

Bus interchanges

There are 35 bus interchanges in Singapore. Some interchanges are large and have to serve more than 25 services. The commutter may have to walk a long distance to the stop for the required service. This makes a transfer to be quite inconvenient.

In the design of the new transport system, I hope that they were will be 2 to 4 local services to serve a MRT station. The stops for these services can be located within a short walking distance to the train station. This will make it convenient for commuters to make a transfer.

Investing in Unit Trust

Dear Mr. Tan,
Is unit trust a complicated product? Do you recommend investing in a unit trust?

A unit trust is generally a simple product. Your money goes into a fund which is invested on behalf of all the investors. The fund manager has to disclose the following:
a) Upfront spread
b) Expense ratio (i.e. the annual charge)
c) Scope of investment.

It is best to invest in a unit trust that has no spread, i.e. the same price is used for buying and selling of each unit, or a spread of not more than 1%. You should choose a fund with low expense ratio, less than 1% per annum.

If you select a unit trust that has a high spread and expense ratio, you have to be sure that the fund manager is able to produce a better return compared to the market. Usually, it is difficult to make this judgement.

I prefer to invest in an indexed fund, such as the STI ETF. It has no spread (except a transaction charge of 0.3%) and an expense ratio of 0.3%. An ETF is like a unit trust, except that it can be traded on the stock exchange. A unit trust is transacted daily based on the net asset value at the end of each day.

Tip: invest in a low cost unit trust, such as the STI ETF.

Sunday, April 27, 2008

Avoid complicated products

Many financial institutions design complicated products that lock you up for many years and give you a poor yield.

They pay a high commission (taken from your investment) to the marketeer, which could be an insurance agent or the relationship manager of a bank.

To hide the poor yield, they introduce several complicated features to distract the investor. If they are transparent, they will never be able to sell the poor yielding product.

Many life insurance products introduced in recent years are designed to be complicated and non-transparent. They give a poor yield to the policyholder.

Some products may give a fairly decent yield, but it comes with high risk. For example, if the underlying investment is risky and can earn a gross yield of 7%, the investor may get a net yield of only 3%, after deducing the high charges which takes away most of the gain. Usually, the investor is not aware about the high risk, as it is hidden in many pages of a complicated document.

Lesson: Never invest in any complicated product, even if it is sold by your trusted bank. Instead, you should invest in transparent product, such as stocks or bonds that are transacted through the stock exchange. If you invest in fixed deposits, you can check the interest rate offered by various banks.

Monthly income plan

Dear Mr Tan
I have been offered the following "Monthly Income Plan" by my bank, marketing for a life insurance company:

Initial Investment - 10 K @$1
Front end load : 5 %
Annual fee : 1.25 %
Initial investment: 9,675 units
Monthly pay out coupon : App. $38 for 11 months and app $58 for 12th month. Total amt received per year : $476.

How to sell : relationship manager (RM) told me that just fill up the form. based on current market price and I can sell. eg of current unit price is 99 cts., from the statistics , it is as low as 87 cts.

My initial thought is that I wanted to invest 10 K. My concern is that after investing, I will only get my return after 3rd year, and RM may continue to ask me to make further investment.


I believe that the annual payout of $478 (i.e. 4.78%) is not the actual income earned on the investment, but is a withdrawal of your initial investment. You have to check this point.

I dislike this type of complicated structure as it is confusing to the investor. Never trust anything that you do not understand.

You can read this FAQ on the charges for an investment linked fund:

For a single premium ILP, the upfront charge is usually between 3% to 7%. The charge of 5% is at the average level. The annual fee of 1.25% is reasonable, provided that the fund is largely invested in equity. If it is invested mostly in bonds or money market funds, the fee should be less than 1%.

I find all ILPs to be expensive. It is better to invest in a ETF such as the STI ETF managed by StateStreets. The upfront charge is only 0.3% (ie the brokerage that you pay to the stockbroker).

Annual and special bonus

Dear Mr. Tan,
NTUC Income has reduced the annual bonus and increase the special bonus. Is the special bonus guaranteed? Can the special bonus be reduced in the future? Can I trust NTUC Income to honour the special bonus that is being projected now?

The special bonus is not guaranteed. It can be taken away at any time. This has happened in the case of other life insurance companies. When they reduce the special bonus, the impact on the policyholder is very severe.

It is better to have a high rate of annual bonus, rather than a high rate of special bonus. An annual bonus is vested in each year as it is declared, and cannot be taken away. A special bonus does not vest until the time of claim.

In the past years, NTUC Income has a fixed rate of 25% for special bonus. As this is a uniform fixed rate, it has honoured it for the past 20 over years.

In the future, the special bonus is not an uniform rate, and may vary according to type of policy and duration. You can never be sure that you are getting a fair share of the special bonus, especially when the investment climate changes.

If you do not accept this change, you can lodge a complaint to MAS. This is a fundamental change of practice, which affects the reasonable expectation of the policyholder. It is important for MAS to ensure that the new practice is done in a manner that is fair to all policyholders, now and in the future.

Reduce need to commute


Many cities face a big challenge in handling the large number of people who have to commute to and from work. They contribute to congested roads, crowded buses and trains and long commuting time. Singapore faces the same challenge.

Most of the remedial measures appear to focus on the supply side, that is, build more roads and provide more trains and buses. They take a long time to implement and do not seem to solve the underlying problem The construction works aggravate the problem.

I suggest that attention should be given to new measures to reduce the need for commuting, such as:

> encourage businesses to locate their workplaces in satellite towns
> encourage people to work near their homes, or live near their place of work
> reduce or waive stamp duty on property transactions, for a person who moves to be closer to the place of work
> improve the local transport within a town

If we can reduce the commuting demand significantly, we can make a major contribution to reduce energy consumption, travel time, travel cost and road congestion.

Tan Kin Lian

When you are over 60

1. Focus on enjoying people, not on indulging in or accumulating material things.
2. Plan to spend whatever you have saved. You deserve to enjoy it and the few healthy years you have left. Travel if you can afford it. Don't leave anything for your children or loved ones to quarrel about. By leaving anything, you may even cause more trouble when you are gone.
3. Live in the here and now, not in the yesterdays and tomorrows. It is only today that you can handle. Yesterday is gone, tomorrow may not even happen.
4. Enjoy your grandchildren (if you are blessed with any) but don't be their full time baby sitter. You have no moral obligation to take care of them. Don't have any guilt about refusing to baby sit anyone's kids, including your own grand kids. Your parental obligation is to your children. After you have raised them into responsible adults, your duties of child-rearing and babysitting are finished. Let your children raise their own off-springs.
5. Accept physical weakness, sickness and other physical pains. It is a part of the aging process. Enjoy whatever your health can allow.
6. Enjoy what you are and what you have right now. Stop working hard for what you do not have. If you do not have them, it's probably too late.
7. Just enjoy your life with your spouse, children, grandchildren and good friends! People, who truly love you, love you for yourself, not for what you have. Anyone who loves you for what you have will just give you misery.
8. Forgive and accept forgiveness. Forgive yourself and others. Enjoy peace of mind and peace of soul.
9. Befriend death. It's a natural part of the life cycle. Don't be afraid of it. Death is the beginning of a new and better life. So prepare yourself not for death but for a new life with the Almighty.
10. Be at peace with your Creator. For... He is all you have after you leave this life.

Disturbed by cut in annual bonus

Dear Mr. Tan
I was disturbed by the lastest news that Ntuc Income had declare to cut our annual bonus and by doing this, they will increase our maturity bonus. I was not convince how can this method benefit me in the long run.

I had called Income's hotline and had spoken about this issue. However, nothing can be resolved as they stand very firm that they do this is to benefit to the policyholder. I had total 6 life policies been affected could you give me some advise regarding this issue.

You can ask NTUC Income to show you the cash value of your policies for the future years, based on the old bonus rates and the revised bonus rates. You will be able to see if the change in bonus is fair. It is their duty to provide a clear explanation of the change in bonus, especially as they are making a major change of this kind.

If they do not respond to your request, you can write to MAS and ask their assistance.

Unit trust and ETF

A Sunday Times article said that unit trusts are not transparent. This is not correct. The unit trust trade on its net asset value at the end of each day. The fund manager accepts your investment in cash, gives you the units, and then invest the additional cash. It creates liquidity. For a long term investor, this is a good arrangement.

A ETF trades on the price quoted on the exchange. This may be transparent and tradeable, but it may suffer from the lack of liquidity, if you wish to trade in a large volume.

Each arrangement has its advantages and disadvantages. The most important factor is the expense ratio. If the unit trust or ETF gives a low expense ratio, a long term investor will gain from it, compared to high expense funds.

Personal attacks

I have blocked many unsubstantiated remarks levied against NTUC Income, its products, its agents and management.

I allow some of the negative comments to go through, if they are not personal and make a point that is based on facts.

I have also received personal attacks against me. I block them, if they are personal and malicious. However, I have decided to allow some of them to go through.

Investment linked plans from NTUC Income

Someone, probably a NTUC Income agent, made an anonymous posting about the regular premium investment-linked plans (namely the Ideal plans ID2 and ID7) introduced by me when I was CEO. He (or she) accused me of being unfair in recommending against investment linked plans now. Although it was a personal attack against me, I have decided to post the comment.

Those who correctly read my blog knows that I am recommending against regular premium ILPs that take away two years of savings, especially sold to customers who are not informed about the high charges.

The Ideal plans introduced during my time have the following upfront charges:
ID2 - 7 months premuim
ID7 - nil

They are much lower than the charges of the regular premium ILPs sold in the market. Read this comparision:

The Ideal ID7 is a good plan for the customer. But the insurance agents are not willing to sell it, as they earn a low commission. You have to buy it from the business center (if they still offer it).

You can avoid all the upfront charges by investing in the STI ETF. For the life insurance cover, you can buy a decreasing Term insurance. Read this FAQ:

Recently, I withdraw a large sum of money from the money market fund and wanted to re-invest in the Combined Fund. Although it was a topping up of any existing policy, I was asked to pay a upfront spread of 3% for the new investment. I decided against it. I took out the money and invested it in the stockmarket directly.

By not taking care of the interest of an existing policyholder, NTUC Income has lost a large investment.

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