Saturday, June 26, 2010
Separation from Malaysia
Here are some views about the historic occasion 45 years ago, and some speculation about the future.
Cost of insurance
Singapore has low mortality rate (death rate) among young people. The rate for most working people below 50 years is less than 0.5 per 1,000. At this death rate, the cost of insurance to provide $300,000 should be less than $300 (after allowing for expenses and profit of the insurance company). You can get this type of coverage at this low rate from group insurance scheme offered to memebrs of SAF, SAFRA, trade unions and public officers.
Many people, however, are now paying 10 to 20 times of this premium to get a similar coverage. The only reason for paying so much is that the part of the premium is being invested to get a return. If this is the argument, then it is important that the yield on the premium that is invested should be attractive, compared to other types of investments. But this is not the case, as most life insurance policies give a return of less than 2% per annum over a long period. A fair return should be 4%, but this is being taken away from the high expenses of the insurance company.
The advice given by many insurance agents are not helpful. On the one hand, they argue that the life insurance policy gives a return on the premium, and argue against term insurance (which does not provide any return). But, when they are confronted with the fact that the return is too low, they changed their tune to argue about the importance of having insurance cover to protect the family. Sadly, the cost of the insurance products that they offer for protection is too high.
Insurance agents face a dilemma. If they offer the products that are good for consumers, they are not able to earn a high income. They can only earn more by selling products that "rip off" the unsavvy consumers.
Some insurance agents are honest and ethical and genuinuely wish to give the right advice to their customers. However, customers are not willing to pay an adequate fee for the time that is spent. And these insurance agents are not able to get sufficient business to make give an adequate income.
What is the solution? The growth on online portals that offer insurance directly is one useful step. Another important step is for consumers to be educated about financial matter. They can join FISCA (http://www.fisca.sg/) and attend the talk on financial planning offered by FISCA.
Consumers can also get useful tips from my book, Practical Guide on Financial Planning.
Tan Kin Lian
Many people, however, are now paying 10 to 20 times of this premium to get a similar coverage. The only reason for paying so much is that the part of the premium is being invested to get a return. If this is the argument, then it is important that the yield on the premium that is invested should be attractive, compared to other types of investments. But this is not the case, as most life insurance policies give a return of less than 2% per annum over a long period. A fair return should be 4%, but this is being taken away from the high expenses of the insurance company.
The advice given by many insurance agents are not helpful. On the one hand, they argue that the life insurance policy gives a return on the premium, and argue against term insurance (which does not provide any return). But, when they are confronted with the fact that the return is too low, they changed their tune to argue about the importance of having insurance cover to protect the family. Sadly, the cost of the insurance products that they offer for protection is too high.
Insurance agents face a dilemma. If they offer the products that are good for consumers, they are not able to earn a high income. They can only earn more by selling products that "rip off" the unsavvy consumers.
Some insurance agents are honest and ethical and genuinuely wish to give the right advice to their customers. However, customers are not willing to pay an adequate fee for the time that is spent. And these insurance agents are not able to get sufficient business to make give an adequate income.
What is the solution? The growth on online portals that offer insurance directly is one useful step. Another important step is for consumers to be educated about financial matter. They can join FISCA (http://www.fisca.sg/) and attend the talk on financial planning offered by FISCA.
Consumers can also get useful tips from my book, Practical Guide on Financial Planning.
Tan Kin Lian
Rechargeable torchlight with locator lamp
Local Transport
A good form of local transport is car sharing and bicycle sharing. It should be operated on a licence given by the town council and should operate for short distance within a town. The purpose is to bring people from their home to the town center, MRT station or bus interchange and to bring them back. By using shared bicycles and electric cars, the vehicle are used for several trips each day and reduce the space required for parking.
There is a maintenance cost, due to the high usage of the vehicles, but the cost to the consumer should be much lower than the cost of a privately owned bicycle or electric car. There is less hassle in looking for a parking space.
This type of sharing arrangements need to be initiated by the authority, as they have the power to set aside space for parking, right of way on the roads and overcome other obstacles. Several cities in Europe have taken the step to make these operations available.
In many residential areas in Singapore, the car parking lots and side roads are congested with parked cars. It is quite a hassle to drive through these roads or to find a parking space. The situation has become quite bad. The situation can be remedied by introducing the sharing schemes.
To make it work, we need the authoruty to the town councils to initiate this scheme and to overcome the regulatory overlap between the various ministries and agencies.
Tan Kin Lian
There is a maintenance cost, due to the high usage of the vehicles, but the cost to the consumer should be much lower than the cost of a privately owned bicycle or electric car. There is less hassle in looking for a parking space.
This type of sharing arrangements need to be initiated by the authority, as they have the power to set aside space for parking, right of way on the roads and overcome other obstacles. Several cities in Europe have taken the step to make these operations available.
In many residential areas in Singapore, the car parking lots and side roads are congested with parked cars. It is quite a hassle to drive through these roads or to find a parking space. The situation has become quite bad. The situation can be remedied by introducing the sharing schemes.
To make it work, we need the authoruty to the town councils to initiate this scheme and to overcome the regulatory overlap between the various ministries and agencies.
Tan Kin Lian
Friday, June 25, 2010
Wisdom on How to Live Life Vol 2
Volume 2 of this book by Dr. Tommy Wong is now available at www.easysearch.sg/ishop ($25).
Car sharing scheme in Paris
My friend from Paris gave me an update of the city's proposed car sharing scheme. It will involve 3,000 electric-operated vehicles. The city is inviting proposals from private sector operators to run the car sharing scheme, which is expected to operate from 2012.
This is an interesting approach. The city government is able to find the parking spaces and clears the regulatory hurdles. The private sector will operate the schemes under some regulated pricing.
The advantage of the proposed car sharing scheme are:
- use of electric vehicles, which is friendly for the environment
- each vehicle can be shared by many users in a day (save parking space) and reduced number of vehicles
I hope that a similar scheme can be set up in each of the towns in Singapore to provide local transport from residential areas to MRT stations and bus terminus.
Tan Kin Lian
This is an interesting approach. The city government is able to find the parking spaces and clears the regulatory hurdles. The private sector will operate the schemes under some regulated pricing.
The advantage of the proposed car sharing scheme are:
- use of electric vehicles, which is friendly for the environment
- each vehicle can be shared by many users in a day (save parking space) and reduced number of vehicles
I hope that a similar scheme can be set up in each of the towns in Singapore to provide local transport from residential areas to MRT stations and bus terminus.
Tan Kin Lian
Late submission of critical illness claim
Dear Mr. Tan,
My wife was diagnosed with breast cancer stage three in 2007. At that time, we did not realised she had a ILP with X and critical illness cover was attached to the plan. We shifted house in the process and only realised the policy existence when we went back to collect our mails. The fact is the policy is still in force because the cash value is being taken to finance the policy, including of its critical illness cover.
Now X is asking us to furnish a memo explaining why we made the claims so late. I'm concerned whether X will make good the claim because its a genuine oversight on our part.
Can you advise me on how we should revert to X and honestly in your opinion, do you think the chances of us getting the claim is good?
REPLY
You can state your facts honestly, that you were not aware about the insurance policy previously. You made the claim as soon as you realised that there was a cover. I think that X should accept your claim. If they reject it, you can consult a lawyer.
My wife was diagnosed with breast cancer stage three in 2007. At that time, we did not realised she had a ILP with X and critical illness cover was attached to the plan. We shifted house in the process and only realised the policy existence when we went back to collect our mails. The fact is the policy is still in force because the cash value is being taken to finance the policy, including of its critical illness cover.
Now X is asking us to furnish a memo explaining why we made the claims so late. I'm concerned whether X will make good the claim because its a genuine oversight on our part.
Can you advise me on how we should revert to X and honestly in your opinion, do you think the chances of us getting the claim is good?
REPLY
You can state your facts honestly, that you were not aware about the insurance policy previously. You made the claim as soon as you realised that there was a cover. I think that X should accept your claim. If they reject it, you can consult a lawyer.
Cash back policy
Comment posted in my blog (edited)
The whole idea of cash back is to confuse the consumers. Imagine the executive financial consultants cannot calculate and know little about this product, how do you expect the consumers to understand.
One social enterprise launched another product recently. These consumers will be in for a good ride when they find out that the projected return will not be delivered after 10 years. These consumers deserve it for trusting their agents. Don't know whether to pity the consumers or not.Consumers may think the cashbacks are interest earned. They are actually your own money returned to you as cash back. The agents are silent on this. The agents were trained not to mention anything until you ask. They tell the customers the points that 'sound' good and suppress the risk to the consumer.
My comment
The insurance agent compares the yield of these cash back product (around 1% per annum) with the low rate of interest on bank deposits. This comparison is wrong. Consumers should not lock their savings for 10 years or longer at the low yield. A fairer comparision is the yield on government bonds of the same duration, which should be more than 2% per annum. Furthermore, the government bonds are liquid and can be sold at a fair market price, without the heavy penalty that is found in a life insurance policy.
Learn about the "effect of deduction" from Practical Guide on Financial Planning.
The whole idea of cash back is to confuse the consumers. Imagine the executive financial consultants cannot calculate and know little about this product, how do you expect the consumers to understand.
One social enterprise launched another product recently. These consumers will be in for a good ride when they find out that the projected return will not be delivered after 10 years. These consumers deserve it for trusting their agents. Don't know whether to pity the consumers or not.Consumers may think the cashbacks are interest earned. They are actually your own money returned to you as cash back. The agents are silent on this. The agents were trained not to mention anything until you ask. They tell the customers the points that 'sound' good and suppress the risk to the consumer.
My comment
The insurance agent compares the yield of these cash back product (around 1% per annum) with the low rate of interest on bank deposits. This comparison is wrong. Consumers should not lock their savings for 10 years or longer at the low yield. A fairer comparision is the yield on government bonds of the same duration, which should be more than 2% per annum. Furthermore, the government bonds are liquid and can be sold at a fair market price, without the heavy penalty that is found in a life insurance policy.
Learn about the "effect of deduction" from Practical Guide on Financial Planning.
The Awakening
Read this inspiring article.
Some key points:
- stop judging and pointing fingers
- honesty and integrity are the foundations to build a life
- stop trying to control situations, people an doutcome
Some key points:
- stop judging and pointing fingers
- honesty and integrity are the foundations to build a life
- stop trying to control situations, people an doutcome
Shield claim
Dear Mr Tan,
A few months back my father went to hospital to do a post-hostpitalisation treatment of immunotherapy for bladder cancer. He is insured under Enhanced IncomeShield Policy and NTUC said that as the date of treatment exceeds 90 days from the date of hospitalisation (it was 93 days) they are not liable to pay.In fact, we got the doctor to write a letter of appeal but it was rejected. Would you know how we can appeal for this?
REPLY
Please ask the insurance company to give you a written reply for their rejection, i.e. to quote the clause from the policy about the coverage and their reason for rejection.
I believe that the policy does cover outpatient treatment for cancer. Can you see if your father's condition fits into this outpatient treatment? It is not related to the 90 day period from post-hospitalisation. I am not familiar with the exact coverage, so my remarks needs to be checked against clarification from the insurance company.
A few months back my father went to hospital to do a post-hostpitalisation treatment of immunotherapy for bladder cancer. He is insured under Enhanced IncomeShield Policy and NTUC said that as the date of treatment exceeds 90 days from the date of hospitalisation (it was 93 days) they are not liable to pay.In fact, we got the doctor to write a letter of appeal but it was rejected. Would you know how we can appeal for this?
REPLY
Please ask the insurance company to give you a written reply for their rejection, i.e. to quote the clause from the policy about the coverage and their reason for rejection.
I believe that the policy does cover outpatient treatment for cancer. Can you see if your father's condition fits into this outpatient treatment? It is not related to the 90 day period from post-hospitalisation. I am not familiar with the exact coverage, so my remarks needs to be checked against clarification from the insurance company.
2 million visitors
Congratulations to the following winners for being the 2,000,000th visitor to http://www.tankinlian.blogspot.com/
Clarence Goh
Vincent Choy
Chua Wei Lin
Eddy Lim
Aik Theng Chong
Kelvin Chin
Teo Aik Kiat
Please get your friends to visit my blog, http://www.tankinlian.blogspot.com/
Clarence Goh
Vincent Choy
Chua Wei Lin
Eddy Lim
Aik Theng Chong
Kelvin Chin
Teo Aik Kiat
Please get your friends to visit my blog, http://www.tankinlian.blogspot.com/
Open market create jobs
I saw an ad on CNN from the International Chamber of Commerce. It said, "Open Markets Create Jobs". I reflected on this message. It is a strong, appealling message, but is it true?
It is certainly true in some respects. The jobs are created in developing countries. But it came at a big price for these countries.
Look at what is happening in China. Many workers found that the wages could not keep up with the cost of living. They are taking industrial action and go on strike. This would be unthinkable in a communist country where the trade unions are under the control of the Government. But, it is happening, and the Government seemed to find it difficult to maintain the industrial harmony.
The jobs that went to the developing countries were at the expense of the same jobs that were lost in their home countries. Looking at the global picture, the number of jobs may not have increased. Instead the wage cost has come down, and that allows more profit for the capital owners.
These jobs were also made at the expense of public sector jobs that could improve the quality of life for the people, i.e. teachers, health care, community services, etc. With globalisation, more people are now working in jobs that product material goods, at the expense of public service jobs that help to make a balanced, better life for the people.
We need a new way of looking at jobs in its totality. If the trend continues as it had for the past two decades, we will have a less stable a less happy environment.
Tan Kin Lian
It is certainly true in some respects. The jobs are created in developing countries. But it came at a big price for these countries.
Look at what is happening in China. Many workers found that the wages could not keep up with the cost of living. They are taking industrial action and go on strike. This would be unthinkable in a communist country where the trade unions are under the control of the Government. But, it is happening, and the Government seemed to find it difficult to maintain the industrial harmony.
The jobs that went to the developing countries were at the expense of the same jobs that were lost in their home countries. Looking at the global picture, the number of jobs may not have increased. Instead the wage cost has come down, and that allows more profit for the capital owners.
These jobs were also made at the expense of public sector jobs that could improve the quality of life for the people, i.e. teachers, health care, community services, etc. With globalisation, more people are now working in jobs that product material goods, at the expense of public service jobs that help to make a balanced, better life for the people.
We need a new way of looking at jobs in its totality. If the trend continues as it had for the past two decades, we will have a less stable a less happy environment.
Tan Kin Lian
Thursday, June 24, 2010
FISCA talk on Financial Planning - 26 June, 3 to 6 pm
FISCA is organising a talk on financial planning as follows:
Title: Financial Planning - A Practical Guide
Time: 3 to 6 pm
Venue: SMU School of Business
Date: 26 June 2010
Speaker: Tan Kin Lian
This is a repeat of the same talk that wsa held in May and was attended by a full house.
Register for the talk: register.
FISCA
Title: Financial Planning - A Practical Guide
Time: 3 to 6 pm
Venue: SMU School of Business
Date: 26 June 2010
Speaker: Tan Kin Lian
This is a repeat of the same talk that wsa held in May and was attended by a full house.
Register for the talk: register.
FISCA
New life insurance products
Many new life insurance products introduced in the Singapore market recently provide a poor deal for customers. It is difficult for the customer to calculate the yield on their savings, as the new products offer cash payback at certain intervals.
The products offer a poorer yield compared to the traditional products (which already provided a low yield). To get the cash payback, the policyholder has to pay an additional premium that is at least 10% more than the payback. For example, if the cash payback is $2,000 a year, the policyholder has to pay an additional premium of at least $2,200 and get the cash payback only the second year only (i.e. no payback in the first year).
Does it make sense for you to save an additional $2,200 a year to get back $2,000? It does not, but the insurance agent is trained to tell you that this is a policy that gives you cash back!
There are other products that require you to pay premium for a certain number of years and pay back the benefit over a few years later. It is quite complicated to calculate the yield, but the yield is quite low (from the few examples that I have seen).
The only way to know if you are getting a fair deal is to look at the "effect of deduction" and the "distribution cost" shown in the benefit illustration. Although it come is many pages and is hidden among a lot of other distracting information, you can ask for these figures to be shown to you, as they are mandatory. You should also read my book, Practical Guide on Financial Planning to learn how to interpret these figures and to get the benchmark on what are the fair figures.
Tan Kin Lian
The products offer a poorer yield compared to the traditional products (which already provided a low yield). To get the cash payback, the policyholder has to pay an additional premium that is at least 10% more than the payback. For example, if the cash payback is $2,000 a year, the policyholder has to pay an additional premium of at least $2,200 and get the cash payback only the second year only (i.e. no payback in the first year).
Does it make sense for you to save an additional $2,200 a year to get back $2,000? It does not, but the insurance agent is trained to tell you that this is a policy that gives you cash back!
There are other products that require you to pay premium for a certain number of years and pay back the benefit over a few years later. It is quite complicated to calculate the yield, but the yield is quite low (from the few examples that I have seen).
The only way to know if you are getting a fair deal is to look at the "effect of deduction" and the "distribution cost" shown in the benefit illustration. Although it come is many pages and is hidden among a lot of other distracting information, you can ask for these figures to be shown to you, as they are mandatory. You should also read my book, Practical Guide on Financial Planning to learn how to interpret these figures and to get the benchmark on what are the fair figures.
Tan Kin Lian
Buying stocks
Buying stocks is like buying a used car. You have to spend time and attention to make sure that you buy the right stock and pay the right price. Read this article. Do not listen to tips from friends or ask for their advice.
My observation
If you are not sure which stock to buy, buy the STI ETF. It is invested in the shares of the 30 largest companies listed in the SGX. It has low transaction and annual management fee. You can mitigate the risks of investing in this ETF by following the principles explained in Practical Guide on Financial Planning.
Another alternative is to invest in a life insurance policy, provided that you are able to find a product that offers a low "effect of deduction" as explained in that book.
My observation
If you are not sure which stock to buy, buy the STI ETF. It is invested in the shares of the 30 largest companies listed in the SGX. It has low transaction and annual management fee. You can mitigate the risks of investing in this ETF by following the principles explained in Practical Guide on Financial Planning.
Another alternative is to invest in a life insurance policy, provided that you are able to find a product that offers a low "effect of deduction" as explained in that book.
Filial piety
Here are some letters from readers about the TV ad created by the Government agency to promote filial piety in Singapore.
Lesson on tolerance
http://www.straitstimes.com/STForum/Story/STIStory_544831.html
Ad does not convey correct values
http://www.straitstimes.com/STForum/OnlineStory/STIStory_544665.html
TV ad on filial piety was effective
http://www.straitstimes.com/STForum/OnlineStory/STIStory_544664.html
Favour elderly parents whom we owe so much
http://www.straitstimes.com/STForum/Story/STIStory_544833.html
Filial piety not a simple matter
http://www.straitstimes.com/STForum/Story/STIStory_544832.html
Lesson on tolerance
http://www.straitstimes.com/STForum/Story/STIStory_544831.html
Ad does not convey correct values
http://www.straitstimes.com/STForum/OnlineStory/STIStory_544665.html
TV ad on filial piety was effective
http://www.straitstimes.com/STForum/OnlineStory/STIStory_544664.html
Favour elderly parents whom we owe so much
http://www.straitstimes.com/STForum/Story/STIStory_544833.html
Filial piety not a simple matter
http://www.straitstimes.com/STForum/Story/STIStory_544832.html
Lifestyle in Dubai
Dubai has an attractive residential development called the Dubai Marina. It must have more than 100 high class apartment blocks, with excellent restaurants, shopping, recreational, sports and other facilities. It now has a Metro station which can bring the residents to the places of work in the financial and business districts along Sheik Zayed Road. There are many large shopping malls along the Metro line. This locality is quite attractive for expatriates.
There are also many new, top end residential apartment blocks located near the offices, for people who prefer to live close to the office.
The modern lifestyle in Dubai can be quite attractive. Most people are put off by the hot climate, but I found that the hot summer was quite bearable for short stays outside. Most of the time, the people are in air conditioned office, homes and cars. The other seasons are pleasant. The Metro trains and shopping malls in Dubai are not as crowded as Singapore.
Tan Kin Lian
There are also many new, top end residential apartment blocks located near the offices, for people who prefer to live close to the office.
The modern lifestyle in Dubai can be quite attractive. Most people are put off by the hot climate, but I found that the hot summer was quite bearable for short stays outside. Most of the time, the people are in air conditioned office, homes and cars. The other seasons are pleasant. The Metro trains and shopping malls in Dubai are not as crowded as Singapore.
Tan Kin Lian
Transport in Dubai
I spoke to several taxi drivers during my trip around Dubai yesterday to try out the Dubai Metro and visit Dubai Mall. They came from overseas, but have been living in Dubai for many years.
It is quite easy to get a taxi in Dubai as there is adequate supply. The fare is slightly more expensive than Singapore but is fixed for all taxis and is based on distance. There is no surcharge for time and location. It fare system is easy for commuters and taxi drivers.
The taxis provide a useful link for the first and last legs of the journey, with the main part of the journey being the Metro trains.
There are bus services that provide this connection for the local people who are familiar with the bus systems. However, the bus systems is still not well developed in Dubai.
Tan Kin Lian
It is quite easy to get a taxi in Dubai as there is adequate supply. The fare is slightly more expensive than Singapore but is fixed for all taxis and is based on distance. There is no surcharge for time and location. It fare system is easy for commuters and taxi drivers.
The taxis provide a useful link for the first and last legs of the journey, with the main part of the journey being the Metro trains.
There are bus services that provide this connection for the local people who are familiar with the bus systems. However, the bus systems is still not well developed in Dubai.
Tan Kin Lian
Replace a NRIC
Someone complained that $100 is too much to pay for a replacement of NRIC. Apart from this fee, they have to go through a lot of trouble, including visiting the crowded SIR office near Lavendar station.
The NRIC office said that $100 is the cost of replacing a NRIC. Is this so? There are many organisations that issue membership card with photograph. They do not charge $100 for a replacement card.
Most people take care of their NRIC and do not lose it due to carelessness. Many organisations ask for NRIC to record visitors. For it to be used often, it is quite easy for it to be misplaced.
I hope that the NRIC office should consider that $100 is a lot of money for students and low income earners. They should avoid levying excessively high charges.
Tan Kin Lian
The NRIC office said that $100 is the cost of replacing a NRIC. Is this so? There are many organisations that issue membership card with photograph. They do not charge $100 for a replacement card.
Most people take care of their NRIC and do not lose it due to carelessness. Many organisations ask for NRIC to record visitors. For it to be used often, it is quite easy for it to be misplaced.
I hope that the NRIC office should consider that $100 is a lot of money for students and low income earners. They should avoid levying excessively high charges.
Tan Kin Lian
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