Saturday, August 16, 2008

Save for a child's education

Dear Mr. Tan
I've read your blog and aware of benefit of term insurance (cheaper compare to whole life policy). I intend to buy one term and one education policy for my child. As you were formerly with NTUC Income, you should be able to tell me more about the plan call 'PayMyUni' whether it provide good returns or not.

I am not familiar with PayMyUni as it was introduced after I left Income. Usually, I advise people to save for a child education through a low cost investment fund. Read this FAQ:

Learn the skill of trading of financial products

How does USD or S&P or Treasuries react to news events? Will the price go up or down? You can learn about the behavior by playing this simulated game:

The simulated game is designed to be as realistic as possible. Each game is different from the previus games, as they are picked randomly from 50 different scenarios.

This game is now available for free for the time being. It will be restricted to paid subscribers at a later date.

Buy Term and Invest the Savings

Hi Mr Tan,
After reading your reply, I decided not to rush into buying a policy. After all the research I had done, I am still kind of lost. I do not know which policy suit me better for my age and my situation.

For your information, I am 20 this year, fresh diploma graduate who had just started my 1st career. I did not buy any insurance previously. Hence this will be the 1st I am buying for myself. Being the bread winner of my family, I think buying an insurance will be safer for me and my family. To me, my concern will be life protection plus some investment which will make my saving grow.

Initially I thought that buying a long term saving plan eg 25years, will be better. I was told that by an insurance company that it will double up by return. The sum of money return was very attractive. However I understand it tied up my money. In case of emergency, I might have financially difficulties. Hence I thought of buying ILP.

However I understand that ILP Will have high charges involved after reading your blog. As u mentioned, by buying a term insurance or decreasing term insurance will be cheaper. Then invest the money in some other investment funds such as uni-trust, bonds, equities etc. The problem is I do not know anything about the share market. I wonder if I am able to invest my money into the right funds. Some banks who I visited, or 1 of the insurance company who I spoke to, offered me regular saving plans or ILP.

No one offered term insurance to me yet. I understand that term insurance had no cash value. Hence I am worry, if I bought a term insurance but end up I do not know how to invest on the investment funds, I might end up buying another ILP. Where do you think I can get more informations about those investment funds? Or is there any ILP or regular saving plan which offer good return with reasonable charges in the market now?

In your advice, is there anything in particular which I should be take note/ beware of before buying any policy? What do you recommend I should do? I also had several doubts which I think maybe you can clarify for me.

1) All policies, regardless whether from bank or insurances companies have yearly policy fee unless otherwise stated?
2) The policy fee had been calculated into our mthly premium or is there additional charges?
3) Does fixed deposit earn better interest and give more flexibility than ILP/saving plan? Appreciate for your time and patient.Hope to hear from you soon.

Please read these FAQ:

Friday, August 15, 2008

Joke: Wrote a check

Mr. John Johnson was a rich old man was dying from a rare disease. On his deathbed, he called for his insurance agent, doctor and preacher:"

I trusted each you my entire life. Now I want to give each of you $30,000 cash in an envelope to put in my grave. I want to take it with me."

Mr. Johnson died and at the funeral, each one placed the envelope on top of the man, then he was laid to rest.

On the way from the funeral, in the limo, the doctor confessed "I must tell you gentlemen, I only put $20,000 on top of Mr. Johnson, I wanted buy this new machine that would enable me to diagnose his rare disease and save others. It's what he would have wanted."

Then the preacher said: "I have to confess, I only put $10,000 on top of Mr. Johnson. We needed that money to help more homeless, and it's what Mr. Johnson would've wanted"

The insurance agent was angry at both the man, and said: "I can't believe both of you, stealing from a dead man. I wrote Mr. Johnson a check for the full $30,000!"

Practice trading with this simulated game

66 people have registered and started to play this simulation game:

It provides a simulated environment for the user to trade stocks, bonds, US dollar and gold. The prices of these product move according to the news.

You can practice as a single player first. Afterwards, you can compete with other players under the multi-player mode. The auto-game starts within 15 minutes and those players can join in.

Give it a try!

Thursday, August 14, 2008

A painful learning experience

Hi Mr. Tan,
Recently, I bought a whole life policy from a particular insurance company. I paid them a year of premiums in advance already. However, 4 months into the policy, after reading your blog and doing some self reading, I decided to end this high cost product early. My agent informed me that I will not be able to get back the future 8 months of premiums that I have paid earlier. What should I do now? Can I complain to FiDREC?

I think that you have paid an annual premium under the policy. There is usually no surrender value, if you cancel the policy during the first two or three years. It will be difficult for you to argue that you are entitled to a refund of 8/12 of the annual premium on termination after four months. If you like, you can try FiDREC and see if they agree with you. (Most likely, they will not take up your case).

Hi Mr. Tan,
Thanks a lot for your kind attention and input you have given me. I greatly appreciate it. Please continue with your great work in educating the public about the pitfalls and truth with regards to insurance products. I was also "awakened" to all these after reading your blog and website! Guess i have treat this experience as a painful learning lseeson.

Joke: Let the boss have the first say

A insurance agent, an administration clerk and their manager are walking to lunch when they find an antique oil lamp. They rub it and a genie comes out in a puff of smoke. The Genie says, "I usually only grant three wishes, so I´ll give each of you just one."

"Me first! Me first!" says the admin clerk. "I want to be in the Bahamas, driving a speedboat, without a care in the world." Poof! She´s gone.

In astonishment, "Me next! Me next!" says the sales rep. "I want to be in Hawaii, relaxing on the beach with my personal masseuse, an endless supply of Pina Coladas and the love of my life." Poof! He´s gone."

OK, you´re up," the Genie says to the manager. The manager says, "I want those two back in the office after lunch."

Moral of story: always let your boss have the first say.

Honesty and business ethics

Is your insurance agent honest? Is your insurance company trustworthy? Do they observe ethics? Read about my comments on business ethics in:

Effect of Deduction

Dear Sir,

I have an enquiry to make regarding the Effect of Deduction after reading your blog. I took out my policy and I am pretty stunned to see the amount that is written under the effects of deduction.

My annual premium is $3,000 and assuming that I live till 65, it will be a full 44 years. I was 21 when I signed the plan.

Looking at it, Total premium paid is $132,000, total distribution cost is $5468, Non-Guaranteed Cash Value at 5% is 205,600 and at 9% 691,800. Effects of deduction is $882,776. I was not told about the effects of deduction when I signed up the plan and looking at it, I am pretty much being shortchanged for the amount of money that I put in.

Kindly advise on what should I do.


You can write a letter of complaint to the deputy managing director in charge of market conduct in MAS, as shown below.

The agent has a duty to disclose and explain this important point to the policyholder. It is shocking that the Effect of Deduction is higher than the Cash Value (assuming an investment yield of 9%).

Wednesday, August 13, 2008

Pro Trader (Trading of Financial Products)

This website allows you to practice your trading skills:

You are given simulated prices for 4 financial products which change in response to economic news. You can buy or sell up to 10 contracts of these products. You will see your gain or loss each second, as the prices change.

You have to register an account and select the single player mode. There are instructions for how to trade. You can play the multi-player game and compete with other players.

All the best.

Tuesday, August 12, 2008

Opt out of Eldershield

Dear Mr. Tan,
My wife received an "opt out letter on Eldershield" from Great Eastern. She is not a customer of Great Eastern. How did Great Eastern get her particulars? Is it fair to apply "opt out", especially to people who are illiterate?

The Ministry of Health makes it mandatory for everyone reaching age 40 to be covered under Eldershield. This is provided under the Eldershield legislation. Although it is compulsory, the insured person has the right to opt out. If they do not opt out, they automatically join the scheme and the premium for Eldershield is deducted from Medisave.

The Ministry divided the people reaching age 40 into three groups and passed them to the three participating insurers, namely Great Easter, Income and Aviva. Your wife is probably in the group that is given to Great Eastern by M of Health. This is how Great Eastern got her particulars.

When Eldershield was first introduced, about 35% of the people opted out, as they found the premium to be too high, relative to the benefits. The opt out rate has fallen (but I do not know the current level today). I have not analysed the premium and benefit recently, so I am not able to give an opinion if it is worth joining Eldershield.

Insurance agent does not tell the truth

Dear Mr. Tan,

I met an insurance agent on the street, and was introduced to their "savings" plan. I read through your website and understand that such a policy is called a regular premium ILP policy, which provides life insurance cover and also an investment portion.

The agent told me about the "percentage that is allocation for investments", which is described as the distribution cost in your website. She did not mention anything about this percentage as being a cost.

I asked her what is the minimum amount and number of years needed for the plan. She said that the life insurance policy portion of the plan will need a minimum amount of $100 per month and take 13-15 years just to break even, and I understand from your website that this means the company has high expenses.

I told her I could buy term insurance and invest the rest in index funds and get better returns based on what I read from newspapers. Also, I told her that I understood that the commission she gets from selling ILP/life insurance policies is more than what she would earn from selling term insurance policies.

She said for the investment portion, the cost is 1-1.5% per annum. I asked her if her commission and other expenses are included, what is the total cost like ?
She said she was unable to tell me the figure.

She then introduced a medical insurance plan which she said enhances cover for Medishield, as its coverage is very low.

I asked her to provide me a copy of the terms and conditions for the earlier ILP Policy and the medical insurance plan. She said she would only provide me the benefits illustration (with terms and conditions) for the medical insurance plan.


1) The agent said that the commission she gets from this ILP policy or a term insurance policy is the same (50% in the first year). I did not ask her the percentage for the subsequent years. In the end, she did not introduce any term insurance policy to me (although she said she also sells them) , which I had at least shown some interest in.

Does this mean she is dishonest or does the insurance company earn much more from the ILP policy than the term policy (and she earns the same from both) ?

2) What do you think of this insurance agent ?

3) I had in the past encountered insurance agents from the same company selling this type of ILP policy at least 4-5 times on the street during their roadshows. I understand other companies do sell the same thing too, but they are much less aggressive and seem to organise very few roadshows compared to this particular company.

What is the reason for this ?

This has become very irritating to me, and I would try to avoid this company once I see them from afar.


I believe that this agent is dishonest and is not looking after the best interest of the client. Unfortunately, this type of behaviour is typical of most insurance agents from most companies. It is a sad state of affairs.

I hope that clients like you, are willing to write to the MAS and tell them about the real behaviour of insurance agents. If MAS acts against the dishonest agents, it may improve the situation and make the agents more ethical.

Monday, August 11, 2008

Large "effect of deduction" on Living policies

Dear Mr. Tan

I am considering terminating the Living Policy for myself and my husband and buying term insurance instead.

About the effect of deduction, wow, I really didn't know about that until you mentioned it in your blog. And I read again our policies, they really take away such big amount from us! Is this the standard practise? Do other insurance companies do this also?


It is true that the Living policy takes away a lot of the premium. But the coverage is wider than a Term policy (unless you buy a Term policy that covers the critical illness as well).

My advice on buying Term insurance applies to a new policy (and not to the termination of an existing policy). Usually, after a policy is taken, I advise people to continue the policy as they have already incurred the high initial expenses. I have two Living policies on my own life as well, which I am continuing.

If you wish to terminate an existing policy, you should look at the yield over the next 5 years. This is explained in this FAQ:

The effect of deduction for similar policies sold by other insurance companies is likely to be higher.

Joke: that's not covered

A client calls up his insurance agent and tells him he needs to file a claim.
Agent: “Tell me what happened?”
Client: "This is how it happens ....."
Agent: "I’m sorry but that’s not covered.”
Client: “Well, let me explain better what happened.”
Agent: “I´m sorry but that´s not covered either.”
Client: "I´ll tell you what, you tell me what´s covered and I´ll tell you how it happened!”

Encourage people to use public transport

I find public transport to be quite convenient. But there are ways to improve our bus and train services, so that more people can take public transport. Top priority is an improved feeder service, such as the system used in Hong Kong.

More ideas can be found in:

Regulate selling

It is important to regulate “selling”.

If salesman goes around to sell products, they are likely to make the sale by misleading the customer. The regulation of selling should include the following:

1. The product is inherently fair to consumers (e.g. the manufacturer cannot make false claims)

2. Suitable information is provided to the customer (i.e. the information has to be verified by an expert)

3. The selling process has to meet standards of good conduct.

If the other conditions are not met, the selling should be considered as “touting” and the product should be suspected to be bad for consumers.

Present partial information only

I met a property agent. He was taught to adopt the following approach:

> present the postive aspects of the property to be sold
> tell the negative aspects, only if the buyer ask about them

If the buyer does not ask, then the negative aspect is not disclosed. This is what "professional ethics" is being taught. I consider this approach to be dishonest.

Motor accident reports

The General Insurance Association implemented a new framework to handle motor accidents from 1 July 2008. During the past two months, a total of 33,100 accidents were reported, representing an increase of 35% over the same period last year.

Derek Teo, President of GIA, claimed that the new framework is a success. I wonder how the insurance companies are able to bring down the claim cost, when the number of insurance claims has increased.

I remembered that the framework included roadside assessment by the assessors sent by the insurance company. I wonder if this new measure has been implemented, as it is a major strategy in the new framework to avoid inflated claims.

Happy National Day

Read my wishes for the future in:

Sunday, August 10, 2008

Invest in the Exchange Traded Fund

Dear Mr.Tan,

I am new to investing and will like to start investing after getting my bonus next month. I read some of your blogs and the Exchange Traded Funds seems like a good choice. I am interested in investing in ETFs but not familiar with the process. How much do i need to invest in ETFs? Can i do the investment on my own or through a broker? I do not have any trading accounts, do i need to get a trading account first?

If you go through a stockbroker, you need about $3000 to buy 1000 shares of ETF.

If you wish to invest in smaller amounts, you can go through Philips Securities. They have a plan to allow you to invest monthly, but they impose a monthly charge. I do not know the details. You can ask Philipps Securities.

Private Shield with Riders

What is the cost of a Private Shield plan, covering medical bills as charged in a private hospital, together with a rider to cover the Deductible and Co-insurance of 10%?

I calculated the total cost from age 30 to 85 to be more than $100,000, based on the premium rates today. If you add the cost beyond age 85, it will be much higher. The premum rates will increase in future years, but the future increase can probably be covered through the interest earned on your savings.

If you wish to have a private Shield plan to cover your expenses in a private hospital, you must have $100,000 in your Medisave account by the time you retire.

Insurance agents advice you to buy a private Shield plan. I hope that they have pointed out to you about the lifetime cost, so that you are well informed.

If you have to set aside $100,000 for your private Shield insurance, how much of that money is actually paid in claims? Based on the figures available from MAS website, the claim payout is 43%. This means that you are paying $100,000 in premium to get $43,000 in claims. Can you afford to give away the additional $57,000 of your savings to the insurance company?

After paying so much in premium, are you worried that your claim may be rejected due to "non-disclosure of pre-existing medical conditions", especially if you were not aware about these conditions? This has happened to many policyholders.

Think about the lifetime cost, if you wish to buy the insurance plan that covers all expenses "as charged". Make sure that you have sufficient money to pay the premium up to age 85 and beyond.

Note: If you take a private Shield plan without the rider, the total cost is $66,000. In this case, you have to pay the Deductible and Co-insurance.

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