Hi Mr. Tan
I am a regular visitor to your blog.I have a private housing loan with a bank. I can make a partial or full payment after 3 years. I am considering the following options at the end of 3 years:
(a) Do a partial payment and continue to pay the same monthly payment from CPF OA
(b) Do a full payment using cash and CPF OA
(c) Do a full payment from CPF OA
What is your advice?
REPLY:
What is the interest rate on your loan at the end of 3 years, based on their current board rate?
What is the balance of your loan at the end of 3 years?
What is the amount of monthly repayment?
What is the rate of return on your cash savings?
You need these figures to calculate the options that work best for you.
Friday, February 22, 2008
Tax Benefits in Life Insurance Products
Dear Mr. Tan,
You mentioned that the high cost in life insurance products reduces the yield and gives a poor return to the consumer. Does this situation apply to the developed countries as well? If so, why are the consumers there, who are more sophisticated, still buying the high cost life insurance policies?
REPLY
You will find countries in three broad categories:
1) In some countries such as USA, Australia and France, there are tax benefits in buying certain types of life insurance products. These tax benefits offset the high cost of the products and still give an attractive return to the consumer.
2) In some countries such as Malaysia, the regulator set certain limits on the marketing costs. This ensure that the products give reasonably fair value to the consumers.
3) In countries such as Singapore, the marketing cost is too high and there is virtually no tax benefit to offset it. It is better to buy Term insurance and invest the remainder in a low cost investment fund.
You mentioned that the high cost in life insurance products reduces the yield and gives a poor return to the consumer. Does this situation apply to the developed countries as well? If so, why are the consumers there, who are more sophisticated, still buying the high cost life insurance policies?
REPLY
You will find countries in three broad categories:
1) In some countries such as USA, Australia and France, there are tax benefits in buying certain types of life insurance products. These tax benefits offset the high cost of the products and still give an attractive return to the consumer.
2) In some countries such as Malaysia, the regulator set certain limits on the marketing costs. This ensure that the products give reasonably fair value to the consumers.
3) In countries such as Singapore, the marketing cost is too high and there is virtually no tax benefit to offset it. It is better to buy Term insurance and invest the remainder in a low cost investment fund.
Refund of premium
Dear Mr. Kin Lian Tan,
I have a Living policy. I decided to terminate it, but the premium I paid until April 30. I have contacted the insurance company, but it seems that it is impossible to get back unused premium. Is it fair?
REPLY
They will pay you a cash value, which is lower than the premiums that you have paid. The difference goes to pay the expenses, commission, mortality charges and profit margin.
You can compare the cash value against the projected amount that was shown to you at the time that you bought the policy. You should get back the guaranteed cash value and some or all of the non-guaranteed value.
There is no refund for any unexpired portion of the current year's premium.
I have a Living policy. I decided to terminate it, but the premium I paid until April 30. I have contacted the insurance company, but it seems that it is impossible to get back unused premium. Is it fair?
REPLY
They will pay you a cash value, which is lower than the premiums that you have paid. The difference goes to pay the expenses, commission, mortality charges and profit margin.
You can compare the cash value against the projected amount that was shown to you at the time that you bought the policy. You should get back the guaranteed cash value and some or all of the non-guaranteed value.
There is no refund for any unexpired portion of the current year's premium.
Keep your money in CPF Special Account
Mr. Tan
I have some money in my CPF Special Account and wish to invest it. Previously I have invested in Company X's Selector II in China for 7 years. After 7 years, I did not make any money compare to 4% interest in CPF.
I would like to hear your advice in investing the special account as my ordinary account is kept for my housing loan.
REPLY
Keep your money in the special account. It pays interest at 4% (plus bonus at 1% on the first $40,000) and is risk free.
You should take risk only for your personal savings or the ordinary account, where the opportunity cost is 1% or 2.5% only.
I have some money in my CPF Special Account and wish to invest it. Previously I have invested in Company X's Selector II in China for 7 years. After 7 years, I did not make any money compare to 4% interest in CPF.
I would like to hear your advice in investing the special account as my ordinary account is kept for my housing loan.
REPLY
Keep your money in the special account. It pays interest at 4% (plus bonus at 1% on the first $40,000) and is risk free.
You should take risk only for your personal savings or the ordinary account, where the opportunity cost is 1% or 2.5% only.
Financial contagion
Dear Mr. Tan KL,
As you are well aware of the on-going credit crunch in the USA with credit defaults rising, subPrime losses mounting, big financial institutions being forced to write off billions of dollars from their balance sheets.
Do you see this as a growing contagion? Will it spread to Asia? Will financial institutions in Asia such as NTUC Income (which I believe currently has a "A" rating) suffer from such contagion ?
REPLY
The experts do not know. I do not know either. I think that the Fed chairman also does not know. He said that the losses have probably been recognised, but still no one knows.
As you are well aware of the on-going credit crunch in the USA with credit defaults rising, subPrime losses mounting, big financial institutions being forced to write off billions of dollars from their balance sheets.
Do you see this as a growing contagion? Will it spread to Asia? Will financial institutions in Asia such as NTUC Income (which I believe currently has a "A" rating) suffer from such contagion ?
REPLY
The experts do not know. I do not know either. I think that the Fed chairman also does not know. He said that the losses have probably been recognised, but still no one knows.
Keep your existing policy
Dear Mr. Tan,
Four years ago, I bougt a 25 year saving plan as follows:
Sum assured: $10,000
No. of years of Premiums Payable :25
Monthly Premium: $70
Maturity Benefits: $16,581
Projected rate of return: 4.75%
I am considering to terminate my savings plan insurance. I wish to buy Term insurance and invest the savings in bonds or unit trust. What is your advice?
REPLY
My advice is for you to keep this policy. My reasons are:
1. It is quite small
2. You have probably incurred the upfront expenses already
3. The projected return of 4.75% is quite attractive.
You will need additional insurance within the next few years, as your current sum assured is quite low. When you are ready to invest more, you can buy Term insurance and invest the difference in a diversified, low cost fund, such as the STI ETF.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Four years ago, I bougt a 25 year saving plan as follows:
Sum assured: $10,000
No. of years of Premiums Payable :25
Monthly Premium: $70
Maturity Benefits: $16,581
Projected rate of return: 4.75%
I am considering to terminate my savings plan insurance. I wish to buy Term insurance and invest the savings in bonds or unit trust. What is your advice?
REPLY
My advice is for you to keep this policy. My reasons are:
1. It is quite small
2. You have probably incurred the upfront expenses already
3. The projected return of 4.75% is quite attractive.
You will need additional insurance within the next few years, as your current sum assured is quite low. When you are ready to invest more, you can buy Term insurance and invest the difference in a diversified, low cost fund, such as the STI ETF.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Term insurance covers critical illness
Hi Mr. Tan,
Does NTUC have a term insurance that covers critical illness? Two years ago, I bought I-term. I checked with the NTUC consultant and he says that NTUC do not have term insurance for critical illness, thus I ended buying the Living policy...
REPLY
You can buy a Living Benefit which is like a Term insurance that covers critical illness. It comes as part of the Family Policy.
More details here:
http://www.tankinlian.com/faq/choice.html
Does NTUC have a term insurance that covers critical illness? Two years ago, I bought I-term. I checked with the NTUC consultant and he says that NTUC do not have term insurance for critical illness, thus I ended buying the Living policy...
REPLY
You can buy a Living Benefit which is like a Term insurance that covers critical illness. It comes as part of the Family Policy.
More details here:
http://www.tankinlian.com/faq/choice.html
Savings for your child
Dear Mr. Tan,
I have two boys. Since birth, I have been depositing their ang baos into their saving accounts. I was wondering if there are any better way of growing their money (in a long term) so that they can use it for their education in future.
REPLY
I hope that, in the near future, there will be low cost investment funds. If you are investing for the long term, the risk is reduced considerably and you will get a much higher return.
For the time being, it appears that the saving account is the best way to keep the savings.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I have two boys. Since birth, I have been depositing their ang baos into their saving accounts. I was wondering if there are any better way of growing their money (in a long term) so that they can use it for their education in future.
REPLY
I hope that, in the near future, there will be low cost investment funds. If you are investing for the long term, the risk is reduced considerably and you will get a much higher return.
For the time being, it appears that the saving account is the best way to keep the savings.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
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