Saturday, August 30, 2008

Increase in motor insurance premiums

Motor insurance premiums will continue to increase, until the authority act to prevent inflated claims. The reasons are contained in this letter:

Laywers and workshops are happy with the current situation, as it gives them a lot of business in litigation and inflated repair cost. The higher cost have to be paid by consumers. This situation will continue, until suitable action is taken.

Joke: class conscious

Henry used to go out with a girl was was very class conscious. He didn't have any class and she was very conscious of it.

Avoid being twisted

A reader of my blog asked my advice about terminating his investment-linked policy. His friend advised him that the policy has a "time bomb" and give a poor return. I learned later that the friend was an insurance agent, trying to sell him a whole life policy with premium payable for 25 years.

The conduct of the insurance agent "friend" is considered to be unethical. This practice is called "twisting" and is to the disadvantage of the customer. The distribution cost of the whole life policy is about two years of the premium, amounting to about $3,000. This is an additional cost to be incurred by the customer in switching the policy.

In the USA, this practice is considered to be illegal. In Singapore, there is a warning in the benefit illustration to warn consumers about "twisting" but many consumers are not aware that they are being "twisted".

Example of low cost investment fund

Hi Mr Tan,
I have been reading your articles and you have been mentioned low cost investment fund, can you state an example of such product on offer currently?

REad this FAQ

I prefer the STI Exchange Traded Fund managed by StateStreet. You can invest in 1000 shares (about $3,000) through the Singapore Exchange SGX.

Friday, August 29, 2008

Churning a policy

Some unethical insurance agents engage in "churning" their policies. They approach their existing clients and tell them that a new and better policy has been introduced. They advise the client to terminate an old policy and take up the a new policy.

The client is not aware that this is to his disadvantage. By taking up the new policy, the client has to incur the upfront charges once again. About two years of the premium is taken away in these charges.

Some insurance agents churn the policies every five years. A client may be churned several times during their working life. The client does not realise that the premiums that they have saved over the years is used up in paying commission to the clients. The client gets a poor or negative return on the savings over the years.

Joke: Can I sell you a policy?

A super genius goes in to see a doctor. "Doc," the genius says, "I think I'm too smart. I'm having trouble even communicating with people because we have no common frame of reference, and it's ruining my social life. Can anything be done?"

The doctor runs a series of tests on the genius, and indeed finds that he is too smart. He says, "Currently, your IQ is 250, which is vastly superior to an average man. This is why your having trouble communicating. I do have a cure, however. I have a machine that will drain away some of your intellegence, leaving you with an IQ of 160. You'll still be a genius, but you should be able to lead a normal life as well."

The genius immediately agrees to the treatment, so the doctor straps him into the machine.Just as the doctor turns on the device, he gets a phone call from his ex-wife. They have a heated phone conversation for several minutes before the doctor remembers his patient. He rushes back, and is shocked when he sees the IQ readout at 75.

The doctor says, "Are you all right?"The former genius just stares blankly.The doctor shakes him, saying "Say Something."

The former genius replies, "Can I interest you in a health insurance policy?"

How does news events influence prices?

How does news events influence the price of equity, bond, US Dollar and Gold? You can learn from this simulation game:

Play the game at:

Thursday, August 28, 2008

Save for a child's education

Hi Mr Tan,
Reading your blog has been a daily thing to do for me. Thank you for all the advice, interesting info. on places you visit, hot topics and jokes.

My only insurance for my only son (9 years old) is a Life insurance for 150k. As I do not have an education plan for him, I am considering to buy the NTUC PayMyUni insurance for him. The quote is 50k for 15 years, premium at $348 monthly plus 2 riders on hospital benefit and waiver of premium based on my life.

I would like to have your advice if this is a good savings for my son's education cos the premium is quite high monthly.

Maturity return
Projected at 3.75%: $71,440
Projected at 5.25%: $81,692

The return from the above education policy is fair. It is not great, but is not bad. If you buy this policy, you should commit for the full term of 15 years.

If you invest $348 monthly to earn 5% per annum (not guaranteed) in a low cost investment fund, you will get a total of $92,300.

Read this FAQ:

Understanding Twisting and Churning

There are two types of life insurance fraud carried out by unscrupulous agents you should be aware of. The two closely related types of insurance scams are known as churning and twisting.
How do those agents carry them out and what do you do if you're a victim? Make sure you know these before you get scammed!

The fraudulent practice of making an insured drain one life insurance policy in other to fund another new policy is called churning. Important information about the full consequence of their action is dishonestly withheld by the agent involved.

Closely related to this is twisting. In twisting the policy holder is tricked to drain funds to buy another policy from another life insurance carrier. Run; don't walk if an agent promises you a new policy that will give you more coverage without increasing your premium. It's a scam so beware!

It's only when they get bills for new premiums that victims find out that something really was wrong. For some it could take up to two years before they find out.

Now is there anything you can do if you've been so scammed? But can a person get more coverage without increasing their premium?

For those who've been scammed there's help and for those who want more for less, there's a way. For those who've been ripped off, you can get help from your state's department of insurance or its equivalent. (In Singapore, you can complain to the Monetary Authority of Singapore).

Just a visit their website and you'll find resources that will help you. You can also call if you prefer that. Many reputable insurance companies will quickly compensate you once it's established that you were a victim of such fraud. You just have to contact their main office directly and not a branch.

Watch out for these scams

Edited from an article in:

Lesson: Land banking is listed as item #8

1. Phoney jobs
This is usually an "advance fee" fraud where you wire money in the expectation you will get a job, usually one offering substantial money for "part-time work from home". The money transmission may be called a "test". Fraudsters often use the names of legitimate companies and "guarantee" earnings.

2. Racing tipsters
There are many legitimate services trying to predict winners. But there are many scams - danger signals include claims of huge past gains (it's easy to copy the list of winners from yesterday's paper), schemes that "beat the bookies" and "guaranteed tax-free earnings". Others sell software which, they say, will produce winners.

3. Car scams
Why would anyone offer you 30% to 50% more than market price for your car? Because they are scamming you. One version is to give you a phoney "banker's draft" and take your car away. You can't usually claim on your insurance.

4. Spanish lotteries
Millions of letters and emails go out, telling recipients they have won in legitimate lotteries. But those who get the letters can't win as they have never bought a ticket.

That does not stop otherwise sensible people losing their heads - and money. One reader filled in a questionnaire and was soon told he had won a large sum of money in the lottery. He sent money to cover "transfer costs". Then he was told "it was blocked by the Spanish government".

5. Phoney psychics
The only thing these people predict correctly is that vulnerable people will send them cash in response to mail shots which contain a mix of menace - you could die or fall ill if you don't respond - and reassurance such as "you'll be safe and will win on the lottery" if you send off the money for this. These are usually sent by post - often targeted at elderly people whose details are sold and resold.

6. Mail-order brides
This is really sad. Scamsters look for lonely people - usually men - and offer them love on the internet or by post. The "beautiful" women, who often claim to be Eastern European or Asian, don't exist: what victims see are pictures copied from entertainment, fashion or celebrity magazines.

Once smitten, men are asked to send their lovers money for air tickets, cash for "the family" or even amounts to pay off old boyfriends. To keep them interested, the targets may be sent sexy pictures or intimate clothing items. Victims are strung along until they realise they have been stung - or until they run out of money.

6. Boiler rooms
Persuasive salesmen cold call investors and try to persuade them to buy shares or commodities on the promise that "they will double or treble your investment in three to six months".

The sales pitch may have a pinch of truth, but what is on offer is phoney. Investors are often shuttled between "analysts" and "senior analysts" but these titles are meaningless.

The shares are usually in companies that don't exist, while those bets on currency exchange rates or heating oil are never made - often the boiler room tells victims they have quick gains, to encourage them to invest even more.

7. The Nigerian scam
When the "widow" of a former Nigerian dictator emails to ask your help in getting access to the millions that happens to be locked in a bank account, most treat it as a joke. Using various names, this scam has been around for at least 30 years. While the dictator was real, and the fact that those in corrupt regimes stashed away money in offshore banks is not disputed, the widow is a total phoney - as is the promised bank account.

8. Land banking
Here you are persuaded to pay a large sum of money for a tenth of an acre in a field - on the promise the land will soon receive planning permission and soar in value. So far, no land banking site has ever gained the building go-ahead.

Most land sold in this way is green belt or zoned for agricultural use only. But land bankers seize on every government statement about the need for more homes to stress that this means that it is certain that the site they are selling will soon be covered in houses - like almost all scams, this relies on an element of truth.

9. Ostrich farms
Ostrich farms exploited victims who believed that the commodity would profit from rarity. But the same ostrich was sold over and over - and the expected market for ostrich meat never happened. Equally, champagne and scotch firms are quite capable of expanding output ahead of an event such as the millennium. Those who bought champagne at top prices found they had very non-vintage fizz - if anything at all.

Heavy loss on ILP for first two years

Dear Mr Tan,
In September 2006, I bought an Investment-linked policy for $150,000 death, critical illness, and disability. First 2 years, no investment portion, all the money go to insurance coverage. Just recently I realize ILP is a 'time bomb' after read some article about it.

Now our friend recommanded me to stop the ILP and take the loss of $6000. Should I continue with the ILP, by paying the lowest fee till the market recover? I hope that I can recover back my investment in 5 years time. My friend said if I continue with my monthly savings, I will lose more, compare with the loss of $6000 now.

Generally, you suffered the upfront cost during the first two years. After that, the charges are not too heavy. So, if you have already paid for more than two years, it is generally better to continue the ILP.

If you find the insurance cost to be too high, you can reduce the coverage. But, you must compare the charges against a term insurance policy.

These are general remarks. I am not able to give you specific advice on your particular matter.

Joke: Cancel the policy on her husband

Steve's barn burned down. Julie, his wife, called the insurance company and said, "We had that barn insured for fifty thousand and I want my money."

"Whoa there, just a minute, Julie, it doesn't work like that. We will assess the value of the building and provide you with a new one of comparable worth." the agent replied.

Julie, after a pause, said, "Well, in that case, I'd like to cancel the policy on my husband."

Tuesday, August 26, 2008

Cash value boosted by non-guaranteed terminal bonus

Dear Mr. Tan
I am offered a whole life policy with premium of $2,053 payable for 15 years. At the end of 40 years, I get a cash value of $114,000. It represents a reduction of 33% from the accumulated premium of $171,000 (based on 5.25% yield). Is this a good deal?

The reduction of 33% appears to be reasonable. I have seen another policy, where the reduction is 46%.

However, I am not sure if you can rely on cash value of $114,000. Some insurance companies show high terminal bonus at the longer duration to make the cash value look attractive. They know that most people do not keep their policies so long. If they terminate the policy earlier, they get a poor return.

Even if the policyholder keep the policy for 40 years, they may find that the insurance company can reduce the cash value, as the terminal bonus is not guaranteed.

Whole life policy with premium for 10 years

Dear Mr. Tan,
I am 24 years and pay a premium of $2,500 for 10 years to be covered for $80,000 for death and critical illness for life. The cash value at 65 is $89,000. Is this a good deal?

If you invest the 10 years of premium to earn 5.25% (which is the same rate used by the insurance company to project the bonus, you will get a total amount of $164,000 when you are 65. The cash value of $89,000 represents a reduction of 46% from the amount due to you. I consider a reduction of 46% to be too large and the policy gives you a poor return.

Joke: statements of motor accidents

> I was thrown from my car as it left the road. I was later found in a ditch by some stray cows.

> I had been learning to drive with power steering. I turned the wheel to what I thought was enough and found myself in a different direction going the opposite way.

> I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.

A fair reduction in yield

If you invest $5,000 for 30 years to earn a yield of 5%, you will receive $332,000 on the end of the period. This is an attractive investment, if the average inflation rate during this period is less than 3%.

If you invest in a life insurance product, you are likely to get an estimated yield of about 2.5%, giving $220,000 at the end of the period. The reduction of 2.5% in yield works out to $112,000 or 34% of the maturity sum of $332,000.

The actual cost of the life insurance protection is estimated to be 5% of the maturity sum. The remaining 29% in charges goes to pay commission to the agent and the expenses and profit of the insurance company.

I consider the reduction of 34% in maturity sum or 2.5% in yield to be too high and that the life insurance policy gives a poor deal to consumers.

A fair deduction should be 20% of the maturity sum, instead of 34%. This is used to provide the cost of insurance protection (5%) and the expenses (15%) for marketing and administration.

A reduction of 20% in the maturity sum over 30 years amounts to a reduction in yield of 1.4%. In the above example, the policyholder will get a return of $266,000 instead of $220,000.

Lesson: if the reduction in yield is less than 1.5%, the policy is giving a fair return (as it includes the cost of life insurance protection). If the reduction in yield is more than 1.5%, the policy is giving a poor deal to the consumer.

Monday, August 25, 2008

Joke: statements of motor accidents

> The pedestrian had no idea which way to run as I ran over him.

> I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.

> The indirect cause of the accident was a little guy in a small car with a big mouth.

Sunday, August 24, 2008

Real estate site in Singapore

Visitors to this site said that it is the best real estate website that they've come across. They find it easy to search, and benefit from the price trends and transaction data available. This helps them make more informed decisions against real estate agents, especially the unethical ones who are only interested in closing a deal fast, and do not give their clients accurate information.

Baby Package 2008

We have so much trouble with the cutoff date for the Baby Package. The first cutoff date of 1 January 2009 brought a lot of protest from expecting mothers with babies due to be delivered this year. The revised cutoff date of 17 August produced another group of unhappy parents whose babies arrived earlier this year.

We faced this problem with cutoff date on many occasions during the past 25 years. Each time that new incentives were introduced, many parents felt disadvantaged by being on the wrong side of the cutoff date.

We never learned the lesson. Our birth-rate continued to decline over the years, in spite of the repeated efforts.

I met a Singaporean couple who worked in Perth and had their baby delivered there. The incentives given to parents in Australia are:

> AUD 5,000 on delivery of the baby
> 5 months of paid maternity leave
> An allowance to the mother who stopped work to look after the baby during the first two years
The incentive is simple, compared to our Baby Package introduced in Singapore.

Singapore has the unique system of incentives that differ according to the tax bracket of the parents, the working status of the mother, the birth order of the baby, the date of birth and other factors. We need to read a detailed booklet and to ask for explanation to understand the incentives.

How to fight inflation

Read these tips:,4136,164027,00.html

Joke: statements of motor accidents

> An invisible car come out of nowhere, struck my car and vanished.

> I told the police that I was not injured but on removing my hat found that I had a fractured skull.

> I was sure the old fellow would never make it to the other side of the road when I struck him.

Pro-Trader - 200 users

The registered users have passed 200.

The webpage is now shortened:

Adequate life insurance

Do you have adequate life insurance? Are you buying the right type of life insurance? What is the suitable plan for young people?

Watch this video:

500,000 visitors by 11-11-2008

I have 409,000 visitors to my blog now. I estimate that it will reach 500,000 by 11-11-2008, maybe earlier.

Managing Personal Risks

Insurance agents tell customers about the risk of death and gets them to save a lot of money in life insurance policies.

To manage your personal risks, you need to consider the following:

> you need to take care of the risk of "premature death", i.e. death that occurs during your working life (until your children are grown up)
> there is no need for life insurance beyond 65 (as everyone will die one day anyway)
> you need to have sufficient savings for your retirement
> your medical expenses can be covered by Medishield , so critical illness insurance is not necessary.

Too much savings is being spent on whole life and critical illness insurance today, due to advice by insurance agents. The chance of death or a critical illness occurring during the working life is less than 5% or 10%. But, it takes away too much savings and leave behind too little savings being invested for retirement (which is the risk faced by more than 90% of the population.

Many people today have inadequate savings for their retirement, due to bad management of their personal finances. They put too much money in life insurance policies that take away high expenses and give a poor yield on their savings.

To manage your personal finances better, read these FAQs:

Remember. The insurance agent will give you many other reasons to buy a whole life or critical illness insurance. They must market the product, as they are paid commission on the sales. You can ask the agent how much commission is paid to them. It is stated in the Benefit Illustration. The commission comes from your premium. It does not come from the generosity of the life insurance company.

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