Monday, November 2, 2009
Patient voices and insurance
Even with insurance, you may not be adequately covered. Read this article.
Term Insurance for 25 years
Here are some tips for buying term insurance:
a) Buy a term insurance for 25 years. You need insurance protection for this period. After this period, you do not need life insurance protection any more, as your children would have grown up and can take care of their own financial needs.
b) Even if your children still depends on you financially, you would have accumulated sufficient savings during the 25 years (provided that you invest in the right products that give you a fair return).
c) Buy a term insurance to cover 5 to 7 years of your earnings. If your earnings is $40,000 a year, you will need $250,000 (say).
d) If you wish to reduce the premium, you can choose a decreasing term insurance (where the sum assured reduces yearly over 25 years). Alternatively, you can buy an income benefit that pays 50% of your earnings over the remaining years.
You can read these examples in my book TKL Financial Planning.
To recap: at the end of 25 years, you do not need any life insurance cover. If you still have a housing loan, you can cover it separately under a mortgage insurance policy. Do not allow an agent to frighten you into buying a whole life policy, with the argument that you will not have any cover after the term insurance expires.
Tan Kin Lian
a) Buy a term insurance for 25 years. You need insurance protection for this period. After this period, you do not need life insurance protection any more, as your children would have grown up and can take care of their own financial needs.
b) Even if your children still depends on you financially, you would have accumulated sufficient savings during the 25 years (provided that you invest in the right products that give you a fair return).
c) Buy a term insurance to cover 5 to 7 years of your earnings. If your earnings is $40,000 a year, you will need $250,000 (say).
d) If you wish to reduce the premium, you can choose a decreasing term insurance (where the sum assured reduces yearly over 25 years). Alternatively, you can buy an income benefit that pays 50% of your earnings over the remaining years.
You can read these examples in my book TKL Financial Planning.
To recap: at the end of 25 years, you do not need any life insurance cover. If you still have a housing loan, you can cover it separately under a mortgage insurance policy. Do not allow an agent to frighten you into buying a whole life policy, with the argument that you will not have any cover after the term insurance expires.
Tan Kin Lian
Exchange traded fund (ETF)
There are many exchange traded funds (ETF) that are being marketed in SGX. The advantages of an ETF are:
a) It is a fund comprising of many underlying shares, i.e. provide diversification
b) It is invested to mirror a market index
c) The management fees are low
d) It can be traded at any time through the exchange
A good example of a ETF is the StateStreet Tracker fund, which is listed as STI ETF. It has an annual management fee of only 0.3%.
The annual fee for ETFs ranges from 0.2% to 1% depending on the fund manager. The ETF that are invested in China or India are likely to have higher fee.
If you buy a ETF, you pay a brokerage of around 0.3% plus GST and other charges. It can amount to 0.4%.
The annual management fee of a ETF is lower than an actively managed unit trust. For the unit trust, the manager will try to outperform the market. But, according to independent studies, most active fund managers had not been able to outperform the market, in spite of their higher fees. It is better to invest in a passively managed fund that mirrors the market, i.e. an indexed fund or ETF.
Tan Kin Lian
a) It is a fund comprising of many underlying shares, i.e. provide diversification
b) It is invested to mirror a market index
c) The management fees are low
d) It can be traded at any time through the exchange
A good example of a ETF is the StateStreet Tracker fund, which is listed as STI ETF. It has an annual management fee of only 0.3%.
The annual fee for ETFs ranges from 0.2% to 1% depending on the fund manager. The ETF that are invested in China or India are likely to have higher fee.
If you buy a ETF, you pay a brokerage of around 0.3% plus GST and other charges. It can amount to 0.4%.
The annual management fee of a ETF is lower than an actively managed unit trust. For the unit trust, the manager will try to outperform the market. But, according to independent studies, most active fund managers had not been able to outperform the market, in spite of their higher fees. It is better to invest in a passively managed fund that mirrors the market, i.e. an indexed fund or ETF.
Tan Kin Lian
Freedom of the press
A new law is being passed to protect journalists about the confidentiality of their sources.
Investing in Life Insurance
Here is a chapter from my book entitled TKL Financial Planning. It covers the key points to look for when you want to invest in a life insurance policy. You have to check the effect of deduction, distribution cost and break-even point to look for a policy that gives you a fairly satisfactory return. Most policies in the market give a poor return to policyholders.
Too big to fail
During the global financial crisis, the regulators discovered the danger of having banks that are too big to fail. The collapse of a large bank would cause other financial institutions to fail, leading to a total collapse of the entire financial system. This is described as "systemic risk".
If this is so dangerous, why did the regulators allowed and encouraged the consolidation of banks in the first place? Even in Singapore, the local banks were forced to merge to become bigger banks.
If I remember the reasoning at that time, it was argued that large banks would be financially stronger and would be able to compete more effectively with other large banks to lower cost for consumers.
But this did not turn out to be the case. The consolidation of banks actually reduced competition and allowed banks to run a cartel to increase banking fees. The large investment banks, provided funds for mergers, acquisations and caused the asset bubble to grow. They made billions of dollars of profits in these "good years".
The lessons are now learnt, but rather late and at great cost to the world economy. The asset bubble grew to be so inflated that it had to find its correct level. This caused the near collapse of the financial institutions. Being "too big to fail", the banks had to be bailed out by the governments.
Going forward, what is a better approach? Smaller banks? More banks?
Tan Kin Lian
If this is so dangerous, why did the regulators allowed and encouraged the consolidation of banks in the first place? Even in Singapore, the local banks were forced to merge to become bigger banks.
If I remember the reasoning at that time, it was argued that large banks would be financially stronger and would be able to compete more effectively with other large banks to lower cost for consumers.
But this did not turn out to be the case. The consolidation of banks actually reduced competition and allowed banks to run a cartel to increase banking fees. The large investment banks, provided funds for mergers, acquisations and caused the asset bubble to grow. They made billions of dollars of profits in these "good years".
The lessons are now learnt, but rather late and at great cost to the world economy. The asset bubble grew to be so inflated that it had to find its correct level. This caused the near collapse of the financial institutions. Being "too big to fail", the banks had to be bailed out by the governments.
Going forward, what is a better approach? Smaller banks? More banks?
Tan Kin Lian
Subscribe to:
Posts (Atom)