Insure large risks with low probability

Buy insurance only for large losses with low probability of occurrence, such as death or disability by accidents, or total loss of a house by fire or a major traffic accident. Do not insure for small losses that occur quite frequently, such as short term sickness.

The best way to provide for loss of income and medical expenses due to short term sickness is through your personal savings. If you have adequate savings, you can use them for emergency.

As a rule of thumb, you should insure for an event that may occur only once in 5 years or longer. If it occurs more frequently than five years, you can fund it through your savings.

Housing loan on floating interest rate

Dear Mr. Tan,

I need your advice. My current housing loan interest rate is about 4.5%. Should I re-price it now on floating rate basis SIBOR + 1.25%, or wait a few months later?

I read that SIBOR will be much lower in middle of the year. If I sign on now, the SIBOR rate will be locked it at the current rate (i.e below 2%) for next one year.

REPLY:

Currently, you are paying 4.5%. The locked in rate for the next 1 year will be less than 3.25%. So, you are benefiting from the difference in interest rate. After one year, you will be on fully floating interest rate.

I think that you should switch now, rather than wait for a drop in SIBOR rate. I am not able to predict the short term trend in interest rate, so I am not able to help you on your timing decision.