Saturday, September 06, 2008

The New Paper - Truth of Life Insurance Payout

The New Paper has a special report on "The truth of Life Insurance Payout" in its
September 6 edition.

I recommend to all policyholders to read this special report. It shows that the amounts paid out to policyholders on a surrendered or matured policy is far short of the "asset share" of the policy. Many policyhoders are being paid far less than a "fair amount".

If you fall in this category, I suggest that you should write to the Monetary Authority of Singapore to ask them to take up the matter with your insurance company.

I have written to the Consumer Association to raise the following matter with MAS:

1. Is the amount paid to the policyholder of a surrendered or matured policy quite close to the "individual liability” in respect of the policy? Is the insurance company allowed to pay out an amount that is far short of this “individual liability”? The individual liability is required to be computed by the insurance company for each policy and reported in total in the annual return to MAS.

2. In the interest of transparency and fairness, can MAS require the insurance company to disclose the "individual liability", upon the request of the policyholder of a terminated policy, so that the policyholder is aware of the amount of the "individual liability" that is held back from him?

3. Is it fair for a policyholder, on surrender of a policy, to be getting back less than the premiums paid after 10 years or longer, when the insurance company is able to retain up to 40% of the "individual liability" from the policyholder?

4. Why is it not possible for Singapore to adopt the practice in Malaysia and other countries, which requires the insurance company to pay out the “asset share” on a terminated policy after it has been held for more than a certain period? The “asset share” is similar to the “individual liability” reported in the annual return to MAS. This payout appears to be fairer and is much higher than the cash value now given to a policyholder in Singapore.

5. Can MAS ask the insurance company to disclose the total cash value of all policies, to allow it to be compared with the “sum of the individual liability in respect of each policy” as reported in the annual return? This will allow the public to know the amount that is held back by the insurance company, if all the policies were terminated.

Life insurance products can give good value

Some people argued that whole life, whole life limited premium and other life insurance products can meet the needs of certain categories of people and can be considered as good products.

This is correct.

Life insurance products can be designed to be good for consumers. They become bad products when they are designed to pay high commission to the agent and give poor value to the consumer. This high cost is not disclosed to the consumer.

Unfortunately, most of the products in the Singapore market are designed to be high cost, good for the agent and bad for the consumer. Up to two years of the premium are taken away to pay the commission and marketing expenses. If the monthly premium is $300, the amount of the hard earng savings taken away from the policyholder can be as much as $7,200.

This is a lot of money to be taken away from the unsuspecting policyholder, and is not told to the policyholder at the point of sale. This fact is hidden in the Benefit Illustration among 20 pages of confusing information.

If the charges are kept at a reasonable level, say a maximum of half year's premium (which is still a lot of money) and this is clearly disclosed to the policyholder, then a whole life, endowment or investment linked policy can be considered to be a good product and is suitable for most people.

Annual General Meeting of NTUC Income

Two readers of my blog, SiewKhim and Falcon, have posted comments asking me to raise issues on behalf of policyholders at the next annual general meeting of NTUC Income.

I have posted a request for them to send their e-mail address to me, so that a meeting can be arranged.

I did not receive any response from SiewKhim. Falcon wrote an e-mail to me, but did not reply to my e-mail.

I like to ask them to contact me at

Friday, September 05, 2008

Bad advice given by the agent

Dear Mr.Tan,

I had read some of your articles about insurance and would like to seek your advice.

It is sad to learn that the current practices by insurance companies and their agents are not as ethical as what they claim in their mission statement or business code of ethics. It is also too late for my wife to realize that her entire CPF savings (ordinary and special) is now suffering heavy loss after being misled by an insurance agent in November 2007.

All along, ordinary people like my wife took insurance agent as professional and able to give reliable and accurate information. However, such trust was shattered after she was misled to loss-making investment-link policies. The way that he pushed the high risk bank-stock-link funds before the stock crash to unaware customer as low-risk investment still upset me today.

Although we complained about the agent's misrepresentation in Feb 2008 and got him admitting his 'ignorance' of the stock market, our request to annul the policies was rejected without clear explanation. His unethical use of national annuity scheme to scare my wife into putting her entire CPF savings in the dubious policies was also unanswered.

We contacted FIDREC but pulled out halfway due to stress and forlorn hope because my wife had already signed the Know Your Client Financial Needs Analysis Form which binds her to everything.

I have some questions below and I wonder you could offer your opinions.

1) Can stock-link-fund-selling agent ignore stock market warnings such as US housing credit crisis, US recession, banks' losses, etc? Isn't he a professional in his industry?

Reply: It is difficult for the fund agent to know that the market will be so bad. If they know, nobody will be transacting in the market.

2) These funds follow STI intimately; can agent ignore STI's sliding from historical peak late Oct 2007 and sell the funds at highest prices? Isn't his financial advice guided by the "buy low sell high" principle? This goes against Income's claim that they care about client's interest and are social responsible.

Reply: It is difficult for the fund agent to know that the market will be so bad. If they know, nobody will be transacting in the market.

3) Is it ethical to use annuity scheme to scare and influence client's decision, instead of sound financial judgment?

Reply: The agent should not use the national annuity scheme to scare the investor into making stock market investments.

4) The business law governing fund selling seems to be flawed. We only realized now that the Financial Needs Analysis Form, done casually, is holding the policy holder solely responsible. Isn't this document a likely signed blank check which could be rigged by unscrupulous agents?

Reply: The financial needs analysis should have been done properly and not casually.

5) Isn't there a mechanism to prevent such suicide-like buying of funds when all the indicators point to a looming stock crash? Can such crash prophets by George Solos, Warren Buffett and Jim Rogers be totally ignored and risks as high as such not mentioned to clients during the selling presentation?

Reply: It is difficult to know if the market will go up or down, at any point of time. One can only know with the benefit of hindsight. Your wife has made a long term investment. You should hold the investment for many years. It is likely to recover.

I made a personal investment myself around that time, and my investment is showing a big loss now. So, I was not aware that the market can be so bad. But I have to wait for it to recover.

Agent does not explain clearly

Many people read my blog regularly. When they meet me, they told me, "I like your blog. It helps me to understand the insurance policies that I have bought over the years. The agent did not explain the policy clearly to me".

Why are insurance companies continuing to design complicated insurance products that their agents are not able to explain to the customer?

Here is the secret. The agent does not want to tell you the truth. If they do, you will not buy the product, because it gives poor value to the consumer. The agent finds a way to make your buy the porduct, without really understanding it.

The regulator requires the agent to give a Benefit Illustration. It does not help, as the Benefit Illustration is confusing to the consumer (and even to an expert like me).

Twisting of existing life policies

Dear Mr Tan,

I am a young, single working adult. I've met up with two financial planners. One is from a reputatble affliated insurance company (X) and another is a independent financial advisor (Y).

X recommends me to buy a limited whole life plan (coverage of 100K) and a private hospitalisation plan and some other riders such asdiability income. The total premiums payable per month is around 250. Previously I've already bought a ILP ffrom X (100k coverage) and I have another 50K coverage from a whole life plan that my parents bought for me since young ($50 per month).

Y recommends me to cancel the 50K whole life plan that my parents bought for me and buy a term plan including HnS for only 100 (coverage of 250k), and invest the rest.

I understand this is in line with your "buy term, and invest the rest" strategy. But do I have to cancel the plan that my parents have been paying since 13 years ago?

And what is your opinion on limited whole life plan?

You should continue your existing policies. Do not terminate them to buy the recommended new policy.

The agents X and Y are trying to "twist" your policy. Read this blog to understand what is "twisting":

If you wish to "but term and invest the difference", you should choose a 20 or 30 year term and not term to 100 years - which is like whole life insurance. The agent is cunning, and is trying to make a sale at your expense.

Avoid the whole life limited payment plan. It is expensive and give poor values. Do not cancel any existing policy to buy a new policy with high charges.

Thursday, September 04, 2008

Land Banking - a scam?

Edited from an article in: Lesson:

Land banking is listed as a scam in this article.

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.

Continue an existing whole life policy

Hi Mr Tan,

I've been reading your website with interest recently, and I noticed that you do not believe in the need for life insurance after the age of 65. I understand your point of view that as the kids have probably grown up already and you are retired with your nest egg funds and no need for the coverage.

However, I have the following view. If I have already saved up enough money for my retirement without the need to surrender my life plan which I started at a young age (thus high coverage and cash value), wouldn't you think it would be better for the family to have that whole sum? I'm assuming life plans cover death up to age 99.

Example, I buy a whole life plan since I'm 21, with death coverage of $200,000. Upon age 65, cash value may be another $200,000. If I do not need the money, I could just leave it there, paying my insurance charges, and assuming I die age 70, my family will have sum assured $200,000 + cash value $200,000, therefore = $400,000 instead of me terminating the policy at age 65, withdraw the money and place in fixed deposits for the next 5 years until iIpass away at age 70?

Please correct me if I'm wrong in any of the assumptions I've made, but what I'm trying to say is that, leaving the money for my next generation through insurance may be another way to look at it instead of the simplistic approach of terminating all my policies once I reach age 65. It should all depends on individuals.

Thanks for your time, and hope to hear your point of view.

Please read this blog and watch the video by Suzy Orman

As you have already taken a whole life policy, you can continue with it and leave the proceeds to your children, especially if you have sufficient money to meet your own needs. For young people who are not so well off, it is better to buy term insurance for 20 to 30 years, and invest their savings in a low cost investment fund.

Read this FAQ about continuing with an existing life policy:

Million Dollar Round Table (MDRT)

Dear Mr. Tan,

I was previously an insurance agent and a salaried agency supervisor with two different insurance companies. From my experience, I have learned to be less than enthusiastic about the so-called prestige of the MDRT (Million Dollar Round Table). In fact, I might even have been sceptical.

The MDRT measures an insurance agent by the first year commission earned on new policies sold. It equates equates more commission earned to being more successful and prestigious. As a sales motivation, , it drives the agents to earn higher incomes. However, it may also tempt many agents into dubious practices in pursuit of qualification for membership.

I feel that to the ultimate consumer, the insurance client, buying a policy from an agent who makes $30,000 p.a. is no different from buying from an agent who makes $300,000 p.a., as long as it's a suitable policy. Just a suggestion. I hope that you may like comment on the MDRT in your blog.

You have already made the point well. I have no further comments.

Articles in Online Citizen

I write an article each week for the Online Citizen.

It can be accessed at

Here are some of my articles, and the comments from the readers:

Beware of scams

One country, two systems

Poor return on life insurance policies

We, the citizens

Important to build a gracious society

Give equal access to social benefits

Unclaimed money

Banks and life insurance companies make a lot of profit from customers who were not able to claim what wa due to them.

Watch this video:

Investing in Volatile Markets

What are the three most important factors in investing in property? They are location, location and location.

What are the three most important factors in investing in equity? They are timing, timing and timing.

If you invest at the right time, you can earn 5% to 10% more, compared to investing at the wrong time. What is the right time? It depends on major events and how they affect the market prices.

You can learn about the impact of events on market prices through this simulation game:


1. If interest rate goes up, the currency goes up
2. If USD goes up, JPY and EUR is likely to come down.
3. If stock goes up, bond is likely to come down (as people sell bond to buy stocks)
4. If oil price goes up, USD is likely to come down, and gold will go up.
5. If the US economy does well, the US stock and USD is likely to go up.
6. If company profits goes up, the equity is likely to move up.

With these tips, see if you can learn the right timing decisions!

Whole life Limited Payment

Hi Mr. Tan,

My friend, an insurance agent advised me that there is a new life policy where I only need to pay premium for 15 years. My present policy (which I bought from another agent before) needs the premium to be paid until I am 85 years old. She said that it is better to pay more and have the premium stop after 15 years. Should I stop the old policy and take the new one? I find the premium for the new policy to be quite expensive.

Your agent is trying to "twist" your policy. Read this blog for an explanation about twisting:

You should lodge a complaint against the agent for this unethical product. Did the agent tell you that she is earning commission by selling the new policy to you? Did she tell you how much is the commission?

Wednesday, September 03, 2008

Dealing with credit card debt

Dear Mr. Tan,

I came across your blog and decided to ask for advise. I am married and have 4 children. I live in a HDB flat.

Recently i chalked up about $30,000 of credit cards debt. I decided to respond to an advertisement that offers to consoidate the debt with the banks. I believe that I can pay my debt, but I have to change my spending habits. They charge a fee. Is this a good solution? I did find out there is one local agency 'CCS' that deal with this situation. Can they help too?

You can approach Credit Counselling Singapore.
They will be able to help you.
They give free advice.

Here is their website:

Joke: I am a crook

A drunk wanders into the lounge of a hotel where an insurance convention is being held, intent on causing trouble. He yells, "I think all insurance agents are crooks, and if anyone doesn't like it, come up and do something about it.

"Immediately, a man runs up to the drunk and says, "You take that back!

"The drunk snears and replies, "Why, are you an agent?"

"No," the man replies, "I'm a crook."

Mis-information of consumers

A policyholder wrote to me as follows: "I sign on a ILP in 2005. I paid $100 every month through Giro. The agent told me I can only withdraw after six years. So far I had invested $36,000 but the return is $27000."

This statement shows the poor state of affairs in Singapore. After paying the premium for 3 years, the policyhholder is still not aware about his contractual rights under this policy, namely:

> He can withdraw his ILP at any time (and not after 6 years)
> The high charges deducted from his premuims represents a certain proportion of his loss
> He does not know that he can approach his insurance company to get an explanation

The Benefit Illustration given at the point of sale should provide a clear explanation to the policyholder. But, most of the Benefit Illustrations are very confusing.

Twisting of ILP to Revosave

Dear Mr Tan,

I sign on a ILP in 2005. I paid $100 every month through Giro. The agent told me I can only withdraw after six years. So far I had invested $36,000 but the return is $27000.

Today another agent explained to me that this ILP will not make any gain for the next three years. Since I have a living policy which muture at 65, he reconmented a RevoSave Policy, which can earn bonus and insure for permenent disablity and death.

I am 58 year old and want to save for my retirement. I found that I rather pay the similar amount to the RevoSave. He told me I can withraw the ILP anytime, it is true? Shall I terminate the ILP and take the RevoSave?

The Revosave is not suitable to save for retirement, especially for someone at your age. It gives a poor return. You should continue with your existing ILP.

The new agent is trying to "twist" your policy, but getting you to terminate an existing policy and take up a new policy (i.e. Revosave) so that he can earn a high commission on the new policy. You should ask the agent to explain how much commission he can earn from the new policy.

Here is an explanation about twisting:

You should lodge a compliant with the insurance company or Monetary Authority of Singapore about the unethical advice given by the agent.

Premium for the Shield rider is too high

I usually advice people to buy the Shield plan, without the rider to cover the Deductible. If you are hospitalised, you can pay the Deductible from your Medisave. This does not need to be insured.

Here is the reason:

> Assume that the chance of being hospitalised for your age band is 10%
> The Deductible (to cover B1 class) is $2,000.
> The cost of claims is $200 (i.e. 10% X $2,000)
> The premium that you have to pay is about $300 (usually 50% more than the cost of claims).
> $100 each year goes towards the expenses, including commission to the agent.

If you insure for 10 years, you have to pay a total premium of $3,000 and are likely to make 1 claim of $2,000. The additional $1,000 goes to pay expenses.

Tuesday, September 02, 2008

Structured products that are fair to consumers

Financial institutions have been designing structured products that are unsuitable for consumers. They are marketed with misleading advertisements and convassers.

Here are my suggestions on how to ensure that these structured products are designed to be fair to consumers:

Increase in Shield premium

Dear Mr. Tan,

The premium for my Incomeshield Plus rider has increased from $163 to $276 - an increase of more than 69% for those age group from 41 to 50. This is more than 8 times our GST rate! How can Singaporeans afford a reasonable health insurance with this kind of rate?

NTUC has also have a social mission of providing a reasonable affordable low cost insurance and stablizing food prices.

Is there any body to check on the NTUC insurance for the recent hefty increase in premium! It will definitely affect the middle income family.

If you are a member of a trade union, you can write to the secretary general of NTUC to voice your concern. If not, you can write to the chairman of the board of Income. All the best.

Introduce your friends to my blog

A request to regular visitors to my blog.

Send an e-mail to your friends and ask them to visit my blog. The link is

I hope that you will respond to my request now. Your action will be reflected by an immediate increase in the visitors to my blog over the next few days.

500,000 visitors by 11-11-2008

I projected earlier that my blog will reach 500,000 visitors by 11-11-2008.

I recalculated by projection this morning, i.e. 2-9-2008. I have an average of 1138 visitors a day. The blog now has 419,668 visitors.

My Excel spreadsheet calculated projected that the target will be reached EXACTLY on 11-11-2008. What a coincidence!

Twisting is bad for the customer

Insurance agents are provided with a range of complex products, such as whole life, endowment and investment-linked plans. There are many variations of these products, including the cash back features. Some have guaranteed returns, some have bonuses, and some products have values that are linked to a fund.

It is easy for an agent to confuse a customer to stop an existing insurance policy to buy a new policy. The agent can easily point out a different feature and explain why it is good for the customer. This is not true, but the agent is trained on how to make the customer believe in the statement.

The agent can earn a high commision on the new policy. This commission can take away newly two years of the premium. If the premium is $300 a month, the customer can lose up to $7,200 of premium as charges taken away from the new policy, mainly to pay commission to the agent.

This practice is called "twisting" and is illegal in many countries. It is quite rampant in Singapore. Many consumers are taken for a ride. If you find that an agent has "twisted" your policy, you should lodge a complaint with the insurance company or with the Monetary Authority of Singapore.

The insurance companies should also be blamed for this bad practice. They introduce new products, which gives the opportunity for the agent to twist the policy of other agents, from the same company or a new company.

How is the customer twisted?

1. If you have a whole life or endowment policy, the agent will tell you that it is better to buy an investment-linked policy by showing the projected returns assuming a high yield

2. If you have an investment-linked policy, the agent will tell you that it has lost money (which it has in the recent market down-turn) and move you back to a whole life or endowment or cash back policy.

Remember: the agent always gains from the high commission when you stop a policy and buy a new policy. This is always done at the expense of the customer.

Monday, September 01, 2008

The truth about life insurance

I write this article for Online Citizen a few months ago. It cause a lot of discussion from consumers and insurance agents. For those who missed it, you can read it here:

Sunday, August 31, 2008

Excessive spread and unfair practice

Dear Kin Lian

I bought a regular ILP (with annual contribution of $5,000) using CPF many years ago. I did not notice that the offer and bid spread is 5% at that time and the agent also did not tell me (otherwise, I will not buy it).

Every year when I contribute the amount using CPF, the insurance company will purchase the unit trust using the offer price and immediately redeem it using the bid price to cover the insurance premium. The insurance company is profiting not only on the insurance premium but also on the bid/offer spread.

Currently, investment of unit trust using CPF, the maximum bid/offer spread is 3%. Is this maximum spread of 3% applicable to existing ILP? If yes, how could I get the insurance company to reduce it? If not, how can I request CPF or MAS to look into this?


I suggest that you write a complaint to the Insurance Department of MAS addressing the following two issues:

1. Conduct of the insurance agent in failing to inform you about the spread. However, as this occurred many years ago, you may find it difficult to raise this point now, as you failed to do so during the past years.

2. Unfair charge levied by the insurance company in applying the spread on your premium and enchasing it immediately (after deducting the spread) to pay the expenses and mortality charge. It would have been fairer for the company to separate your premium into two portions (for charges and for investments) and to apply the spread only on the investments. I think that MAS should not condone this practice, which is unfair to consumers.

If you find the charges to be too high, it is best for you to terminate the policy.

Joke: Open a tin of peas

A man called on a married couple whom he had not seen for some time. The door was opened by the woman to whom the man said, "Hello, Mabel, and how is Jack?"

"Oh," she replied, "didn't you know? He died a while ago."

"Well, I am sorry to hear that," the man said, "How did it happen?"

"Well," he informed him, "he went into the garden to pull a cabbage for dinner, when he collapsed and died."

"Dear, dear," said the man, "whatever did you do?"

"Well", she rejoined, "what could we do? We had to open a tin of peas".

Does NTUC Fairprice give good value?

Dear Mr Tan,

I am an avid reader of your enlightening blog. I remember that you once cited that NTUC Fairprice offers the most economical pricings. What is your comment on the article below:

Price chart figures can be misleading

I refer to last Sunday's table titled 'At the shops', which compared the prices of food products in various supermarkets and wet markets in Singapore.

I have issues with the way in which the food prices were presented. At best, the figures require the readers to do some calculations to arrive at the right conclusions. At worst, the numbers mislead the readers into thinking that NTUC FairPrice always offers the most competitive prices.

For example, in citing the prices of kai lan, the table displayed FairPrice's pricing as $1/200g. This works out to $5/kg, which is higher than that in Sheng Siong supermarket ($2.50/kg) and Chung Ling Wet Market ($3/kg).

The comparative prices of cucumber and cai xin were also presented using sometimes different units of measure.

It turned out that in these instances, FairPrice's prices were the least competitive. From the table, it seemed FairPrice offered the most competitive pricing only for a carton of 10 eggs.

Most readers just want a quick look at the comparative prices. This being the case, the way the figures were presented can easily mislead the readers into thinking that FairPrice products are priced the lowest, when that may not be the case.

It is a matter of opinion. Generally, Fairprice offers good value. Sheng Siong gives good value as well.

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