You will find an excellent website mentioned in:
http://singaporepublictransport.blogspot.com/
Wednesday, July 9, 2008
Additional charges under the fund
Dear Mr. Tan,
I just found out that Y is offering funds, which invest into low cost ETFs. The management fee is 0.75% p.a. and the sales charge is 1.00%. I think this is sufficiently low cost.
http://invest.avivadirect.sg/SG/index.cfm?current=fasttrack/index
HK
REPLY
My colleague did an analysis and found that there are other charges. His observations are set out below:
a. There is a 1% upfront sales charge by Y
b. Annual management fee of 0.75% (for passively managed funds) and 1.2% (for activately managed funds)
However, if we read more deeply into the prospectus, there are more charges as follow:
a. An additional 3% charge (one time), placed under "Initial Service Charge". This amt can be as much as 4% in the future.
b. Up to 0.1% of NAV as Annual Trustee feec.
A separate annual fee of 0.09% to 1.25% to pay for the fund's operating expenses. Realization and switching is free for now but can go as much as 1% in the future.
I just found out that Y is offering funds, which invest into low cost ETFs. The management fee is 0.75% p.a. and the sales charge is 1.00%. I think this is sufficiently low cost.
http://invest.avivadirect.sg/SG/index.cfm?current=fasttrack/index
HK
REPLY
My colleague did an analysis and found that there are other charges. His observations are set out below:
a. There is a 1% upfront sales charge by Y
b. Annual management fee of 0.75% (for passively managed funds) and 1.2% (for activately managed funds)
However, if we read more deeply into the prospectus, there are more charges as follow:
a. An additional 3% charge (one time), placed under "Initial Service Charge". This amt can be as much as 4% in the future.
b. Up to 0.1% of NAV as Annual Trustee feec.
A separate annual fee of 0.09% to 1.25% to pay for the fund's operating expenses. Realization and switching is free for now but can go as much as 1% in the future.
Ideal plan (ID2)
Dear Mr. Tan,
Could you advise me on the two Ideal ILPs I have taken up for my children? I have lost trust in my agent after he started to criticize you and sing praises about the new management.
The primary objective of the two plans is savings for their education. Both are invested in equal proportions of Growth and Singapore Equity funds.
Should I continue with them, terminate them and take up ID7, or terminate them and invest in STI ETF?
Ideal (ID2) taken in 2002
Ideal (ID2) taken in 2007
Thank you sincerely for your advice, Mr Tan.
J
REPLY
You should continue with these two policies. You have already incurred the front end charge, so there is no need to switch now. Anyway, the charge under the ID2 is much lower than similar policies offered by other insurers.
Could you advise me on the two Ideal ILPs I have taken up for my children? I have lost trust in my agent after he started to criticize you and sing praises about the new management.
The primary objective of the two plans is savings for their education. Both are invested in equal proportions of Growth and Singapore Equity funds.
Should I continue with them, terminate them and take up ID7, or terminate them and invest in STI ETF?
Ideal (ID2) taken in 2002
Ideal (ID2) taken in 2007
Thank you sincerely for your advice, Mr Tan.
J
REPLY
You should continue with these two policies. You have already incurred the front end charge, so there is no need to switch now. Anyway, the charge under the ID2 is much lower than similar policies offered by other insurers.
Low Wage in Singapore
The average monthly earnings in Singapore in the first quarter of 2008 is $4,316. In the USA and a few other countries, the minimum wage is about one-third of the average wage. If this concept is applied in Singapore, our minimum wage should be $1,430 a month.
In Korea, the minimum wage is 27% of the national average. In France, it is 66%. In Taiwan, it is 34%. In Singapore, our low income workers earn about $750 a month. This represents 17% of the national average, and is much lower than Korea.
My friend told me that three jounalist from Taiwan visited Singapore to see how the poor live. He brought them to visit some rental flats. The flats were dark as the occupants did not want to spend money on electricity and do not watch television. The journalists said, "The poor in Singapore are poorer than the poor in Taiwan. In Taiwan, the poor can afford to watch television".
In Korea, the minimum wage is 27% of the national average. In France, it is 66%. In Taiwan, it is 34%. In Singapore, our low income workers earn about $750 a month. This represents 17% of the national average, and is much lower than Korea.
My friend told me that three jounalist from Taiwan visited Singapore to see how the poor live. He brought them to visit some rental flats. The flats were dark as the occupants did not want to spend money on electricity and do not watch television. The journalists said, "The poor in Singapore are poorer than the poor in Taiwan. In Taiwan, the poor can afford to watch television".
Education Loan
Dear Mr. Tan
I would like to apply for education loan from NTUC Thrift. Currently, I have some credit cards debts and my scoring with the banks are not good. My credit bureau report are effected by this.
I would like to ask whether do I stand any chance of applying this loan?
P
REPLY
I am not familiar with the credit assessment of NTUC Thrift. You can give it a try. But, as you suspect, it is likely to be difficult.
I sugggest that you pay off the credit card loan first and save a lot of interest charges, before you apply for this education loan.
I would like to apply for education loan from NTUC Thrift. Currently, I have some credit cards debts and my scoring with the banks are not good. My credit bureau report are effected by this.
I would like to ask whether do I stand any chance of applying this loan?
P
REPLY
I am not familiar with the credit assessment of NTUC Thrift. You can give it a try. But, as you suspect, it is likely to be difficult.
I sugggest that you pay off the credit card loan first and save a lot of interest charges, before you apply for this education loan.
Buy term and invest in a low cost fund
Hi Mr. Tan,
I am thinking of purchasing a whole life plan, but my insurance advisor has advised me to go with an endownment plan. Can you advise me?
L
REPLY
My advice is contained in these FAQs:
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/savings.html
I prefer to avoid whole life or endowment plans, as they give a poor return to policyholders.
I am thinking of purchasing a whole life plan, but my insurance advisor has advised me to go with an endownment plan. Can you advise me?
L
REPLY
My advice is contained in these FAQs:
http://www.tankinlian.com/faq/choice.html
http://www.tankinlian.com/faq/savings.html
I prefer to avoid whole life or endowment plans, as they give a poor return to policyholders.
People will buy insurance
Hi Mr. Tan,
I stumbled on your blog a few months back while searching for financial blogs and have since been a regular reader. It has been very interesting to know about your views since I am also involved in the industry.
I agree with your view that 'People will buy insurance', especially so as the public gets more educated and financial savvy. Technology provides a easily accessible platform for consumers to compare insurance products. I am looking forward to more insurance insights on your blog.
I stumbled on your blog a few months back while searching for financial blogs and have since been a regular reader. It has been very interesting to know about your views since I am also involved in the industry.
I agree with your view that 'People will buy insurance', especially so as the public gets more educated and financial savvy. Technology provides a easily accessible platform for consumers to compare insurance products. I am looking forward to more insurance insights on your blog.
Minimum wage in other countries
Taiwan's minimum wage since October 1997 was US$487 per month. This works out to a daily minimum wage of US$16 or around US$2 per hour.
In 2005, it was proposed that the domestic minimum wage could be raised to 40 percent of the average wage of US$1,357 per month. This would give a revised minimum wage of US$543 and would benefit up to 2 million domestic workers as well as 160,000 foreign workers in the manufacturing sector.
The ratio of minumum wage to average wage was:
France - 66.4 percent
Canada - 39.4 percent
Taiwan - 36.3 percent
United States 32 percent.
South Korea - 27 percent
In 2005, it was proposed that the domestic minimum wage could be raised to 40 percent of the average wage of US$1,357 per month. This would give a revised minimum wage of US$543 and would benefit up to 2 million domestic workers as well as 160,000 foreign workers in the manufacturing sector.
The ratio of minumum wage to average wage was:
France - 66.4 percent
Canada - 39.4 percent
Taiwan - 36.3 percent
United States 32 percent.
South Korea - 27 percent
FAQ: Traded Endowment Policies
1. What is a traded endowment policy?
A traded endowment policy is a policy that is sold by the policyholder to an investor. The investor pays a sum that is higher than the surrender value offered by the insurance company.
The investor will continue to pay the premium under the policy and will collect the death or maturity benefit on the policy.
The investor expects to get a good rate of return on the amount paid to buy over the policy, and the future permiums paid.
2. Is it advisable to invest in a fund of traded endowment policies, where the fund manager undertakes to manage these policies?
It depends on the following:
> Is the fund manager reliable and trustworthy?
> What are the charges taken away by the fund manager?
> What is the underlying gross and net yield of the fund, after deducting the charges?
> What is the underlying risk of the traded endowment policies?
3. What is the underlying risk of the traaded endowment policies?
These traded endowment policies carry the following risks:
> The future bonuses paid under the policies may be reduced.
> The insurance company may become insolvent
> The fund manager may overlook to keep the policy in force, leading to its termination
These risks have to be factored in considering the net yield on the fund.
4. What is a satisfactory rate of return, considering the risk?
If the investment is in the UK, you should compared the expected yield on the traded endowment fund with the yield from UK Government Bonds.
You should expect to get at least 2% to 3% higher than the bond yield of similar duration, to compensate for the higher risk.
If the fund has a duration of 5 years and the UK bond yield for 5 years is 5%, you should expect to get a net yield (after deducting the fund manager’s fees) of 7% or 8% from the traded endowment fund, to make it worth the risk.
5. Do you invest in traded endowment policies?
I avoid investing in this type of policy as I am not familiar with the risk, the yield and the integrity of the fund manager.
I prefer to invest in Government bonds or equities, as these products are traded on the exchange and there is liquidity. flexibility and price transparency.
Tan Kin Lian
A traded endowment policy is a policy that is sold by the policyholder to an investor. The investor pays a sum that is higher than the surrender value offered by the insurance company.
The investor will continue to pay the premium under the policy and will collect the death or maturity benefit on the policy.
The investor expects to get a good rate of return on the amount paid to buy over the policy, and the future permiums paid.
2. Is it advisable to invest in a fund of traded endowment policies, where the fund manager undertakes to manage these policies?
It depends on the following:
> Is the fund manager reliable and trustworthy?
> What are the charges taken away by the fund manager?
> What is the underlying gross and net yield of the fund, after deducting the charges?
> What is the underlying risk of the traded endowment policies?
3. What is the underlying risk of the traaded endowment policies?
These traded endowment policies carry the following risks:
> The future bonuses paid under the policies may be reduced.
> The insurance company may become insolvent
> The fund manager may overlook to keep the policy in force, leading to its termination
These risks have to be factored in considering the net yield on the fund.
4. What is a satisfactory rate of return, considering the risk?
If the investment is in the UK, you should compared the expected yield on the traded endowment fund with the yield from UK Government Bonds.
You should expect to get at least 2% to 3% higher than the bond yield of similar duration, to compensate for the higher risk.
If the fund has a duration of 5 years and the UK bond yield for 5 years is 5%, you should expect to get a net yield (after deducting the fund manager’s fees) of 7% or 8% from the traded endowment fund, to make it worth the risk.
5. Do you invest in traded endowment policies?
I avoid investing in this type of policy as I am not familiar with the risk, the yield and the integrity of the fund manager.
I prefer to invest in Government bonds or equities, as these products are traded on the exchange and there is liquidity. flexibility and price transparency.
Tan Kin Lian
Asset Share Methodology
LIFE INSURANCE ASSOCIATION OF MALAYSIA
http://www.liam.org.my/cms/layout/Printer.asp?ProductID=237&catid=13
By 1 July 2005, all new participating life insurance policies are required to use the asset share methodology in computing the surplus to policyholders.
What is asset share methodology? Following are the FAQs on asset share:
1) What are the new guidelines on asset share methodology all about?
The asset share methodology is a method currently used in UK, Australia and South Africa to calculate the distribution of surplus to policyholders for participating life insurance plans (par plans).
This methodology allows for a share of the accumulated premiums plus investment earnings to be returned to the policyholder after allowing for deductions for cost of providing insurance coverage, acquisitions costs and other expenses incurred by the insurer.
2) What type of life insurance products are affected by this new guideline?
The new guidelines are only applicable to par plans. A par plan is one in which the policyholder will receive extra surplus in the form of non-guaranteed bonus or dividend, in addition to the contractual sum assured, which is guaranteed to be paid on death or maturity.
The new guidelines are, therefore, not applicable for insurance policies which only provide protection coverage (e.g. non-participating life insurance, medical, general insurance products) endowment products with only guaranteed benefits and investment-linked products.
3) How do the new guidelines affect the payment of surrender values?
Under these new guidelines, policyholders may receive surrender benefit in the first year. In the past, policyholders who terminate their policies before three years may not receive any cash value. This is because, traditionally, life insurance products being primarily longer term protection and savings purposes, are structured in such a way as to reward more to policyholders who continue to pay their premiums and keep their policies in force.
4) Do I have to pay more premiums on participating life insurance policies under the new guidelines?
The use of the asset share methodology may require some life insurers to revise the premium rates of their existing par plans. This is because life insurers will now have to pay higher surrender values in the earlier years compared to the old products. This additional cost will result in lower surrender and claim values in the later durations compared to the past. If a life insurance company intends to maintain the surrender values and claim values at the longer duration, it may have to increase the level of premiums to pay for the higher early cash surrender values.
5) Are the policy benefits similar for life insurance plans that are designed under the new guidelines?
Life insurer may maintain the same level of projected bonus/dividend for policies designed under the asset share guidelines compared to the old products. This will usually result in an increase in premiums. Since life insurance companies are required to pay out surrender values in the earlier policy years under the new guidelines, they have to maintain a higher percentage of their assets in shorter term and more liquid assets e.g. fixed deposits. The investment returns on these shorter term assets, which are low risk assets, are usually lower than other longer term investment instruments. Therefore the bonuses/dividends projected over the longer term may be revised to provide a realistic projection to policyholders.
6) Will I receive less bonus/dividends under the new guidelines?
Bonus and dividends are not guaranteed in advance. They are distributed from surplus generated from investments and operating profits from the participating fund. The actual amount paid out will depend on the investment performance of the life insurance company, operating experience and overall economic environment. You may receive more or less than the projected bonuses/dividends illustrated to you when you purchase your insurance policy. The distribution of surplus between policyholders and shareholders are governed by the Insurance Act 1996, in the ratio up to 90:10. This means that policyholders receive 90% of the surplus distributed from the life fund.
7) Will the new guidelines discourage policy holders to maintain their policies over a long duration?
Although the new guidelines may bring about higher surrender values in the early years, policyholders should be fully informed of the disadvantages of terminating their life insurance policies early. This is because the surrender value that they receive will be much lower compared to the premiums which they have paid, even under the asset share basis.
Consumers should always note that the purchase of a life insurance policy is a long term commitment and policyholders who hold their policies till maturity will continue to enjoy better values than those who surrender early. Policyholders have to bear in mind that when their life insurance policies are surrendered, they will lose their life insurance protection immediately.
*Issued by LIAM - 4 July 2005
http://www.liam.org.my/cms/layout/Printer.asp?ProductID=237&catid=13
By 1 July 2005, all new participating life insurance policies are required to use the asset share methodology in computing the surplus to policyholders.
What is asset share methodology? Following are the FAQs on asset share:
1) What are the new guidelines on asset share methodology all about?
The asset share methodology is a method currently used in UK, Australia and South Africa to calculate the distribution of surplus to policyholders for participating life insurance plans (par plans).
This methodology allows for a share of the accumulated premiums plus investment earnings to be returned to the policyholder after allowing for deductions for cost of providing insurance coverage, acquisitions costs and other expenses incurred by the insurer.
2) What type of life insurance products are affected by this new guideline?
The new guidelines are only applicable to par plans. A par plan is one in which the policyholder will receive extra surplus in the form of non-guaranteed bonus or dividend, in addition to the contractual sum assured, which is guaranteed to be paid on death or maturity.
The new guidelines are, therefore, not applicable for insurance policies which only provide protection coverage (e.g. non-participating life insurance, medical, general insurance products) endowment products with only guaranteed benefits and investment-linked products.
3) How do the new guidelines affect the payment of surrender values?
Under these new guidelines, policyholders may receive surrender benefit in the first year. In the past, policyholders who terminate their policies before three years may not receive any cash value. This is because, traditionally, life insurance products being primarily longer term protection and savings purposes, are structured in such a way as to reward more to policyholders who continue to pay their premiums and keep their policies in force.
4) Do I have to pay more premiums on participating life insurance policies under the new guidelines?
The use of the asset share methodology may require some life insurers to revise the premium rates of their existing par plans. This is because life insurers will now have to pay higher surrender values in the earlier years compared to the old products. This additional cost will result in lower surrender and claim values in the later durations compared to the past. If a life insurance company intends to maintain the surrender values and claim values at the longer duration, it may have to increase the level of premiums to pay for the higher early cash surrender values.
5) Are the policy benefits similar for life insurance plans that are designed under the new guidelines?
Life insurer may maintain the same level of projected bonus/dividend for policies designed under the asset share guidelines compared to the old products. This will usually result in an increase in premiums. Since life insurance companies are required to pay out surrender values in the earlier policy years under the new guidelines, they have to maintain a higher percentage of their assets in shorter term and more liquid assets e.g. fixed deposits. The investment returns on these shorter term assets, which are low risk assets, are usually lower than other longer term investment instruments. Therefore the bonuses/dividends projected over the longer term may be revised to provide a realistic projection to policyholders.
6) Will I receive less bonus/dividends under the new guidelines?
Bonus and dividends are not guaranteed in advance. They are distributed from surplus generated from investments and operating profits from the participating fund. The actual amount paid out will depend on the investment performance of the life insurance company, operating experience and overall economic environment. You may receive more or less than the projected bonuses/dividends illustrated to you when you purchase your insurance policy. The distribution of surplus between policyholders and shareholders are governed by the Insurance Act 1996, in the ratio up to 90:10. This means that policyholders receive 90% of the surplus distributed from the life fund.
7) Will the new guidelines discourage policy holders to maintain their policies over a long duration?
Although the new guidelines may bring about higher surrender values in the early years, policyholders should be fully informed of the disadvantages of terminating their life insurance policies early. This is because the surrender value that they receive will be much lower compared to the premiums which they have paid, even under the asset share basis.
Consumers should always note that the purchase of a life insurance policy is a long term commitment and policyholders who hold their policies till maturity will continue to enjoy better values than those who surrender early. Policyholders have to bear in mind that when their life insurance policies are surrendered, they will lose their life insurance protection immediately.
*Issued by LIAM - 4 July 2005
Universal Life
Dear Mr. Tan,
What is your opinion on the use of "universal lifeinsurance" as a retirement tool. It is highly recommended if the objectives of retirement is to be able to maintain a comfortable lifestyle during retirement and to also preserve wealth to pass it on. Let me have your comments. Thanks
REPLY
Universal life in a life insurance product. It is likely to have high charges taken away from your savings to pay commisison to the agent. You should ask the agent about the charges.
You can read about the charges on investment-linked plan from this FAQ
http://www.tankinlian.com/faq/ilp.html A universal life policy is likely to have similar charges.
What is your opinion on the use of "universal lifeinsurance" as a retirement tool. It is highly recommended if the objectives of retirement is to be able to maintain a comfortable lifestyle during retirement and to also preserve wealth to pass it on. Let me have your comments. Thanks
REPLY
Universal life in a life insurance product. It is likely to have high charges taken away from your savings to pay commisison to the agent. You should ask the agent about the charges.
You can read about the charges on investment-linked plan from this FAQ
http://www.tankinlian.com/faq/ilp.html A universal life policy is likely to have similar charges.
Defamation
Source: Wikipedia.
In law, defamation (also called slander, and libel) is the communication of a statement that makes a false claim, expressively stated or implied to be factual, that may give an individual, business, product, group, government or nation a negative image.
Slander refers to a malicious, false, and defamatory statement or report, while libel refers to any other form of communication such as written words or images. Most jurisdictions allow legal actions, civil and/or criminal, to deter various kinds of defamation and retaliate against groundless criticism.
Related to defamation is public disclosure of private facts which arises where one person reveals information which is not of public concern, and the release of which would offend a reasonable person. Unlike libel or slander, truth is not a defense for invasion of privacy.
In law, defamation (also called slander, and libel) is the communication of a statement that makes a false claim, expressively stated or implied to be factual, that may give an individual, business, product, group, government or nation a negative image.
Slander refers to a malicious, false, and defamatory statement or report, while libel refers to any other form of communication such as written words or images. Most jurisdictions allow legal actions, civil and/or criminal, to deter various kinds of defamation and retaliate against groundless criticism.
Related to defamation is public disclosure of private facts which arises where one person reveals information which is not of public concern, and the release of which would offend a reasonable person. Unlike libel or slander, truth is not a defense for invasion of privacy.
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