Insurance serves a useful purpose in society. It only needs to be made transparent and priced fairly. I shall be writing about this matter separately.
Insurance should not be used to take money from consumers without giving fair value. It should not be over-priced or used to make excessive profit.
Monday, September 14, 2009
Financial Planning Book
What title is best for my books?
a) Financial Planning: Practical Steps
b) Pocket Guide to Financial Planning
c) Practical Financial Planning
d) Financial Planning Primer
In the survey, most people said that the price should be $5 to $10. Some suggested a lower price (less than $5) and a smaller number suggested a higher price (more than $10).
Most people like the book to have more content and to be in more depth. This is now being done.
More views welcomed.
a) Financial Planning: Practical Steps
b) Pocket Guide to Financial Planning
c) Practical Financial Planning
d) Financial Planning Primer
In the survey, most people said that the price should be $5 to $10. Some suggested a lower price (less than $5) and a smaller number suggested a higher price (more than $10).
Most people like the book to have more content and to be in more depth. This is now being done.
More views welcomed.
Taking a free ride
Some Singaporeans have the habit of taking a free ride. They are not prepared to join the class action now. If the class action succeed, they want to join later. But this is not possible.
When the investor groups were being formed a few months ago, they did not register or join the groups. They wanted to wait to get compensation from the bank or FIDREC. When FIDREC rejected their case, they approached me for the contact persons for these groups. It is too late.
If Singaporeans want to have a just and fair society, they cannot sit back and ask for help at the last moment. They cannot take a free ride.
They have to act early and join others in a collective action. This bad character of some (perhaps many) Singaporeans have to change, if we are to be a strong nation.
Tan Kin Lian
When the investor groups were being formed a few months ago, they did not register or join the groups. They wanted to wait to get compensation from the bank or FIDREC. When FIDREC rejected their case, they approached me for the contact persons for these groups. It is too late.
If Singaporeans want to have a just and fair society, they cannot sit back and ask for help at the last moment. They cannot take a free ride.
They have to act early and join others in a collective action. This bad character of some (perhaps many) Singaporeans have to change, if we are to be a strong nation.
Tan Kin Lian
Means Testing
Someone asked if a high income person can still use the subsidised wards (B2 and C).
The answer is "yes". They will be given a lower rate of subsidy. Currently, the subsidy varies from 80% to 65% for class C and from 65% to 50% for class B. See the explanation here.
Basic Medishield should be sufficient to cover the cost of the subsidised bill, even though the rate of subsidy is lower for a high income person. Even if it does not cover the full amount, the difference is quite small.
Most retirees and elderly people have a low or no income and should qualify for a higher of subsidy anyway.
The answer is "yes". They will be given a lower rate of subsidy. Currently, the subsidy varies from 80% to 65% for class C and from 65% to 50% for class B. See the explanation here.
Basic Medishield should be sufficient to cover the cost of the subsidised bill, even though the rate of subsidy is lower for a high income person. Even if it does not cover the full amount, the difference is quite small.
Most retirees and elderly people have a low or no income and should qualify for a higher of subsidy anyway.
Patient advocate
I have posted a newspaper article about patient advocates. They are knowledgeable people who advice patients on selecting the right doctor to treat an illness. Many patients are at a loss on selecting the right treatment and can pay a lot of money in selecting the wrong doctor or patient. This is how they get a big hospital bill.
By getting insurance, the patients are covered from the burden of paying the large bill, but the total cost is shared by all consumers through higher insurance premiums. Premiums will continue to increase, if patients do not make the right choice and pay more than needed.
Insurance companies and their agents are happy to see higher premiums. It means bigger commissions and profits to them. Can they step back and think about the burden of higher cost to consumers? Can they play a role to minimise these increases?
Patient advocates are now found in America. I hope that they can be available in Singapore too.
By getting insurance, the patients are covered from the burden of paying the large bill, but the total cost is shared by all consumers through higher insurance premiums. Premiums will continue to increase, if patients do not make the right choice and pay more than needed.
Insurance companies and their agents are happy to see higher premiums. It means bigger commissions and profits to them. Can they step back and think about the burden of higher cost to consumers? Can they play a role to minimise these increases?
Patient advocates are now found in America. I hope that they can be available in Singapore too.
Managing the risk of retirement
Some insurance agents ask customers to spend a lot of money on Private Shield or critical illness cover. They argue that it is for risk management, in case they face with a big hospital bill that has to be paid.
There is no need to face a big bill, if the patient is willing to be treated in a subsidised ward and is insured for basic Medishield.
The biggest and real risk faced by most people is insufficient money on retirement. More than 97% of working people will not face any critical illness or premature death in the first 25 years of their working life (when they have to accumulate their savings). If they do invest their savings well, they will have sufficient money for their retirement needs or to meet other unexpected events, such as critical illness.
Many people have insufficient savings as they got a poor return by investing in bad financial products, such as the following:
a) Paying too much premium for insurance that is not needed, e.g. expensive Private Shield or critical illness cover.
b) Buying a whole life or investment linked policy which takes away 160% of their annual savings
c) Investing in bad financial products, such as structured products, land banking, dual currency investments and overpriced property
Insurance allows you to manage your risks, but you have to pay the right price for this service. Do not pay an excessive price for a service that cost much less. Be careful of advisers who is only interested in the commission earned from selling an expensive, over-priced product to you. They do not take care of your interest; they only think about the commission that they can earn.
Look for an adviser who is genuine in giving good advice. Pay a reasonable fee for this advice, and ask for the embedded commission to be returned to you.
To recap: your biggest risk is not having sufficient money for your retirement. Do not invest in bad financial products that gives you a poor or negative return. Look for an adviser who is genuinely able to give you proper advice that is in your interest.
Tan Kin Lian
There is no need to face a big bill, if the patient is willing to be treated in a subsidised ward and is insured for basic Medishield.
The biggest and real risk faced by most people is insufficient money on retirement. More than 97% of working people will not face any critical illness or premature death in the first 25 years of their working life (when they have to accumulate their savings). If they do invest their savings well, they will have sufficient money for their retirement needs or to meet other unexpected events, such as critical illness.
Many people have insufficient savings as they got a poor return by investing in bad financial products, such as the following:
a) Paying too much premium for insurance that is not needed, e.g. expensive Private Shield or critical illness cover.
b) Buying a whole life or investment linked policy which takes away 160% of their annual savings
c) Investing in bad financial products, such as structured products, land banking, dual currency investments and overpriced property
Insurance allows you to manage your risks, but you have to pay the right price for this service. Do not pay an excessive price for a service that cost much less. Be careful of advisers who is only interested in the commission earned from selling an expensive, over-priced product to you. They do not take care of your interest; they only think about the commission that they can earn.
Look for an adviser who is genuine in giving good advice. Pay a reasonable fee for this advice, and ask for the embedded commission to be returned to you.
To recap: your biggest risk is not having sufficient money for your retirement. Do not invest in bad financial products that gives you a poor or negative return. Look for an adviser who is genuinely able to give you proper advice that is in your interest.
Tan Kin Lian
Economics of Private Shield
Some insurance agents like to tell scare stories about people who are hit with large medical bills, costing $50,000 or more. These stories are true (and they can provide evidence), but they are exagerated, in the following ways:
a) Only a very small proportion of insured get hit with large bills, maybe less than 1 in 10,000 people (corrected).
b) You have the option to go to a subsidised ward and pay less than one-third of the bill charged by a private hospital.
If you are already insured under a Private Shield, you can be sure that the bill will be high, as the hospital know that it will be paid by Private Shield.
The lifetime cost (from age 25 to 85) of Basic Medishield is $20,000. The lifetime cost of Private Shield is $50,000 for A class(restructured) and $70,000 (private hospital).
If you are well off and have adequate savings for retirement, the additional cost of $30,000 may not be important to you. Go and spend it for the "status". But, if you do not have sufficient savings for retirement, do not waste $30,000 (which is a lot of money to most people).
Some agents will advise you to go to Private Shield when you are young (as the premium is low) and to downgrade to Medishield after you retire. This may make sense, but you must remember that you are more likely to face a big hospital bill after you retire.
Out of the $50,000 that you pay in a lifetime for a Private Shield (class A), about $15,000 (30%) goes to pay commission, expenses and profit. Another $15,000 goes to replace the subsidy that is provided for B2 ward. The real benefit to the patient is quite small, except for the "status" of being treated in class A.
The scare story that you will go bankrupt if you land with a big bill and you are covered under Basic Medishield is exaggerated. But it is effective in getting you to convert to a Private Shield and increase the earnings of the agent. Who convince you anyway?
Tan Kin Lian
a) Only a very small proportion of insured get hit with large bills, maybe less than 1 in 10,000 people (corrected).
b) You have the option to go to a subsidised ward and pay less than one-third of the bill charged by a private hospital.
If you are already insured under a Private Shield, you can be sure that the bill will be high, as the hospital know that it will be paid by Private Shield.
The lifetime cost (from age 25 to 85) of Basic Medishield is $20,000. The lifetime cost of Private Shield is $50,000 for A class(restructured) and $70,000 (private hospital).
If you are well off and have adequate savings for retirement, the additional cost of $30,000 may not be important to you. Go and spend it for the "status". But, if you do not have sufficient savings for retirement, do not waste $30,000 (which is a lot of money to most people).
Some agents will advise you to go to Private Shield when you are young (as the premium is low) and to downgrade to Medishield after you retire. This may make sense, but you must remember that you are more likely to face a big hospital bill after you retire.
Out of the $50,000 that you pay in a lifetime for a Private Shield (class A), about $15,000 (30%) goes to pay commission, expenses and profit. Another $15,000 goes to replace the subsidy that is provided for B2 ward. The real benefit to the patient is quite small, except for the "status" of being treated in class A.
The scare story that you will go bankrupt if you land with a big bill and you are covered under Basic Medishield is exaggerated. But it is effective in getting you to convert to a Private Shield and increase the earnings of the agent. Who convince you anyway?
Tan Kin Lian
To take loss or hold USD?
Hello Mr Tan
I am retired. I am currently holding US Dollars converted from Dual Currency Investments. At the current low exchange rate and low interest rates, what should I do with the US Dollars to minimise my loss of about S$60k.
REPLY
If you think that USD will go lower, you can take your loss now. If you think that it will go up, you can hold on. But, I do not know whether it will go up or down. So, I cannot advice. Sorry.
Agent fail to explain the upfront charges
Hi Mr Tan
I have a question related to my ILP policy bought from X in late November 2005. My yearly payment is S$1800 with protection of S$80K death and S$100K critical illness. The agent said it is very cheap for the protection but she did not mention the huge charges of 85% for 1st year, 50% for 2nd year and 25% for 3rd year. After 3 years later, then I realize my cash value only left less than 1k. My husband also bought a ILP from her too. May I have your opinion that should I continue these policies.
REPLY
You have already incurred the upfront charge. So, it is better to carry on the policy, as the charges from now onwards is relatively modest. But you can lodge a complaint to X against the conduct of the agent in failing to tell you the relevant facts.
I have a question related to my ILP policy bought from X in late November 2005. My yearly payment is S$1800 with protection of S$80K death and S$100K critical illness. The agent said it is very cheap for the protection but she did not mention the huge charges of 85% for 1st year, 50% for 2nd year and 25% for 3rd year. After 3 years later, then I realize my cash value only left less than 1k. My husband also bought a ILP from her too. May I have your opinion that should I continue these policies.
REPLY
You have already incurred the upfront charge. So, it is better to carry on the policy, as the charges from now onwards is relatively modest. But you can lodge a complaint to X against the conduct of the agent in failing to tell you the relevant facts.
Reforming the financial system
Read this report.
The key proposals are:
a) strengthen consumer protection (MAS please take note)
b) regulate derivatives
c) monitor systemic risks
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