Dear Mr. Tan,
Is it sensible to have two Anunities - one from CPF and the other from NTUC Income? I am more on the preservative type, do not want to take risk in investment.
JL
REPLY
This is an excellent idea. I have recommended it before. Buy an annuity for CPF for its attractive return. Buy a life annuity from the private sector using cash savings.
Read this FAQ:
http://www.tankinlian.com/faq/life.html
Thursday, July 3, 2008
Fair Treatment of Policy Owners
I found this excellent paper from Bank Negara, Malaysia. It explained the method of using asset share to ensure that policy owners get cash values that are fairly computed:
http://www.bnm.gov.my/files/publication/dgi/en/2004/08.box2.pdf
Here is the FAQ from the Life Insurance Association of Malaysia:
http://www.liam.org.my/cms/general.asp?whichfile=English&productid=237&catid=13
Here is another article printed in The New Paper:
http://newpaper.asia1.com.sg/columnists/story/0,4136,167015,00.html
http://www.bnm.gov.my/files/publication/dgi/en/2004/08.box2.pdf
Here is the FAQ from the Life Insurance Association of Malaysia:
http://www.liam.org.my/cms/general.asp?whichfile=English&productid=237&catid=13
Here is another article printed in The New Paper:
http://newpaper.asia1.com.sg/columnists/story/0,4136,167015,00.html
Long breakeven point for 30 year endowment
My friend is a retired manager of a life insurance company. He found that his daughter, a recent graduate, was sold a 30 year endowment policy. The benefit illustration showed that, for the first 27 years, the cash value was below the premiums paid.
During the last three years, the benefit illustration showed a large amount of non-guaranteed terminal bonus that boost the yield on the policy. The daughter was not aware that she would suffer a loss for 27 years and had not been properly advised by the agent. The agent only highlighted the high maturity value to convince the policyholder to enter into this "saving plan".
My friend said, "How can a saving plan have a breakeven point of 27 years? This is like cheating people". He wanted to ask the agent to refund all the premiums to the daughter. I advised him to get the daughter to lodge a complaint with MAS.
During the last three years, the benefit illustration showed a large amount of non-guaranteed terminal bonus that boost the yield on the policy. The daughter was not aware that she would suffer a loss for 27 years and had not been properly advised by the agent. The agent only highlighted the high maturity value to convince the policyholder to enter into this "saving plan".
My friend said, "How can a saving plan have a breakeven point of 27 years? This is like cheating people". He wanted to ask the agent to refund all the premiums to the daughter. I advised him to get the daughter to lodge a complaint with MAS.
Asset share in 2009
Mr. Ken Ng said that NTUC Income will work on the asset share in 2009 and declare bonuses based on the "actual experience". This is not fair to policies that mature in 2007 and 2008, where the bonuses are far short of the asset share.
It is the duty of the appointed actuary to look at the actual experience to declare a fair rate of bonus. Whether the actuary adopt the asset share or other suitable method, the need for fairness has always been a key consideration in the distribution of bonus.
It is not correct for the appointed actuary or the board of directors to ignore this consideration, as it affects the reasonable expectation of the policyholders and could amount to holding back many thousands of dollars that may be fairly attributed to them. There is the risk of legal action taken by the policyholders.
ADDITIONAL POINT
Mr. Ken Ng asked me to clarify that he became the appointed actuary only in 2007. The bonus declaration for 2006 was recommended by the previous appointed actuary, Nick Rhodes, and supported by me when it was presented to the board of directors in late 2006 (when I was still the CEO).
I replied to Mr. Ken Ng that the bonus declared in 2006 showed a significant increase over 2005. I believe that the bonus for 2007 should show a further increase over 2006, as it can be justified by the excellent investment yield achieved in 2007.
It is the duty of the appointed actuary to look at the actual experience to declare a fair rate of bonus. Whether the actuary adopt the asset share or other suitable method, the need for fairness has always been a key consideration in the distribution of bonus.
It is not correct for the appointed actuary or the board of directors to ignore this consideration, as it affects the reasonable expectation of the policyholders and could amount to holding back many thousands of dollars that may be fairly attributed to them. There is the risk of legal action taken by the policyholders.
ADDITIONAL POINT
Mr. Ken Ng asked me to clarify that he became the appointed actuary only in 2007. The bonus declaration for 2006 was recommended by the previous appointed actuary, Nick Rhodes, and supported by me when it was presented to the board of directors in late 2006 (when I was still the CEO).
I replied to Mr. Ken Ng that the bonus declared in 2006 showed a significant increase over 2005. I believe that the bonus for 2007 should show a further increase over 2006, as it can be justified by the excellent investment yield achieved in 2007.
MySudoku
MySudoku appears in the MyPaper daily. The puzzle on Friday are arranged to show the letters M-Y. Take a look at this puzzle.
The tips to solve the Sudoku puzzles are contained in my website, www.tankinlian.com, under Logic9 (an alternative name to Sudoku).
The tips to solve the Sudoku puzzles are contained in my website, www.tankinlian.com, under Logic9 (an alternative name to Sudoku).
Improve public transport
Do you have any suggestions to improve the public transport in Singapore. Give your views in this website:
http://singaporepublictransport.blogspot.com/
http://singaporepublictransport.blogspot.com/
Use of asset share in Malaysia
From 2005, the regulator in Malaysia made it mandatory for life insurance companies to use asset share to determine the cash value and maturity value of their participating policies. This is to ensure that the policyholders get a fair value on their policies based on the actual experience of the fund.
Previously, it was quite common for the companies to give out cash values that are lower than the asset share of the policy. The companies can use the profit on the terminated policies to pay higher values on maturing policies. This makes the yield on the maturing policies look more attractive, but it is at the expense of the policyholders of terminated policies. This is somewhat like a ponzi scheme.
The terminated policies already suffer from the high expense and mortality charges. They have to suffer another penalty from the low cash values, which is quite unfair. By adopting asset shares, the regulator ensure that these policyholders are not penalised twice.
After the asset share method is implemented, the companies find that the maturity yields on these policies are not attractive. They are not able to sell these participating policies, due to the high charges and low yields. Most companies decided to withdraw the participating policies and to sell the investment-linked policies with lower charges.
I am in favour of a similar regulation to be adopted in Singapore to ensure that policyholders are treated fairly. It will also put pressure on companies to reduce their high expenses and charges, and will be in the interest of consumers.
Previously, it was quite common for the companies to give out cash values that are lower than the asset share of the policy. The companies can use the profit on the terminated policies to pay higher values on maturing policies. This makes the yield on the maturing policies look more attractive, but it is at the expense of the policyholders of terminated policies. This is somewhat like a ponzi scheme.
The terminated policies already suffer from the high expense and mortality charges. They have to suffer another penalty from the low cash values, which is quite unfair. By adopting asset shares, the regulator ensure that these policyholders are not penalised twice.
After the asset share method is implemented, the companies find that the maturity yields on these policies are not attractive. They are not able to sell these participating policies, due to the high charges and low yields. Most companies decided to withdraw the participating policies and to sell the investment-linked policies with lower charges.
I am in favour of a similar regulation to be adopted in Singapore to ensure that policyholders are treated fairly. It will also put pressure on companies to reduce their high expenses and charges, and will be in the interest of consumers.
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