Dear Mr. Tan,
My uncle (as policy holder) bought a life policy for his wife (as insured). If the policy holder passes away, does it mean that the ownership of the policy automatically transfers to his wife (the insured)? Or does it become a 'no ownership policy'. If it is the latter, who has the rights to deal with the policy, for instance, to take a policy loan/terminate it?
REPLY
Your uncle is the owner of the policy. On his death, the policy becomes part of his estate and the administrator of the estate (which is usually his wife) can deal with the policy in any suitable way, such as taking a loan or terminating it.
Your uncle has the choice of transferring the policy to his wife now and write in his will to transfer the policy to the wife on his death.
Saturday, July 19, 2008
Unforgettable sight in Beijing
My friend saw an unforgettable sight during his recent visit to Beijing - something that he has not seen before, and will never see again in the future.
He looked up and saw a blue sky. In preparation for the Beijing Olympics which will start soon, the authority has asked the factories to stop or reduce their production within a large part of Beijing. This reduces the pollution and makes the air clean.
He expects that, after the Olympics, things will get back to normal in Beijing - and that is a polluted environment.
He looked up and saw a blue sky. In preparation for the Beijing Olympics which will start soon, the authority has asked the factories to stop or reduce their production within a large part of Beijing. This reduces the pollution and makes the air clean.
He expects that, after the Olympics, things will get back to normal in Beijing - and that is a polluted environment.
Cost of Private Shield
A reader asked how it is possible for the cost of a private Shield plan to be more than $100,000 for ages 30 to 85.
You can add up the total cost from the websites of the insurance companies. Here is an example from NTUC Income:
For the enhanced plan (subject to deductible and co-insurance):
http://income.com.sg/insurance/incshield/premium.asp
For the plus rider (to cover the deductible and co-insurance)
http://income.com.sg/insurance/incshieldplus/
Add up the premium rate for plan P (which covers private hospital) for the ages from 30 to 85. Remeber to muliply by the number of years in each category. I got a total of $102,344.
This does not include the cost beyond age 85, and also for future increases in premium rates due to medical inflation. These rates are not guaranteed at the current level and can be adjusted in future years.
You can find out the premium rates charged by the other insurance companies for their private Shield plan. I believe that the total cost will be higher, i.e. more than NTUC Income.
You can add up the total cost from the websites of the insurance companies. Here is an example from NTUC Income:
For the enhanced plan (subject to deductible and co-insurance):
http://income.com.sg/insurance/incshield/premium.asp
For the plus rider (to cover the deductible and co-insurance)
http://income.com.sg/insurance/incshieldplus/
Add up the premium rate for plan P (which covers private hospital) for the ages from 30 to 85. Remeber to muliply by the number of years in each category. I got a total of $102,344.
This does not include the cost beyond age 85, and also for future increases in premium rates due to medical inflation. These rates are not guaranteed at the current level and can be adjusted in future years.
You can find out the premium rates charged by the other insurance companies for their private Shield plan. I believe that the total cost will be higher, i.e. more than NTUC Income.
How banks lose the trust of their customers
An elderly person told me, "Long ago, many people can trust their bank to give them a fair return on their savings. Nowadays, the banks make a lot of profit by selling bad financial products to their customers. Many customers now distrust the banks".
What has happened during the past ten years, that makes the banks lose the trust of their customers?
Long ago, the banks are tightly controlled by the regulator. They have a few common products that their customers can understand, such as a saving account, a current account and fixed deposits. The customers can compare the interest rate paid on these savings and deposits. The banks have to offer competitive terms to attract and retain their customers.
The situation changed in the past decade. Banks started to offer complicated financial products. They employ marketing officers to sell these products, such as high cost life insurance products. Later, they sell structured investment products.
There is a change in the role of the regulator. They are not concerned about ensuring fairness to the consumers, and decide to leave this matter to the market. The consumers are left at the mercy of the issuers of these products. The issuers have the objective of maximising their profit and do not mind "ripping off the consumers". Business ethics disappeared.
The banks market these products to their consumers. They make a handsome profit from the commissions paid by the product issuers. But the poor consumers are given poor financial products. They only realise it after 3 to 5 years, but by then, it is too late.
This is how banks lose the confidence of the customers.
What has happened during the past ten years, that makes the banks lose the trust of their customers?
Long ago, the banks are tightly controlled by the regulator. They have a few common products that their customers can understand, such as a saving account, a current account and fixed deposits. The customers can compare the interest rate paid on these savings and deposits. The banks have to offer competitive terms to attract and retain their customers.
The situation changed in the past decade. Banks started to offer complicated financial products. They employ marketing officers to sell these products, such as high cost life insurance products. Later, they sell structured investment products.
There is a change in the role of the regulator. They are not concerned about ensuring fairness to the consumers, and decide to leave this matter to the market. The consumers are left at the mercy of the issuers of these products. The issuers have the objective of maximising their profit and do not mind "ripping off the consumers". Business ethics disappeared.
The banks market these products to their consumers. They make a handsome profit from the commissions paid by the product issuers. But the poor consumers are given poor financial products. They only realise it after 3 to 5 years, but by then, it is too late.
This is how banks lose the confidence of the customers.
Friday, July 18, 2008
Advice to the young - save 15% of your earnings
I gave an advice to young people - to save 15% of your earnings. Someone commented that this is not possible. Young people do not earn enough, and will find it difficult to save 15%.
I believe that this goal is possible, and here are my reasons. Many young people stay with their parents and do not have to pay for housing and other expenses. Due to their low expenses, they can have savings, if they wish to.
Their priorities should be:
1. Essential expenses for travelling and food
2. Contribute a monthly allownane for household expenses
3. Repay their education loan
4. Set aside money for their savings
5. Use the remainder for other expenses, such as luxury items and holidays.
If they save now, the can use their savings for future expenses. They do not have to take a consumer loan and pay a high interest rate. By avoiding interest payment, they have more money to save and spend.
I believe that this goal is possible, and here are my reasons. Many young people stay with their parents and do not have to pay for housing and other expenses. Due to their low expenses, they can have savings, if they wish to.
Their priorities should be:
1. Essential expenses for travelling and food
2. Contribute a monthly allownane for household expenses
3. Repay their education loan
4. Set aside money for their savings
5. Use the remainder for other expenses, such as luxury items and holidays.
If they save now, the can use their savings for future expenses. They do not have to take a consumer loan and pay a high interest rate. By avoiding interest payment, they have more money to save and spend.
A fair premium for private Shield plan
Are you paying a fair premium for your private Shield plan? Are you being over-charged? How can you find out?
You can look at the ratio of claims to premiums, as reported by the insurance company for this plan, in their return to MAS.
Take this example. If an insurance company has 100,000 policyholders and pays a total claim of $10 million each year, the average cost of claim is $100 per policyholder. The insurance company needs to incur expenses and to have a reasonable margin of profit. As a rule of thumb, the loading should be about 50% over the cost of claim. A reasonable premium should be $150.
The actual premium charge will differ according to the age of the policyholder and other relevant factors, but the average for all the policyholders should be $150.
If the average premium paid by the policyholder is $500, it can be considered to be excessive. Why should the policyholder pay an average premium of $500, when the average cost of claim is only $100? This means that $400 is taken away to pay commission to the agent, and profit to the insurance company.
Why is this insurance company able to get away with charging such a high premium rate to its policyholders? Here are the ways:
1. It makes it product different from its competitors, so that the policyholders cannot compare the prices.
2. It provides some special features that make the product look very attractive, but the actual claim cost is small. This is a way to mislead customers.
3. It pays high commission to incentive its agents and train the agents on how to market the product aggressively.
As a consumer, you should avoiding paying far too much for a private Shield plan. The money is taken from their Medisave savings. If you spend too much money now on unnecessary insurance, or is overcharged, you will have inadeqaute savings to pay for the medical expenses in your old age.
You can look at the ratio of claims to premiums, as reported by the insurance company for this plan, in their return to MAS.
Take this example. If an insurance company has 100,000 policyholders and pays a total claim of $10 million each year, the average cost of claim is $100 per policyholder. The insurance company needs to incur expenses and to have a reasonable margin of profit. As a rule of thumb, the loading should be about 50% over the cost of claim. A reasonable premium should be $150.
The actual premium charge will differ according to the age of the policyholder and other relevant factors, but the average for all the policyholders should be $150.
If the average premium paid by the policyholder is $500, it can be considered to be excessive. Why should the policyholder pay an average premium of $500, when the average cost of claim is only $100? This means that $400 is taken away to pay commission to the agent, and profit to the insurance company.
Why is this insurance company able to get away with charging such a high premium rate to its policyholders? Here are the ways:
1. It makes it product different from its competitors, so that the policyholders cannot compare the prices.
2. It provides some special features that make the product look very attractive, but the actual claim cost is small. This is a way to mislead customers.
3. It pays high commission to incentive its agents and train the agents on how to market the product aggressively.
As a consumer, you should avoiding paying far too much for a private Shield plan. The money is taken from their Medisave savings. If you spend too much money now on unnecessary insurance, or is overcharged, you will have inadeqaute savings to pay for the medical expenses in your old age.
Invest in an indexed fund
Hi Mr. Tan,
1) I read in many reviews that index funds such as the STI usually outperforms managed funds on average. Is this true and would you advise me investing in the STI at this time and who do you advise I manage and adjust on a regular basis?
2) I am looking for a good financial advisor and institution. So far, I have talked to a few financial planners but none has given me the confidence that I will really get my returns over the long term. I am at a loss on how to ensure I have a robust portfolio and where to seek reliable and effective help from. Do you have any specific suggestions on how I can go about it myself or seek advise from?
3) I cannot assess the link in your blog regarding "Financial Planning tips", can you send it to me or have any books i can self educate myself with?
REPLY
I advise my readers to invest in an indexed fund for 10 years or longer. A suitable index fund is the STI ETF. As the index is now 25% below the peak, it is at a good level for investing. Even if the market goes down from here, it will recover in6 to 12 months time (just my opinion).
You can buy the STI ETF through your stock broker. It is quoted on the stock exchange. Read this FAQ:
http://tankinlian.com/faq/savings.html
If you need a financial planner, who is willing to give advice for a fee, you can contact X (details deleted).
The link for Tips on Financial Planning in my blog is working. It leads you to this webpage:
www.tankinlian.com/faq
1) I read in many reviews that index funds such as the STI usually outperforms managed funds on average. Is this true and would you advise me investing in the STI at this time and who do you advise I manage and adjust on a regular basis?
2) I am looking for a good financial advisor and institution. So far, I have talked to a few financial planners but none has given me the confidence that I will really get my returns over the long term. I am at a loss on how to ensure I have a robust portfolio and where to seek reliable and effective help from. Do you have any specific suggestions on how I can go about it myself or seek advise from?
3) I cannot assess the link in your blog regarding "Financial Planning tips", can you send it to me or have any books i can self educate myself with?
REPLY
I advise my readers to invest in an indexed fund for 10 years or longer. A suitable index fund is the STI ETF. As the index is now 25% below the peak, it is at a good level for investing. Even if the market goes down from here, it will recover in6 to 12 months time (just my opinion).
You can buy the STI ETF through your stock broker. It is quoted on the stock exchange. Read this FAQ:
http://tankinlian.com/faq/savings.html
If you need a financial planner, who is willing to give advice for a fee, you can contact X (details deleted).
The link for Tips on Financial Planning in my blog is working. It leads you to this webpage:
www.tankinlian.com/faq
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