This is the title of a book written by James Surowiecki and first published in 2004.
The author said many examples where the decision of a group is often better than could have been made by any single member of the group (including an expert). These examples are taken from several fields, primarily economics and psychology.
The opening story was about a crowd in a county fair who were asked to guess the "slaughtered and dressed" weight of an ox. The median weight of the individual guesses was closest to the ox's true weight than the estimates of most individual members, including the estimates made by cattle experts.
This theory refers to decisions of independently-deciding individuals, and is not the same as crowd psychology (where most people blindly follow the crowd).
Tuesday, July 3, 2007
Flexible terms for your mortgage loan
If you take a mortgage loan, try to ask for the following flexibility:
* to keep the same monthly repayment, i.e. do not adjust with the interest rate
* to increase the monthly repayment (e.g. to pay more if your earnings increase
* to make partial lump sum repayment
* to make additional withdrawals, so long as it can be covered by the value of your property.
* to keep the same monthly repayment, i.e. do not adjust with the interest rate
* to increase the monthly repayment (e.g. to pay more if your earnings increase
* to make partial lump sum repayment
* to make additional withdrawals, so long as it can be covered by the value of your property.
Fixed monthly repayment on mortgage loan
Dear Mr Tan,
If I take a mortgage loan with a variable interest rate, do I have to pay a higher repayment if the interest rate goes up? How often is this rate adjusted?
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REPLY:
I am not sure about the practice of the lender. I believe that, in most cases, they will allow you to keep the same monthly repayment.
When I took a morgage loan previously, I keep to the same monthly repayment, even though the interest rate changes. I get a statement each year showing my balance, the interest charged for the year, and the repayment made during the year.
If I take a mortgage loan with a variable interest rate, do I have to pay a higher repayment if the interest rate goes up? How often is this rate adjusted?
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REPLY:
I am not sure about the practice of the lender. I believe that, in most cases, they will allow you to keep the same monthly repayment.
When I took a morgage loan previously, I keep to the same monthly repayment, even though the interest rate changes. I get a statement each year showing my balance, the interest charged for the year, and the repayment made during the year.
Commission paid on life insurance
Dear Mr Tan
In your blog, you said that an insurance agent earns an average of $1,000 for selling a life insurance policy? Is this cost charged to the policyholder in the premium? It is a lot of money. Why should the insurance be so costly?
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REPLY:
The actual commission depends on the size of the policy and the type and duration of the policy. It may also vary by insurance company. I have made an estimate of the average commission based on the policies sold in the market.
The agent needs to be paid this level of commission, as it takes a lot of time to look for a customer, to explain the product and to convince the customer to buy the insurance policy.
Some companies pay lower commission to the agent, and reduces the premium paid by the customer.
You can find out what is being charged from the sales illustration given to you at the point of sale.
Some insurance companies are reducing the commission for new products that are being introduced through new channels (such as the internet or directly from their office.
In your blog, you said that an insurance agent earns an average of $1,000 for selling a life insurance policy? Is this cost charged to the policyholder in the premium? It is a lot of money. Why should the insurance be so costly?
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REPLY:
The actual commission depends on the size of the policy and the type and duration of the policy. It may also vary by insurance company. I have made an estimate of the average commission based on the policies sold in the market.
The agent needs to be paid this level of commission, as it takes a lot of time to look for a customer, to explain the product and to convince the customer to buy the insurance policy.
Some companies pay lower commission to the agent, and reduces the premium paid by the customer.
You can find out what is being charged from the sales illustration given to you at the point of sale.
Some insurance companies are reducing the commission for new products that are being introduced through new channels (such as the internet or directly from their office.
Return from a life annuity
I said that the return from a life annuity from NTUC Income is likely to be 4-5% per annum.
This comprises of the following:
* guaranteed rate of 2.5% used to calculate the basic amount of the annuity
* an average bonus of 1.5% to 2.5% added to the annuity yearly (based on past records)
* total is 4-5% per annum.
The life annuity has an element of pooling of risk. Those who live longer will get a better return. Those who die younger will get a lower return.
This comprises of the following:
* guaranteed rate of 2.5% used to calculate the basic amount of the annuity
* an average bonus of 1.5% to 2.5% added to the annuity yearly (based on past records)
* total is 4-5% per annum.
The life annuity has an element of pooling of risk. Those who live longer will get a better return. Those who die younger will get a lower return.
Sell low cost policy
Mr Tan
How many low cost policies must I sell a day, to earn an decent income?
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REPLY:
If a life insurance agent sells an average of 1 policy a week, he needs to earn $1,000 per policy, to achieve a monthly income of $4,000.
If the agent sells 1 policy a day, he only needs to earn $200 per policy to achieve the same income. This is lower cost to the customer.
If the agent sells 4 low-cost policies a day, he only needs to earn $50 per policy. This will make the product more affordable to the customer.
You can sell 4 low cost policies a day, if you get the customer to come to you (eg visit your office). They will do so, if you offer simple, good value products.
Many people buy shares by telephoning the stockbroker. The stockbroker does not have to visit the customer!
Lesson: To make life insurance more affordable to customers, we need to develop a new and more productive way of selling the "good value" products.
How many low cost policies must I sell a day, to earn an decent income?
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REPLY:
If a life insurance agent sells an average of 1 policy a week, he needs to earn $1,000 per policy, to achieve a monthly income of $4,000.
If the agent sells 1 policy a day, he only needs to earn $200 per policy to achieve the same income. This is lower cost to the customer.
If the agent sells 4 low-cost policies a day, he only needs to earn $50 per policy. This will make the product more affordable to the customer.
You can sell 4 low cost policies a day, if you get the customer to come to you (eg visit your office). They will do so, if you offer simple, good value products.
Many people buy shares by telephoning the stockbroker. The stockbroker does not have to visit the customer!
Lesson: To make life insurance more affordable to customers, we need to develop a new and more productive way of selling the "good value" products.
Low cost product
COMMENT POSTED IN MY BLOG:
Agents who sell low-cost product obviously won’t earn much. They’re honest, but, definitely not Million-Dollar-Round-Table stuff. Smart, ambitious advisors won’t go around selling term insurance for long. The best protection for a client is still to educate himself.
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REPLY:
An adviser (agent) who sell low cost product can still earn a modest rate of commission. By increasing the volume of sales, the adviser can earn an adequate leve of earnings. If the adviser sells good products (ie good value for customers), the future customers will come to them (usually referred by existing customers).
This is a better business model. Many other businesses are successful in applying this model. It can work for financial services as well.
I agree that the best protection is an eduated customer.
Agents who sell low-cost product obviously won’t earn much. They’re honest, but, definitely not Million-Dollar-Round-Table stuff. Smart, ambitious advisors won’t go around selling term insurance for long. The best protection for a client is still to educate himself.
-----------------------------
REPLY:
An adviser (agent) who sell low cost product can still earn a modest rate of commission. By increasing the volume of sales, the adviser can earn an adequate leve of earnings. If the adviser sells good products (ie good value for customers), the future customers will come to them (usually referred by existing customers).
This is a better business model. Many other businesses are successful in applying this model. It can work for financial services as well.
I agree that the best protection is an eduated customer.
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