Dear Mr. Tan,
I am confused about the many charges under an investment-linked policy. The insurance agent does not explain them clearly to me. I am now stuck with these high charges. Can I get out of them?
REPLY
It is better to buy a low cost Term insurance, to provide the life insurance protection. You should invest in a unit trust or an investment fund with low upfront or annual charges.
If you invest in an investment-linked policy, make sure that 100% of your premium is invested and that the only charges are the initial spread (which should not exceed 3%). Make sure that the annual charges of the fund is less than 1.5%.
A good example is the Combined Fund from NTUC Income, which you can buy through the Flexi-link plan.
You should avoid the regular premium investment linked plan as it has another layer of charges that can take away 15 to 21 months of your savings (with a few exceptions).
You can read the following FAQ to understand the charges in an ILP:
http://www.tankinlian.com/faq/ilp.html
Wednesday, January 9, 2008
Insure big loss with small chance of occurring
1. Buy insurance to cover the big lossses, which has a small chance of occuring. For example, total destruction of a property due to fire, or a major accident. You can insure the risks where the chance of occuring is less than 1% in a year.
2. Pay small losses out of your savings, eg deductible under a medical insurance or motor insurance policy. Do not insure these small losses. It is costly, as you have to pay a loading to cover the expenses of the insurance company. It is also a hassle for you to make a small claim.
3. Buy low cost insurance just to cover the risk. It does not matter that you do not get any return, provided that the cost is less than 5% of a similar "investment product".
4. Do not invest in an insurance policy, as the return is low (due to the expenses). It is better to invest separately in a transparent, low cost product.
2. Pay small losses out of your savings, eg deductible under a medical insurance or motor insurance policy. Do not insure these small losses. It is costly, as you have to pay a loading to cover the expenses of the insurance company. It is also a hassle for you to make a small claim.
3. Buy low cost insurance just to cover the risk. It does not matter that you do not get any return, provided that the cost is less than 5% of a similar "investment product".
4. Do not invest in an insurance policy, as the return is low (due to the expenses). It is better to invest separately in a transparent, low cost product.
Medical insurance for Pensioner
Dear Mr. Tan,
I am a pensioner and currently working. I am entitle for class A wards but hve to pay 15% of the total medical bill each time I visit a doctor. Is it necessary for me to take up the Medishield plan?
REPLY:
I assume that you will continue to enjoy the medical benefit provided by the Governmetn after your retire from work and that it will continue to be provided to you for your lifetime.
If this is the case, there is no need for you to buy Medishield. There is no point in paying the premium for a medical cover where you only need to insure for 15% of the total cost. If you are hospitalised, you can pay the 15% from your Medisave account, or even from cash. It is likely to be quite small anyway.
I am a pensioner and currently working. I am entitle for class A wards but hve to pay 15% of the total medical bill each time I visit a doctor. Is it necessary for me to take up the Medishield plan?
REPLY:
I assume that you will continue to enjoy the medical benefit provided by the Governmetn after your retire from work and that it will continue to be provided to you for your lifetime.
If this is the case, there is no need for you to buy Medishield. There is no point in paying the premium for a medical cover where you only need to insure for 15% of the total cost. If you are hospitalised, you can pay the 15% from your Medisave account, or even from cash. It is likely to be quite small anyway.
Tips on financial planning
1. Here are my tips on financial planning.
2. Have adequate life insurance to cover your life. Insure for 5 to 10 years of your income. This ensures that, if anything happens to you, your family will have adequate financial security.
3. Buy decreasing Term insurance over 20 or 30 years. The premium rate is affordable. It should take less than 1% of your earnings. This is better than whole life, endowment or critical illness insurance.
4. Save 10% to 15% of your salary and invest in a low cost, diversified investment fund. You can earn an attractive return over the long term. The savings can be used for emergencies (including paying medical bills) and for your long term needs (such as education for your child or for your own retirement needs).
5. Do not buy financial products (including life insurance policies) where there are high charges that is taken away from your savings.
6. You can insure your children under Medishield. It will take care of the larger bills. The smaller bills can be paid from your Medisave account, or from your savings plan.
7. Do not buy life insurance policies for your children, as they do not provide a good return (due to high charges). It is better for you to save and get a high return from your investment fund. You can use the money for their education or transfer the savings to them when they start their own family.
8. Your children can take their own life insurance policies when they start to work. At that time, they should buy low cost insurance and save in a low cost investment fund.
2. Have adequate life insurance to cover your life. Insure for 5 to 10 years of your income. This ensures that, if anything happens to you, your family will have adequate financial security.
3. Buy decreasing Term insurance over 20 or 30 years. The premium rate is affordable. It should take less than 1% of your earnings. This is better than whole life, endowment or critical illness insurance.
4. Save 10% to 15% of your salary and invest in a low cost, diversified investment fund. You can earn an attractive return over the long term. The savings can be used for emergencies (including paying medical bills) and for your long term needs (such as education for your child or for your own retirement needs).
5. Do not buy financial products (including life insurance policies) where there are high charges that is taken away from your savings.
6. You can insure your children under Medishield. It will take care of the larger bills. The smaller bills can be paid from your Medisave account, or from your savings plan.
7. Do not buy life insurance policies for your children, as they do not provide a good return (due to high charges). It is better for you to save and get a high return from your investment fund. You can use the money for their education or transfer the savings to them when they start their own family.
8. Your children can take their own life insurance policies when they start to work. At that time, they should buy low cost insurance and save in a low cost investment fund.
Get adequate life insurance on your life first
Dear Mr. Tan,
1. You advised me to have medical insurance for my daughter and to save in an investment linked plan with low charges. Do I need to buy other insurance for her, such as a critical illness policy?
Reply: There is no need to buy the critical illness plan. She can buy it later, when she starts to work.
2. When is the appropriate time to buy living insurance? If I buy living insurance, does it mean that I have to terminate the Medishield?
Reply: If you buy critical illness insurance, you do not need to terminate Medishield. They cover different types of expenses.
3. I only have living insurance coverage of 30K. Is this adequate? Do I need to buy a life insurance so that my family's financial needs are covered if something happens to me?
Reply: You should have adequate insurance on your life. Buy a decreasing Term insurance to cover up to 5 years of your income. Your priority is to have adequate insurance on your life. Do not worry about life insurance for your child at this time.
Read this FAQ: http://www.tankinlian.com/faq/choice.html
1. You advised me to have medical insurance for my daughter and to save in an investment linked plan with low charges. Do I need to buy other insurance for her, such as a critical illness policy?
Reply: There is no need to buy the critical illness plan. She can buy it later, when she starts to work.
2. When is the appropriate time to buy living insurance? If I buy living insurance, does it mean that I have to terminate the Medishield?
Reply: If you buy critical illness insurance, you do not need to terminate Medishield. They cover different types of expenses.
3. I only have living insurance coverage of 30K. Is this adequate? Do I need to buy a life insurance so that my family's financial needs are covered if something happens to me?
Reply: You should have adequate insurance on your life. Buy a decreasing Term insurance to cover up to 5 years of your income. Your priority is to have adequate insurance on your life. Do not worry about life insurance for your child at this time.
Read this FAQ: http://www.tankinlian.com/faq/choice.html
Late notification of an motor accident
Dear Mr Tan
A few months ago, my friend was involved in a minor accident. He bumped into the back of another vehicle. He contacted his insurance agent and furnished the necessary details to the insurer upon being contacted by the solicitor who was acting on behalf of the claiming party.
He was informed by them a few days ago that the claim will not be entertained, as he had failed to make a report within 2 days of the accident. Is there any guideline on what would be a reasonable notification period?
REPLY
Under a motor insurance policy, the insured person is required to notify the insurance company within a stated period (usually 1 or 2 days) of any accident that may lead to a claim.
If both parties agree not to make a claim, then there is no need to make this report. In this particular case, it appears that the other party must have made a report and wish to claim against your friend.
I suggest that your friend should speak to his insurance company and get their advice on how to handle this claim. The insurance company should assist their customer in such matters.
If the insurance company does not provide reasonable assistance, your friend can lodge a complaint with FIDRec:
http://www.fidrec.com.sg/website/faq.html">http://www.fidrec.com.sg/website/faq.html
A few months ago, my friend was involved in a minor accident. He bumped into the back of another vehicle. He contacted his insurance agent and furnished the necessary details to the insurer upon being contacted by the solicitor who was acting on behalf of the claiming party.
He was informed by them a few days ago that the claim will not be entertained, as he had failed to make a report within 2 days of the accident. Is there any guideline on what would be a reasonable notification period?
REPLY
Under a motor insurance policy, the insured person is required to notify the insurance company within a stated period (usually 1 or 2 days) of any accident that may lead to a claim.
If both parties agree not to make a claim, then there is no need to make this report. In this particular case, it appears that the other party must have made a report and wish to claim against your friend.
I suggest that your friend should speak to his insurance company and get their advice on how to handle this claim. The insurance company should assist their customer in such matters.
If the insurance company does not provide reasonable assistance, your friend can lodge a complaint with FIDRec:
http://www.fidrec.com.sg/website/faq.html">http://www.fidrec.com.sg/website/faq.html
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