Hi Mr. Tan,
My mother bought a $30,000 life policy for me when I was young. The cash surrender value is about $2500. I have calculated that premiums paid throughout the years is about $7000.
I am really surprised at the low surrender value because when I referred to the projection value that came with the policy, the guaranteed value by now should have been around $5000. Why is that so? And do you think I should cancel?
REPLY
Ask the insurance company to quote you the following:
a) Cash value now
b) Cash value in 5 years time
c) Premium payable for next 5 years
d) Coverage for next 5 years
You can make a better decision, when these figures are available. Read this FAQ
http://www.tankinlian.com/faq/exist.html
Ask the company to explain the difference between the cash value now, and the projection that was made when the policy was taken. You can send the documents to me, after they gave you a reply.
Sunday, March 2, 2008
Guaranteed renewability
Dear Mr. Tan,
I am told that if I make a claim, the insurance company can refuse to renew my medical insurance. Is this correct?
REPLY
Some medical insurance plan operate on a yearly basis. The insurance company has the legal the right to refuse renewal or to charge a higher premium rate if the policyholder is in bad health.
The Medishield (and similar plans provided by the insurance companies) have the guaranteed renewability feature. It operates as follows:
1. The insurance company is obliged to renew the medical insurance until a certain specified age (say 85 years) or for a lifetime.
2. The premium rate is the same as applied to all people in the same age group or category. The insurance company cannot charge a higher premium rate for an insured person who has made a claim.
This is called "guaranteed renewability".
I am told that if I make a claim, the insurance company can refuse to renew my medical insurance. Is this correct?
REPLY
Some medical insurance plan operate on a yearly basis. The insurance company has the legal the right to refuse renewal or to charge a higher premium rate if the policyholder is in bad health.
The Medishield (and similar plans provided by the insurance companies) have the guaranteed renewability feature. It operates as follows:
1. The insurance company is obliged to renew the medical insurance until a certain specified age (say 85 years) or for a lifetime.
2. The premium rate is the same as applied to all people in the same age group or category. The insurance company cannot charge a higher premium rate for an insured person who has made a claim.
This is called "guaranteed renewability".
Coping with future increases in medical insurance
Dear Mr. Tan
I am informed that the premium rate on Medishield increases with age, and may be subject to future revision. Is there a medical insurance plan that offers a guaranteed rate of premium? I am willing to pay a higher premium now, so that I do not have to incur future increases.
REPLY.
It is not possible for the insurance company to gurantee the future premium rates, as they are subject to the future increases in medical expenses, which cannot be predicted or controlled.
A similar situation is with the cost of living. It is not possible for the Government to guarantee you the prices of basic necessities in the future, as they are subject to the market situation.
You can manage the future increases as follows:
1. Leave sufficient savings in the Medisave account to pay the higher premium at older ages.
2. Be prepared to downgrade to a cheaper insurance plan when you get older
3. Do not spend your Medisave for expensive insurance plans that you do not need.
4. Stay healthy.
I am informed that the premium rate on Medishield increases with age, and may be subject to future revision. Is there a medical insurance plan that offers a guaranteed rate of premium? I am willing to pay a higher premium now, so that I do not have to incur future increases.
REPLY.
It is not possible for the insurance company to gurantee the future premium rates, as they are subject to the future increases in medical expenses, which cannot be predicted or controlled.
A similar situation is with the cost of living. It is not possible for the Government to guarantee you the prices of basic necessities in the future, as they are subject to the market situation.
You can manage the future increases as follows:
1. Leave sufficient savings in the Medisave account to pay the higher premium at older ages.
2. Be prepared to downgrade to a cheaper insurance plan when you get older
3. Do not spend your Medisave for expensive insurance plans that you do not need.
4. Stay healthy.
Pay off a housing loan
Dear Mr. Tan,
I have a housing loan with a bank. I wish to repay the loan at the end of the 3 year lock-in period. I have the following options:
(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
Interest rate on loan: 4.95%
Rate of cash savings : <1%
What is your advice?
REPLY
I suggest that you keep a certain amount of cash savings (say $10,000) to be used for emergencies, and use the remaining cash savings to pay off the housing loan. You can pay the remaining loan from your CPF ordinary account.
Your balance in CPF will earn you 2.5% plus 1% bonus on $20,000. By repaying the housing loan, you can save on 4.95% of interest.
I have a housing loan with a bank. I wish to repay the loan at the end of the 3 year lock-in period. I have the following options:
(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
Interest rate on loan: 4.95%
Rate of cash savings : <1%
What is your advice?
REPLY
I suggest that you keep a certain amount of cash savings (say $10,000) to be used for emergencies, and use the remaining cash savings to pay off the housing loan. You can pay the remaining loan from your CPF ordinary account.
Your balance in CPF will earn you 2.5% plus 1% bonus on $20,000. By repaying the housing loan, you can save on 4.95% of interest.
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