COMMENT POSTED IN MY BLOG:
Mr. Tan
I like you. I realise you are promoting the concept of buying term and invest the rest. You have taken it to the extreme by recommending decreasing term which is good especially for the poor. They are the people who need to stretch their money in order to be adequately covered.
What do you think of limited premium type of plan? I think this is good for agents' pocket at the expense of clients' protection. Only the rich and high income earners can afford this type. Unfortunately the poor are also buying and soon they will become the victims of lapses.
The question of honesty is called in here.
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REPLY:
Limited premium policies are all right, if the commission is kept at a modest level, and the policy is designed to give good value to the customer. Unfortunately, most of the plans sold in the market have expense charges to pay high commission.
Many policyholders like to pay premium for a shorter period (eg during their working life), and to be insured for a lifetime. Each person should buy a policy that they can afford to upkeep. If they wish to have a limited premium policy, they should take a lower sum assured - so that the premium remains affordable.
Thursday, July 5, 2007
Vera and her mother
Premium for term insurance
Hi Mr Tan
I am 30 years old with a monthly income of $X. How much life insurance should I buy and what is the premium that I have to pay, if I buy a term insurance plan?
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REPLY
You can read this FAQ on choice of insurance plan. It also gives some examples of the premium rate payable. The premium varies proportionately to the sum insured.
You also have the choice to buy a decreasing term insurance, where you can save about 50% of the premium.
If you have a family, you should be insured for 5 to 10 years of your income. The premium should cost you less than 1% of your monthly income.
I am 30 years old with a monthly income of $X. How much life insurance should I buy and what is the premium that I have to pay, if I buy a term insurance plan?
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REPLY
You can read this FAQ on choice of insurance plan. It also gives some examples of the premium rate payable. The premium varies proportionately to the sum insured.
You also have the choice to buy a decreasing term insurance, where you can save about 50% of the premium.
If you have a family, you should be insured for 5 to 10 years of your income. The premium should cost you less than 1% of your monthly income.
Low cost product
Some insurance agents, who made comments in my blog, think that low cost products refer only to term insurance and Incomeshield. How can an agent make a living by selling low cost products?
My definition of low cost products include traditional products and investment funds, with a modest commission rate, e.g.
* 30% commission (instead of 100%) to sell a 20 year regular premium policy. (Note: 30% works out to 1.5% per year)
* 1.5% (instead of 5%) to sell a single premium policy.
Under a "low cost" product, the agent can earn $100 to $300 (not $1,000) to sell a life insurance policy. These low cost product offer better value to their customers. The agent can increase the volume of sales, and make a good income.
Several of the products from NTUC Income (eg Ideal, Flexi-link and annuity plans) are already on the low cost model. They offer good value to the customers. I am happy to recommend them.
My definition of low cost products include traditional products and investment funds, with a modest commission rate, e.g.
* 30% commission (instead of 100%) to sell a 20 year regular premium policy. (Note: 30% works out to 1.5% per year)
* 1.5% (instead of 5%) to sell a single premium policy.
Under a "low cost" product, the agent can earn $100 to $300 (not $1,000) to sell a life insurance policy. These low cost product offer better value to their customers. The agent can increase the volume of sales, and make a good income.
Several of the products from NTUC Income (eg Ideal, Flexi-link and annuity plans) are already on the low cost model. They offer good value to the customers. I am happy to recommend them.
Postage increased to 26 cents
I bought many stamp labels for 25 cents (which was the postage previously). With the increase in GST, the postage increased to 26 cents.
I enquired with Singapore Post. What should I do with the current labels?
Their reply: go to a post office, change the labels to 26 cents and pay the difference.
It seems to be quite inconsiderate of Singapore Post. They could have replied, "we will continue to accept the 25 cents label and absorb the difference in GST".
I hope that businesses in Singapore, especially those that are making good profits, can be considerate! Anyway, it probably cost Singapore Post more than 1 cent to replace the labels!
I enquired with Singapore Post. What should I do with the current labels?
Their reply: go to a post office, change the labels to 26 cents and pay the difference.
It seems to be quite inconsiderate of Singapore Post. They could have replied, "we will continue to accept the 25 cents label and absorb the difference in GST".
I hope that businesses in Singapore, especially those that are making good profits, can be considerate! Anyway, it probably cost Singapore Post more than 1 cent to replace the labels!
One Motoring Website
I received a letter from Land Transport Authority asking me to pay a fine of $8.50 for failing to have a cash card for ERP charges. (I think that the cash card was not properly inserted).
I went to the OneMotoring website to pay this fine. I experienced the following difficulty:
* the homepage contained too much information
* difficult to find the link to pay the fine
* finally, I found it under "quick link"
* brought me to another complicated page
* have to read a lot of irrelevant information
* finally, I found the link to "pay fine"
* clicked on the link many times; and stayed at the same page (ie nothing happens)
Finally, I decided to log into my internet banking and paid the fine to LTA.
Suggestion: LTA should have a separate webpage for people to make their payments. This webpage should be listed in their letter.
I went to the OneMotoring website to pay this fine. I experienced the following difficulty:
* the homepage contained too much information
* difficult to find the link to pay the fine
* finally, I found it under "quick link"
* brought me to another complicated page
* have to read a lot of irrelevant information
* finally, I found the link to "pay fine"
* clicked on the link many times; and stayed at the same page (ie nothing happens)
Finally, I decided to log into my internet banking and paid the fine to LTA.
Suggestion: LTA should have a separate webpage for people to make their payments. This webpage should be listed in their letter.
Another Tan Kin Lian
The telephone directory shows only one person with the name of TAN KIN LIAN. There are many pages of other people with slightly different spellings. So, I always thought that there this name is unique to me.
I found the name of TAN KIN LIAN as listed under the "unclaimed money" website. The Central Provident Fund was looking for this person.
I sent an email to CPF. They replied that they are looking for another person with this name (ie not me).
Now, I know that there is another person in Singapore with a name spelled exactly as my name. This person does not have a telephone listed under this name.
I found the name of TAN KIN LIAN as listed under the "unclaimed money" website. The Central Provident Fund was looking for this person.
I sent an email to CPF. They replied that they are looking for another person with this name (ie not me).
Now, I know that there is another person in Singapore with a name spelled exactly as my name. This person does not have a telephone listed under this name.
Early redemption penalty
COMMENT POSTED IN MY BLOG (edited)
I had two tranches (of a structured deposit), deposited in 2004 when interest was low. The bank staff was not honest and forthcoming in telling me the early redemption penalty. I was told that I would get a certain interest rate or higher.
When I tried to pull out last year, I was told penalty is 15%. Well, I was foolish enough to trust the relationship manager in that they are telling lies during signing of the placement.
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REPLY:
You must read the brochure or prospectus carefully and understand the product, before you invest in it. If the material is too difficult, avoid the product. Do not take any verbal assurance. See it in writing.
I had two tranches (of a structured deposit), deposited in 2004 when interest was low. The bank staff was not honest and forthcoming in telling me the early redemption penalty. I was told that I would get a certain interest rate or higher.
When I tried to pull out last year, I was told penalty is 15%. Well, I was foolish enough to trust the relationship manager in that they are telling lies during signing of the placement.
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REPLY:
You must read the brochure or prospectus carefully and understand the product, before you invest in it. If the material is too difficult, avoid the product. Do not take any verbal assurance. See it in writing.
Expense ratio of financial products
Mr Tan,
Can you tell us which of the following financial products has a higher commission/expense ratio – an annuity (which you love so much) or a structured product (which you disdain)? Is it a case of the kettle calling the pot black?
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REPLY:
According to my estimate, the expense ratio of a life annuity is less than half of the expense ratio of a structured product (to cover marketing expense, fees and profit margin).
A life annuity serves a useful function in the polling of longevity risk and achieving a satisfactory long term return for the customer.
A structured product usually produces a poor investment return to the customer (i.e. does a bad job at its primary role). But they do a good job at giving large fees to the financial institutions that design and market the product.
Can you tell us which of the following financial products has a higher commission/expense ratio – an annuity (which you love so much) or a structured product (which you disdain)? Is it a case of the kettle calling the pot black?
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REPLY:
According to my estimate, the expense ratio of a life annuity is less than half of the expense ratio of a structured product (to cover marketing expense, fees and profit margin).
A life annuity serves a useful function in the polling of longevity risk and achieving a satisfactory long term return for the customer.
A structured product usually produces a poor investment return to the customer (i.e. does a bad job at its primary role). But they do a good job at giving large fees to the financial institutions that design and market the product.
More than Insurance
COMMENTS POSTED IN MY BLOG
Very good that the new Income management has closed down the loans unit and some of the other non-core businesses like line dance and snow city. This will allow for better pay to be offered to the rest of the employees.
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Income should close all the non-core businesses and refocus on insurance. This will improve its bottom line. Money saved, use it to improve the skills of its agents who are lacking badly in this area.
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Rubbish, The Income that maintains the loans policies and other value added services was the Income that has a heart! This is very lacking in the society of today.
Nowadays Income spent lots of money advertising full colour full page advertisements that does not add any value to the policyholders at all. As Mr. Tan has said, this takes away money from the Par fund and reduces distributions to policyholders. At least the other services add value to Income policy holders lives and help them in times of need.
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REPLY:
When I was CEO of NTUC Income, the "more than insurance" businesses were run on the following principles:
* they have to give value to the policyholders
* they should be runned on cost recovery, with a margin to meet the expenses
Some of the businesses were successful, including the home services (ie referral of contractors) and car sharing. Others were not successful, and were scaled down or closed down during my time.
Some activities (such as line-dancing) cost very little, and give a lot of awareness and positive pubicity. It is a form of low-cost advertising.
Very good that the new Income management has closed down the loans unit and some of the other non-core businesses like line dance and snow city. This will allow for better pay to be offered to the rest of the employees.
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Income should close all the non-core businesses and refocus on insurance. This will improve its bottom line. Money saved, use it to improve the skills of its agents who are lacking badly in this area.
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Rubbish, The Income that maintains the loans policies and other value added services was the Income that has a heart! This is very lacking in the society of today.
Nowadays Income spent lots of money advertising full colour full page advertisements that does not add any value to the policyholders at all. As Mr. Tan has said, this takes away money from the Par fund and reduces distributions to policyholders. At least the other services add value to Income policy holders lives and help them in times of need.
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REPLY:
When I was CEO of NTUC Income, the "more than insurance" businesses were run on the following principles:
* they have to give value to the policyholders
* they should be runned on cost recovery, with a margin to meet the expenses
Some of the businesses were successful, including the home services (ie referral of contractors) and car sharing. Others were not successful, and were scaled down or closed down during my time.
Some activities (such as line-dancing) cost very little, and give a lot of awareness and positive pubicity. It is a form of low-cost advertising.
Stock and property markets
A few letters were published in the newspaper recently, warning about the high stock and property markets. Government leaders have also expressed a similar view. They warned investors about the over-extended markets.
I wish to add one point point - which has not been covered. The Singapore stockmarket is small, compared to global standards. We are highly dependent on the foreign funds.
When the foreign fund decide to move out of the Singapore market, it will be swift, massive and unexpected. It has happened like this, on several occasions in the past.
If you are invested in the global stockmarket, you will not suffer this kind of volatility. But, if you are in a small market, including Singapore, you will be exposed to this risk.
We do not know when this may happen, and what may trigger this. Do be careful.
I wish to add one point point - which has not been covered. The Singapore stockmarket is small, compared to global standards. We are highly dependent on the foreign funds.
When the foreign fund decide to move out of the Singapore market, it will be swift, massive and unexpected. It has happened like this, on several occasions in the past.
If you are invested in the global stockmarket, you will not suffer this kind of volatility. But, if you are in a small market, including Singapore, you will be exposed to this risk.
We do not know when this may happen, and what may trigger this. Do be careful.
Simple financial products
COMMENT POSTED IN MY BLOG:
Relationship manager or whatever title they go by is no difference from insurance agents. They are sales persons. They manipulate the sales process. They up play and down play; and non-disclosure and misrepresentation are among tactics they employ.
MAS or CASE should come hard upon these people. This is the high risk group consumers should beware.
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REPLY:
The starting point is for the financial institution (ie insurance company and banks) to offer simple, "honest" products, such as:
* a savings or bank account
* a low cost investment fund (equity, bond or money market)
* government bonds
* insurance products to cover specified risks
Information about these products should be kept simple and made easily accessible to consumers. The consumers should also be educated about these financial products.
The distribution cost can be kept low, as less effort is needed to market the product. For example, there is no need to pay commission to "sell" a saving account.
Preferably, there should be no locked-in period. Alternatively, the penalty for withdrawal should be kept low.
With simple products, there is less opportunity for the consumer to be exploited.
Relationship manager or whatever title they go by is no difference from insurance agents. They are sales persons. They manipulate the sales process. They up play and down play; and non-disclosure and misrepresentation are among tactics they employ.
MAS or CASE should come hard upon these people. This is the high risk group consumers should beware.
-------------------------------------------------
REPLY:
The starting point is for the financial institution (ie insurance company and banks) to offer simple, "honest" products, such as:
* a savings or bank account
* a low cost investment fund (equity, bond or money market)
* government bonds
* insurance products to cover specified risks
Information about these products should be kept simple and made easily accessible to consumers. The consumers should also be educated about these financial products.
The distribution cost can be kept low, as less effort is needed to market the product. For example, there is no need to pay commission to "sell" a saving account.
Preferably, there should be no locked-in period. Alternatively, the penalty for withdrawal should be kept low.
With simple products, there is less opportunity for the consumer to be exploited.
How can Singaporeans be happy?
COMMENT POSTED IN MY BLOG:
In my 9 years here, I've rarely met anyone who's happy about their job. Everyone has grouses ... and why?
Mostly due to Money. Let's all admit it, isn't this society driven by monetary excellence? What else? High expectations has been drilled since we are young. High expectations of your maid, the guy at the front bank desk, your colleagues.
Everything is speed, accuracy, and excellence. Would anyone dare fail? What's this all boils down to? Higher stress ---> Grouses??
Is this only happening in Singapore? I don't think so. Maybe it's more evident here? Possibly?
So therefore, your statement may have to evolve to 'how can Singaporeans be happy?'
Mr. Tan sir, please share some thoughts.
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REPLY:
I like to invite other readers to share their thoughts.
Here are some of my suggestions:
* live within our income
* save 15% for our future needs
* do not spend unnecessary (to keep up with other people)
* avoid borrowing on credit card
* do not envy other people; live our own life
* look for the things that are inexpensive or free in Singapore; they are plenty
* do not waste our time doing the unnecessary work
* talk to friends and colleagues
* have an inexpensive hobby
* spend time to be nice to other people
* think of others; not just ourself
I hope to get more views from other people.
In my 9 years here, I've rarely met anyone who's happy about their job. Everyone has grouses ... and why?
Mostly due to Money. Let's all admit it, isn't this society driven by monetary excellence? What else? High expectations has been drilled since we are young. High expectations of your maid, the guy at the front bank desk, your colleagues.
Everything is speed, accuracy, and excellence. Would anyone dare fail? What's this all boils down to? Higher stress ---> Grouses??
Is this only happening in Singapore? I don't think so. Maybe it's more evident here? Possibly?
So therefore, your statement may have to evolve to 'how can Singaporeans be happy?'
Mr. Tan sir, please share some thoughts.
----------------------------------------------
REPLY:
I like to invite other readers to share their thoughts.
Here are some of my suggestions:
* live within our income
* save 15% for our future needs
* do not spend unnecessary (to keep up with other people)
* avoid borrowing on credit card
* do not envy other people; live our own life
* look for the things that are inexpensive or free in Singapore; they are plenty
* do not waste our time doing the unnecessary work
* talk to friends and colleagues
* have an inexpensive hobby
* spend time to be nice to other people
* think of others; not just ourself
I hope to get more views from other people.
Surf Deposit 20
Dear Mr Tan
I am stuck in a Surf Deposit 20 - Tranche A structured product which I invested in November 2003. It will mature in 2008. So far, I have received only 2 payout, totaling 4.25% in 2004. The total payout is 5.75% on maturity if I stay invested for the full 5 years.
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REPLY:
I saw a notice in the website for investors of another tranche, ie Surf Deposit 21 (10 year SGD Tranche A). In their case, the investment had an early redemption after 3.5 years and they earned a total return of 11.6% (or 3.2% p.a.).
It seems that the investors in most of the tranches are stuck, like you, and have to wait until maturity to get a low rate of return. If they cash out earlier, they will make a loss.
Lesson: It is better to avoid structured products
I am stuck in a Surf Deposit 20 - Tranche A structured product which I invested in November 2003. It will mature in 2008. So far, I have received only 2 payout, totaling 4.25% in 2004. The total payout is 5.75% on maturity if I stay invested for the full 5 years.
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REPLY:
I saw a notice in the website for investors of another tranche, ie Surf Deposit 21 (10 year SGD Tranche A). In their case, the investment had an early redemption after 3.5 years and they earned a total return of 11.6% (or 3.2% p.a.).
It seems that the investors in most of the tranches are stuck, like you, and have to wait until maturity to get a low rate of return. If they cash out earlier, they will make a loss.
Lesson: It is better to avoid structured products
Pay less for your home loan
If you have an existing home loan, or is thinking of taking a new loan, I advise you to read the 14 tips given in Dr Money's website.
Two important tips are:
* selecting the right type of loan, eg variable or fixed, HDB or bank loan
* look into the possibility of refinancing your existing loan, after the lock-in period, to get better terms (e.g. to enjoy attractive offer)
Two important tips are:
* selecting the right type of loan, eg variable or fixed, HDB or bank loan
* look into the possibility of refinancing your existing loan, after the lock-in period, to get better terms (e.g. to enjoy attractive offer)
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