Dear Mr. Tan,
What are the types of insurance that I can buy to insure my motor car? What is the difference in the premium payable? What is excess and no-claim discount?
REPLY
You have three options to insure your car:
1) comprehensive
2) third party, fire and theft (TPFT)
3) third party only (TPO)
There are three main types of losses covered by a motor insurance policy:
a) damage to your car caused by accidents
b) loss of your car due to fire and theft
c) liability to third party for an accident caused by you.
The comprehensive policy covers (a), (b) and (c). The TPFT policy covers (b) and (c) only. The TPO policy covers (c) only.
Most owners insure their cars under comprehensive cover. If the car is old and has small market value, they may insure under TPFT or TPO cover.
The premium payable on a car depends on a few factors. The premium for TPFT and TPO covers are about 65% and 50% of the comprehensive premium.
The "excess" is the amount that you have to co-pay for any claim. The insurance company will pay the amount that is above the "excess".
The owner enjoys a no-claim discount if there is no claim during the year. The discount starts at 10% after one year, and increases by another 10% for each subsequent year, until it reaches 50%. If there is a claim, the discount is reduced by 30% or goes back to 0%.
For more details:
http://www.tankinlian.com/faq/car.html
Saturday, February 23, 2008
Educating the public
Dear Mr. Tan,
I see that you are educating the public on the pluses and negatives about the various insurance subjects and stock market situation.
Hopefully with the more educated and wider public attention, public would start cancelling their policies and redirect their savings else where, like I did. This will put pressure on the insurance companies to come clean.
I see that you are educating the public on the pluses and negatives about the various insurance subjects and stock market situation.
Hopefully with the more educated and wider public attention, public would start cancelling their policies and redirect their savings else where, like I did. This will put pressure on the insurance companies to come clean.
Early repayment of housing loan
Hi Mr. Tan
I am a regular visitor to your blog.I have a private housing loan with a bank. I can make a partial or full payment after 3 years. I am considering the following options at the end of 3 years:
(a) Do a partial payment and continue to pay the same monthly payment from CPF OA
(b) Do a full payment using cash and CPF OA
(c) Do a full payment from CPF OA
What is your advice?
REPLY:
What is the interest rate on your loan at the end of 3 years, based on their current board rate?
What is the balance of your loan at the end of 3 years?
What is the amount of monthly repayment?
What is the rate of return on your cash savings?
You need these figures to calculate the options that work best for you.
I am a regular visitor to your blog.I have a private housing loan with a bank. I can make a partial or full payment after 3 years. I am considering the following options at the end of 3 years:
(a) Do a partial payment and continue to pay the same monthly payment from CPF OA
(b) Do a full payment using cash and CPF OA
(c) Do a full payment from CPF OA
What is your advice?
REPLY:
What is the interest rate on your loan at the end of 3 years, based on their current board rate?
What is the balance of your loan at the end of 3 years?
What is the amount of monthly repayment?
What is the rate of return on your cash savings?
You need these figures to calculate the options that work best for you.
Tax Benefits in Life Insurance Products
Dear Mr. Tan,
You mentioned that the high cost in life insurance products reduces the yield and gives a poor return to the consumer. Does this situation apply to the developed countries as well? If so, why are the consumers there, who are more sophisticated, still buying the high cost life insurance policies?
REPLY
You will find countries in three broad categories:
1) In some countries such as USA, Australia and France, there are tax benefits in buying certain types of life insurance products. These tax benefits offset the high cost of the products and still give an attractive return to the consumer.
2) In some countries such as Malaysia, the regulator set certain limits on the marketing costs. This ensure that the products give reasonably fair value to the consumers.
3) In countries such as Singapore, the marketing cost is too high and there is virtually no tax benefit to offset it. It is better to buy Term insurance and invest the remainder in a low cost investment fund.
You mentioned that the high cost in life insurance products reduces the yield and gives a poor return to the consumer. Does this situation apply to the developed countries as well? If so, why are the consumers there, who are more sophisticated, still buying the high cost life insurance policies?
REPLY
You will find countries in three broad categories:
1) In some countries such as USA, Australia and France, there are tax benefits in buying certain types of life insurance products. These tax benefits offset the high cost of the products and still give an attractive return to the consumer.
2) In some countries such as Malaysia, the regulator set certain limits on the marketing costs. This ensure that the products give reasonably fair value to the consumers.
3) In countries such as Singapore, the marketing cost is too high and there is virtually no tax benefit to offset it. It is better to buy Term insurance and invest the remainder in a low cost investment fund.
Refund of premium
Dear Mr. Kin Lian Tan,
I have a Living policy. I decided to terminate it, but the premium I paid until April 30. I have contacted the insurance company, but it seems that it is impossible to get back unused premium. Is it fair?
REPLY
They will pay you a cash value, which is lower than the premiums that you have paid. The difference goes to pay the expenses, commission, mortality charges and profit margin.
You can compare the cash value against the projected amount that was shown to you at the time that you bought the policy. You should get back the guaranteed cash value and some or all of the non-guaranteed value.
There is no refund for any unexpired portion of the current year's premium.
I have a Living policy. I decided to terminate it, but the premium I paid until April 30. I have contacted the insurance company, but it seems that it is impossible to get back unused premium. Is it fair?
REPLY
They will pay you a cash value, which is lower than the premiums that you have paid. The difference goes to pay the expenses, commission, mortality charges and profit margin.
You can compare the cash value against the projected amount that was shown to you at the time that you bought the policy. You should get back the guaranteed cash value and some or all of the non-guaranteed value.
There is no refund for any unexpired portion of the current year's premium.
Keep your money in CPF Special Account
Mr. Tan
I have some money in my CPF Special Account and wish to invest it. Previously I have invested in Company X's Selector II in China for 7 years. After 7 years, I did not make any money compare to 4% interest in CPF.
I would like to hear your advice in investing the special account as my ordinary account is kept for my housing loan.
REPLY
Keep your money in the special account. It pays interest at 4% (plus bonus at 1% on the first $40,000) and is risk free.
You should take risk only for your personal savings or the ordinary account, where the opportunity cost is 1% or 2.5% only.
I have some money in my CPF Special Account and wish to invest it. Previously I have invested in Company X's Selector II in China for 7 years. After 7 years, I did not make any money compare to 4% interest in CPF.
I would like to hear your advice in investing the special account as my ordinary account is kept for my housing loan.
REPLY
Keep your money in the special account. It pays interest at 4% (plus bonus at 1% on the first $40,000) and is risk free.
You should take risk only for your personal savings or the ordinary account, where the opportunity cost is 1% or 2.5% only.
Financial contagion
Dear Mr. Tan KL,
As you are well aware of the on-going credit crunch in the USA with credit defaults rising, subPrime losses mounting, big financial institutions being forced to write off billions of dollars from their balance sheets.
Do you see this as a growing contagion? Will it spread to Asia? Will financial institutions in Asia such as NTUC Income (which I believe currently has a "A" rating) suffer from such contagion ?
REPLY
The experts do not know. I do not know either. I think that the Fed chairman also does not know. He said that the losses have probably been recognised, but still no one knows.
As you are well aware of the on-going credit crunch in the USA with credit defaults rising, subPrime losses mounting, big financial institutions being forced to write off billions of dollars from their balance sheets.
Do you see this as a growing contagion? Will it spread to Asia? Will financial institutions in Asia such as NTUC Income (which I believe currently has a "A" rating) suffer from such contagion ?
REPLY
The experts do not know. I do not know either. I think that the Fed chairman also does not know. He said that the losses have probably been recognised, but still no one knows.
Keep your existing policy
Dear Mr. Tan,
Four years ago, I bougt a 25 year saving plan as follows:
Sum assured: $10,000
No. of years of Premiums Payable :25
Monthly Premium: $70
Maturity Benefits: $16,581
Projected rate of return: 4.75%
I am considering to terminate my savings plan insurance. I wish to buy Term insurance and invest the savings in bonds or unit trust. What is your advice?
REPLY
My advice is for you to keep this policy. My reasons are:
1. It is quite small
2. You have probably incurred the upfront expenses already
3. The projected return of 4.75% is quite attractive.
You will need additional insurance within the next few years, as your current sum assured is quite low. When you are ready to invest more, you can buy Term insurance and invest the difference in a diversified, low cost fund, such as the STI ETF.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Four years ago, I bougt a 25 year saving plan as follows:
Sum assured: $10,000
No. of years of Premiums Payable :25
Monthly Premium: $70
Maturity Benefits: $16,581
Projected rate of return: 4.75%
I am considering to terminate my savings plan insurance. I wish to buy Term insurance and invest the savings in bonds or unit trust. What is your advice?
REPLY
My advice is for you to keep this policy. My reasons are:
1. It is quite small
2. You have probably incurred the upfront expenses already
3. The projected return of 4.75% is quite attractive.
You will need additional insurance within the next few years, as your current sum assured is quite low. When you are ready to invest more, you can buy Term insurance and invest the difference in a diversified, low cost fund, such as the STI ETF.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Friday, February 22, 2008
Term insurance covers critical illness
Hi Mr. Tan,
Does NTUC have a term insurance that covers critical illness? Two years ago, I bought I-term. I checked with the NTUC consultant and he says that NTUC do not have term insurance for critical illness, thus I ended buying the Living policy...
REPLY
You can buy a Living Benefit which is like a Term insurance that covers critical illness. It comes as part of the Family Policy.
More details here:
http://www.tankinlian.com/faq/choice.html
Does NTUC have a term insurance that covers critical illness? Two years ago, I bought I-term. I checked with the NTUC consultant and he says that NTUC do not have term insurance for critical illness, thus I ended buying the Living policy...
REPLY
You can buy a Living Benefit which is like a Term insurance that covers critical illness. It comes as part of the Family Policy.
More details here:
http://www.tankinlian.com/faq/choice.html
Savings for your child
Dear Mr. Tan,
I have two boys. Since birth, I have been depositing their ang baos into their saving accounts. I was wondering if there are any better way of growing their money (in a long term) so that they can use it for their education in future.
REPLY
I hope that, in the near future, there will be low cost investment funds. If you are investing for the long term, the risk is reduced considerably and you will get a much higher return.
For the time being, it appears that the saving account is the best way to keep the savings.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I have two boys. Since birth, I have been depositing their ang baos into their saving accounts. I was wondering if there are any better way of growing their money (in a long term) so that they can use it for their education in future.
REPLY
I hope that, in the near future, there will be low cost investment funds. If you are investing for the long term, the risk is reduced considerably and you will get a much higher return.
For the time being, it appears that the saving account is the best way to keep the savings.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Commission on high cost policies
Dear Mr. Tan,
How much does a life insurance agent earn by selling the so-called "high cost" life insurance policies, such as whole life or critical illness?
REPLY
It is better to look at the total cost to the customer, as there are three layers which earn commission on the life insurance policies that is sold to the customer. For most whole life or critical illness policy, the total commission paid is 160% of the annual premium.
If you pay $300 a month towards a life insurance policy, the total commission that is deducted from your policy is 160% of $3,600 or a total of $5,760. About two-third of this amount goes to the agent that sells the policy to you. The remaining one third goes to the upper two layers. This amount is taken away over the first three years of the policy.
Some insurance companies operate at lower cost. The commission that is taken away from your policy is less than 160%.
How much does a life insurance agent earn by selling the so-called "high cost" life insurance policies, such as whole life or critical illness?
REPLY
It is better to look at the total cost to the customer, as there are three layers which earn commission on the life insurance policies that is sold to the customer. For most whole life or critical illness policy, the total commission paid is 160% of the annual premium.
If you pay $300 a month towards a life insurance policy, the total commission that is deducted from your policy is 160% of $3,600 or a total of $5,760. About two-third of this amount goes to the agent that sells the policy to you. The remaining one third goes to the upper two layers. This amount is taken away over the first three years of the policy.
Some insurance companies operate at lower cost. The commission that is taken away from your policy is less than 160%.
Insurance agents need to make a living
Dear Mr. Tan,
If life insurance agents sell only term insurance, how can they make a living? The commission is very small.
REPLY
Many insurance agents make a living by earning a earning a commission of $30 to $50 by selling a general insurance policy. They are able to earn an adequate income by selling a few policies a day. In their case, the customers buy from their office. They earn commission on the renewal of the policy.
It is possible for life insurance agents to make a living by selling low cost insurance, such as term, medical and accident insurance. They have to change their business model, to be similar to general insurance.
When a life insurance agent sells term insurance, the customer is likely to ask for a large protection, e.g. $300,000 and pay a premium of $300 a year. The commission can be quite adequate.
If life insurance agents sell only term insurance, how can they make a living? The commission is very small.
REPLY
Many insurance agents make a living by earning a earning a commission of $30 to $50 by selling a general insurance policy. They are able to earn an adequate income by selling a few policies a day. In their case, the customers buy from their office. They earn commission on the renewal of the policy.
It is possible for life insurance agents to make a living by selling low cost insurance, such as term, medical and accident insurance. They have to change their business model, to be similar to general insurance.
When a life insurance agent sells term insurance, the customer is likely to ask for a large protection, e.g. $300,000 and pay a premium of $300 a year. The commission can be quite adequate.
Critical illness
Dear Mr. Tan,
What is a fair premium to pay for critical illness insurance?
REPLY
The claim rate is less than 0.3% a year for people between 35 to 60 years. To insure $100,000, the pure cost should be $300. If you add the administrative cost, a fair premium should be $450 a year.
Many people have to pay more than $2,000 a year under a critical illness policy. This is too much, as compared to the true cost of the risk.
Although some of the premium is used as savings to accumulate a cash value, the return from this saving is quite poor. A large part of the saving is used to pay expenses of the insurance company, including the commission to the agent.
For a child or baby, the risk of suffering a critical illness is very much lower.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
What is a fair premium to pay for critical illness insurance?
REPLY
The claim rate is less than 0.3% a year for people between 35 to 60 years. To insure $100,000, the pure cost should be $300. If you add the administrative cost, a fair premium should be $450 a year.
Many people have to pay more than $2,000 a year under a critical illness policy. This is too much, as compared to the true cost of the risk.
Although some of the premium is used as savings to accumulate a cash value, the return from this saving is quite poor. A large part of the saving is used to pay expenses of the insurance company, including the commission to the agent.
For a child or baby, the risk of suffering a critical illness is very much lower.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
Insuring a child for critical illness
Dear Mr. Tan,
An insurance agent said that it is necessary to insure a child against critical illness, as the cost of treating leukemia could be more than $20,000 and it is not covered under a Shield policy. What is your advice?
REPLY
The chance of a serious illness of this nature is extremely small, maybe less than 1 in 10,000. To insure this risk and other similar risks, the pure cost should be less than $2 a month (my guess only, as I do not have the data). The critical illness policy that you to pay a premium of $100 per month. Is it worth paying so much?
Although a Shield plan does not pay the full cost of the treatment for leukemia, it does cover a large part of the cost.
Advice: Do not over-pay on the cost of insurance. Make sure that you pay a fair premium. You need to save money for your future use also.
An insurance agent said that it is necessary to insure a child against critical illness, as the cost of treating leukemia could be more than $20,000 and it is not covered under a Shield policy. What is your advice?
REPLY
The chance of a serious illness of this nature is extremely small, maybe less than 1 in 10,000. To insure this risk and other similar risks, the pure cost should be less than $2 a month (my guess only, as I do not have the data). The critical illness policy that you to pay a premium of $100 per month. Is it worth paying so much?
Although a Shield plan does not pay the full cost of the treatment for leukemia, it does cover a large part of the cost.
Advice: Do not over-pay on the cost of insurance. Make sure that you pay a fair premium. You need to save money for your future use also.
Thursday, February 21, 2008
Selecting a policy to terminate
Dear Mr. Tan Kin Lian
1) I have bought three critical illness policies at different times, more than 10 years ago. Now I wish to cancel one of the policies. Can you tell me which should I surrender – the one I bought the earliest or the latest?
2) How much of sum insured for critical illness is considered sufficient for me?
REPLY
I suggest that you ask the insurance company to quote the following to you, for each policy.
a) What is the cash value now
b) What is the estimated cash value in 5 years time
c) What is the premium payable for the next 5 years.
You will be able to make a better decision, after the above figures are available. You can read this FAQ to decide on the amount of insurance that you should have.
http://www.tankinlian.com/faq/choice.html
1) I have bought three critical illness policies at different times, more than 10 years ago. Now I wish to cancel one of the policies. Can you tell me which should I surrender – the one I bought the earliest or the latest?
2) How much of sum insured for critical illness is considered sufficient for me?
REPLY
I suggest that you ask the insurance company to quote the following to you, for each policy.
a) What is the cash value now
b) What is the estimated cash value in 5 years time
c) What is the premium payable for the next 5 years.
You will be able to make a better decision, after the above figures are available. You can read this FAQ to decide on the amount of insurance that you should have.
http://www.tankinlian.com/faq/choice.html
Wednesday, February 20, 2008
Critical illness coverage for a baby
Dear Mr. Tan,
Is it possible to buy term insurance with critical illness coverage for my newborn baby? Or must I sign up for a whole life policy to have critical illness coverage?
I am looking to cover him up to age 65. I will also be getting for him Enhanced Incomeshield (Preferred) Plan. I feel that critical illness coverage is essential even with a Shield Plan as the Shield Plan only covers hospitalisation and surgical expenses but not living expenses, which could place a heavy burden on an affected person's family if the affected person is unable to find permanent employment for an extended time. Please advise.
REPLY
My view is that it is not necessary to buy Term insurance or critical illness coverage for a baby or a child.
If you feel that this is necessary, you should be able to find an insurance agent to sell the coverage for you. The agent is likely to convince you to buy a whole life policy.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
Is it possible to buy term insurance with critical illness coverage for my newborn baby? Or must I sign up for a whole life policy to have critical illness coverage?
I am looking to cover him up to age 65. I will also be getting for him Enhanced Incomeshield (Preferred) Plan. I feel that critical illness coverage is essential even with a Shield Plan as the Shield Plan only covers hospitalisation and surgical expenses but not living expenses, which could place a heavy burden on an affected person's family if the affected person is unable to find permanent employment for an extended time. Please advise.
REPLY
My view is that it is not necessary to buy Term insurance or critical illness coverage for a baby or a child.
If you feel that this is necessary, you should be able to find an insurance agent to sell the coverage for you. The agent is likely to convince you to buy a whole life policy.
Read this FAQ:
http://www.tankinlian.com/faq/choice.html
Need a bank loan for a retail business
Hello Mr Tan
I am running a retail business in a shopping centre? In recent months, I am facing some financial issue to running the retail operation. I tried to ask the bank for a SME loan of $X. The bank rejected my application as I am low in funds with the bank. I am confused by the rejection, as I needed the loan because I am low in funds. Why is it that nobody can help? I am willing to pay interest to the bank but they refuse me. Please advise me what to do.
REPLY
This problem is outside of my expertise. I do not know how I can help. Perhaps, if the business is doing poorly, it is better to close it down, before it incurs further losses.
If the business has the prospect of being profitable, you should be able to interest investors or to convince the bank to provide a loan.
I am running a retail business in a shopping centre? In recent months, I am facing some financial issue to running the retail operation. I tried to ask the bank for a SME loan of $X. The bank rejected my application as I am low in funds with the bank. I am confused by the rejection, as I needed the loan because I am low in funds. Why is it that nobody can help? I am willing to pay interest to the bank but they refuse me. Please advise me what to do.
REPLY
This problem is outside of my expertise. I do not know how I can help. Perhaps, if the business is doing poorly, it is better to close it down, before it incurs further losses.
If the business has the prospect of being profitable, you should be able to interest investors or to convince the bank to provide a loan.
Achiever Policy
Dear Mr. Tan
Presently I am paying $x a month premium for a coverage of $Y. I am thinking of terminating the policy but there is a penalty if i cash out now. What is your advice on this? Do I wait till the 6th year whereby there will be no penalty to terminate the policy?
REPLY
You can ask the insurance company to tell you the following:
a. what is the cash value of the policy now?
b. what is the amount of penalty on terminating the policy now?
c. what is the total premiums paid up to now?
d. what is the future premiums payable in the future, until the end of the 5th year?
e. what are the charges deducted from the premium payable until the end of the 5th year?
f. what is the expected cash value at the end of the 5th year, assuming that the investments earn a gross return of 5% per annum
With the above information, it may be easier for you to make a proper decision.
Lesson: Get the relevant figures to make the correct the correct decision.
Presently I am paying $x a month premium for a coverage of $Y. I am thinking of terminating the policy but there is a penalty if i cash out now. What is your advice on this? Do I wait till the 6th year whereby there will be no penalty to terminate the policy?
REPLY
You can ask the insurance company to tell you the following:
a. what is the cash value of the policy now?
b. what is the amount of penalty on terminating the policy now?
c. what is the total premiums paid up to now?
d. what is the future premiums payable in the future, until the end of the 5th year?
e. what are the charges deducted from the premium payable until the end of the 5th year?
f. what is the expected cash value at the end of the 5th year, assuming that the investments earn a gross return of 5% per annum
With the above information, it may be easier for you to make a proper decision.
Lesson: Get the relevant figures to make the correct the correct decision.
Dear Mr. Tan,
I find your blog very interesting. I to seek your advice. Presently my income is mainly in USD which has been sliding downwards. Should I convert to Singapore dollars. What is your best course of action to prevent further exchange losses?
REPLY
It is difficult to predict the movement of currencies. If your cost of living is mainly in SGD, perhaps you should discuss with your employer to pay you in SGD, or to have some way of adjusting for the cost of living in Singapore?
Regarding your investment in USD, you can see if this FAQ is helpful to you?
http://www.tankinlian.com/faq/foreign.html
I find your blog very interesting. I to seek your advice. Presently my income is mainly in USD which has been sliding downwards. Should I convert to Singapore dollars. What is your best course of action to prevent further exchange losses?
REPLY
It is difficult to predict the movement of currencies. If your cost of living is mainly in SGD, perhaps you should discuss with your employer to pay you in SGD, or to have some way of adjusting for the cost of living in Singapore?
Regarding your investment in USD, you can see if this FAQ is helpful to you?
http://www.tankinlian.com/faq/foreign.html
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