Many people asked me about their existing life insurance policies - should they keep it or terminate the policy? In many cases, the policies were bought for them by their parents and are now transferred to them to pay the premiums. My usual advice is, "Keep your existing policy. You have already incurred the high upfront cost. Going forward, it should provide you with a modest return. "
However, if they have difficulty in paying the premium or they have better options to invest their savings, they can consider terminating the existing policies. Before they do so, they should calculate the return on the existing policy for the next five years. Read this FAQ.
They should think carefully before they put in more savings in a new life insurance policy. They should NEVER terminate any existing policy to buy a new policy - as it means incurring the high upfront cost all over again. They should avoid the insurance agent who makes this recommendation as the agent usually wants to make commisison at the expense of the client.
Some of these tips are given in my book, Practical Guide on Financial Planning.
Tan Kin Lian
Friday, April 16, 2010
Tips for young people
I wrote the book, Practical Guide on Financial Planning to educate young people who has just started work, about the importance of savings and the need to invest the savings in a liquid form so that they can be withdrawn without any penalty for urgent cash needs. You can save lot of money by avoiding high interest payments on borrowings or installment payments.
You should NOT lock up their savings in a life assurance policy that has a high distribution cost, poor liquidity and a heavy penalty on withdrawal. Be careful of insruance agents who will approach you soon after you started work. They are well trained to tell one-sided stories about the benefits of life insurance, but not the serious drawbacks.
Do not worry about protecting yourself against the risk of death. You only need to worry about it when you get married. If you can buy a group term insurance (i.e. SAF or SAFRA) or personal accident insurance, go ahead. If not, it does not really matter that you are not insured when you are still young.
Remember: when you sign on the dotted line to buy a high cost insurance policy, you will be giving away one or two years of your hard earned savings.
You should spend $12 and 12 hours to buy and read my book which is available online. By being educated, you can save several thousand dollars by avoiding bad investment products. Do your friend a favour. Order additional copies to sell to them or present as a gift to them. It may be the most valuable gift that you can give them.
Tan Kin Lian
You should NOT lock up their savings in a life assurance policy that has a high distribution cost, poor liquidity and a heavy penalty on withdrawal. Be careful of insruance agents who will approach you soon after you started work. They are well trained to tell one-sided stories about the benefits of life insurance, but not the serious drawbacks.
Do not worry about protecting yourself against the risk of death. You only need to worry about it when you get married. If you can buy a group term insurance (i.e. SAF or SAFRA) or personal accident insurance, go ahead. If not, it does not really matter that you are not insured when you are still young.
Remember: when you sign on the dotted line to buy a high cost insurance policy, you will be giving away one or two years of your hard earned savings.
You should spend $12 and 12 hours to buy and read my book which is available online. By being educated, you can save several thousand dollars by avoiding bad investment products. Do your friend a favour. Order additional copies to sell to them or present as a gift to them. It may be the most valuable gift that you can give them.
Tan Kin Lian
Bid for COE
I found that a car buyer can bid for the COE and, after being successful, is given 6 months to find a car. The deposit to bid for a COE for a car is $10,000 and the balance of the COE price is payable on the purchase of a car.
If you have $10,000 in cash, you can bid for a COE on your own and benefit from any drop in price. You may be negotiate a better price for a car, if you have a COE and can go to shop around. If you do not have $10,000 in cash, perhaps you should not consider buying a car?
If you have $10,000 in cash, you can bid for a COE on your own and benefit from any drop in price. You may be negotiate a better price for a car, if you have a COE and can go to shop around. If you do not have $10,000 in cash, perhaps you should not consider buying a car?
Escalating COE prices
The COE prices has increased sharply due to a reduction in COE available for bidding, and has been exaggerated by greed and fear.
We have to accept that COE prices will be high, due to limited supply and high demand, but we should try to avoid the large fluctuation in prices caused by the current bidding system. The system should be changed to reduce the volatility.
Some people have suggested the "pay as you bid" approach. I think that it has merits. The other change is to make it easier for consumers to bid for COEs directly, instead of relying on the motor dealers to do the bidding. Their profit on the COE increases the cost of ownership.
A better long term strategy is to reduce the demand for private car ownership by improving public transport and the use of taxis.
We have to improve the feeder service to bring commuters from their homes to the MRT stations or bus interchanges. The feeder services should have a waiting time of less than 5 minutes and be affordable (say 40 cetns).
We should also reduce the cost of taxi fares and increase the supply, so that more people can use taxis instead of cars. Each additional taxi on the road can reduce the demand for cars by 5 to 10 times. The cost of taxi fares can come down by reducing the taxis and levies on taxis and by removing unnecessary regulations that add to the cost of operations. If more people uses taxis instead of private cars, there will be less demand for parking spaces.
Tan Kin Lian
We have to accept that COE prices will be high, due to limited supply and high demand, but we should try to avoid the large fluctuation in prices caused by the current bidding system. The system should be changed to reduce the volatility.
Some people have suggested the "pay as you bid" approach. I think that it has merits. The other change is to make it easier for consumers to bid for COEs directly, instead of relying on the motor dealers to do the bidding. Their profit on the COE increases the cost of ownership.
A better long term strategy is to reduce the demand for private car ownership by improving public transport and the use of taxis.
We have to improve the feeder service to bring commuters from their homes to the MRT stations or bus interchanges. The feeder services should have a waiting time of less than 5 minutes and be affordable (say 40 cetns).
We should also reduce the cost of taxi fares and increase the supply, so that more people can use taxis instead of cars. Each additional taxi on the road can reduce the demand for cars by 5 to 10 times. The cost of taxi fares can come down by reducing the taxis and levies on taxis and by removing unnecessary regulations that add to the cost of operations. If more people uses taxis instead of private cars, there will be less demand for parking spaces.
Tan Kin Lian
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